Impact of Managerial Talent Retention and Layoff Training

Corporate managerial efficacy is a key driver of success within firms across all industries and markets. Parsing the skillsets that separate high performing managerial teams from underperformers yields insight into two underserved and underestimated value providers within this arena and reveals that significant financial impact stems directly from training managers on strategies for talent retention and layoff protocol. (WillisTowerWatson, 2016). Companies in general undervalue the financial effect of reduced turnover and have insufficient training programs to handle situations where employees need to be laid off, which leads to higher than necessary turnover in stable growth periods and further exacerbates the negative financial impact to a firm in the wake of a rif due to downturns or other adverse conditions necessitating a reduction of their labor force.

Firms experience turnover as a matter of course. “The Bureau of Labor Statistics reports that the national annual voluntary quit rate in the United States typically approaches 25%. The direct costs, work disruptions, and losses of organizational memory and seasoned mentors associated with turnover are significant issues.” (Allen, 2017, p. 48). Despite this obvious and reoccurring cost to businesses, many firms lack an understanding of the driving forces behind turnover and fail to identify the addressable component of this issue. There exists both avoidable and unavoidable turnover (Allen, 2017, p. 51), and therefore a reduction in avoidable turnover translates directly to cost savings to the firm. Valuation of this savings is challenging, and perhaps a reason for the lack of focus many firms display when facing this problem. However, the impact to the bottom line is very real and, “It’s possible to estimate the financial cost of employees at risk of turnover. For example, at the senior manager/executive level, the cost of turnover equals 74% of annual compensation. Given that 31% of senior level managers are at risk of turnover, the total value at risk due to senior managers’ turnover is 23% of the total annual compensation. This value varies by job level and by organization — companies farther along on the modernization journey exhibit characteristics that can lower these costs — yet in every case represents a significant level of productivity and financial value at risk.” (WillisTowersWatson, 2016, p. 7). Put in broader context, “PriceWaterhouse Coopers (2006) estimates that turnover-related costs represent more than 12% of pretax income for the average company, and nearly 40% for companies at the 75th percentile for turnover rate.” (Allen, 2017, p. 51).  With figures this high, it should be self-evident that if any significant return on investment can be realized on the expense of training managers to reduce avoidable turnover among their employees, and among themselves, it is absolutely worth it for all firms to enact this training to address this issue. In concept this is simple, but employees are diverse, complex humans and each firm equally unique. Understanding what drives employee retention is an important first step in developing a transferable training regimen.

Because of employee diversity, a perfect, single fit training solution is unrealistic, however, we can turn to surveys to understand broader trends among employees and delve deeper into the employee value proposition for the purpose of helping firms make informed process and content decisions as they develop their training programs. “When it comes to attracting employees, companies understand the importance of competitive base pay, career advancement opportunities and challenging work. But they overestimate the importance of their mission and values, and don’t place enough emphasis on job security.” (WillisTowersWatson, 2016, p. 4). This conclusion was formed from over 31,000 employee responses to a global workforce survey WillisTowersWatson conducted in 2016. How then might firms look at ways to increase a perception of job security without implausible or unenforceable promises to keep someone employed?

Employees are innately concerned with their position in the workplace as a result of a rapidly evolving and increasingly global workforce as well as shifting value placed on hard skillsets among firms. It is a biological limitation of human education that as we age and the pace of technological advancement accelerates, it becomes increasingly difficult to maintain a relevant skillset for one’s employer, simply on the basis of time required to develop and master new skills. These powerful, extraneous concerns filter into the decision-making process employees go through as they evaluate the security of their jobs and plan for their futures. According to WillisTowersWatson (2016), “To compete for employees who value job security, it’s essential to understand what these employees are actually seeking. Only about one in four (26%) employees who express a desire for job security are worried about losing their job. For other employees, job security is a proxy for financial concerns, their own ability to handle changes or an expression of employees’ support for the current direction of their organization.” Firms, therefore, must address not only their own cultural, managerial and leadership environment but need also to find a way to alleviate the apprehension felt by their workforce on these issues. Few events are more disruptive to this objective than mass layoffs across entire divisions of a firm.

If a firm mishandles a layoff event, the financial and reputational repercussions are swift, vast and long lasting. Training to reduce turnover should go hand in hand with training to handle a layoff event. Job satisfaction among remaining employees takes a big hit in the wake of a layoff event, so any training and contingency planning should focus not just on the selection process of who will be let go, but also on the effect that the layoff will have on remaining personnel. “Respectful treatment of all employees at all levels was rated as very important by 67% of employees in 2015, making it the top contributor to overall employee job satisfaction for the second year in a row” (SHRM, 2015, p.6). This study gives good insight into the potential impact of a mishandled layoff event. If remaining employees perceive that their former coworkers were disposed of in a disrespectful fashion, feelings of resentment and malcontent can quickly fester among those who remain, tanking productivity, and, in most cases, lead to higher turnover rates as those who were not terminated choose to quit and seek employment elsewhere instead of continuing on. This second wave of lost employees is most likely to be the high performing all-stars that the company purposefully sought to keep. This loss of top talent can be attributed to external demand for top performers, and the best employees know they are employable elsewhere even in bad times.  “There is evidence that high unemployment rates have little impact on the turnover of high-performing employees or those with in-demand skill sets (Trevor, 2001). Aggressive recruitment of valuable employees still occurs, and the retention of high performers remains critical (Smith, 2009). In fact, large-scale layoffs in difficult times often lead to higher turnover among survivors (Trevor & Nyberg, 2008).” (Allen, 2017, p. 48). This finding indicates that the goals of turnover reduction and layoff preparation training are symbiotic in nature. Training, therefore, can and should be optimized to fit a broad range of scenarios.

In some cases, layoffs are a byproduct of the market at large. Recessions can strike down even the most successful firms, and there is no guarantee that competitive advantage will hold up in the face of eager and skillful attempts by outside forces to overtake market or technology leaders. Other times, layoffs occur as a managerial decision, a natural development of a companywide restructuring effort or shift in strategy. Regardless of the cause, a firm that is prepared to handle layoffs with a well thought out succession plan and possesses managers who have been prepared in advance with a playbook for navigating a layoff scenario may avoid a portion of the inevitable productivity and financial loss associated with the mass termination of employees. “All organizations need an ‘effective, efficient, and standardized process’ for handling layoffs ‘and everyone — managers and potential managers — should be trained in how to do it,’ according to Stybel. ‘Training makes it a less frightening task,’ he adds. Trouble is, says Molinsky, most organizations do not ‘necessarily see the need to offer extensive training because it costs time and money and layoffs are a relatively infrequent occurrence.’ This, he says, is an oversight. Companies that do layoffs poorly ‘suffer tremendous consequences,’ including wrongful termination lawsuits and dents to their reputation.” (Knight, 2015). Consequences of layoffs extend beyond turnover to include external costs as suggested by Knight (2015).  If firms wish to grow and remain stable through both good and bad times, then training for these scenarios is a means by which they can increase the likelihood of succeeding in that goal.

Managerial training to reduce avoidable turnover and to weather layoff events with compassion, grace and well executed processes is not a luxury that firms can do without, it is a valuable, essential step towards maximizing profitability, delivering on their obligations to their employees and growing their reputation as an organization capable of providing an experience that attracts talent and customers. The modern workplace is more volatile and dynamic than in years past, and without organized and practiced guidance and training, the missteps that can occur when humans in management interact with humans in subordinate positions can have long lasting and far reaching consequences. Firms that learn this lesson quickly and act to address the need for proper HR training will gain competitive advantage over those that do not; by the financial measurements discussed previously, that could prove a very valuable advantage indeed.

References

Allen, D. G., & Bryant, P. C., & Vardaman, J. M. (2017). Retaining Talent: Replacing Misconceptions with Evidence-Based Strategies. Academy of Management Perspectives, 24(2).

WillisTowersWatson (2016). Global Findings Report: Under pressure to remain relevant, employers look to modernize the employee value proposition, United States of America,

WillisTowersWatson, Inc., Retrieved from: https://www.willistowerswatson.com/en/insights/2016/09/employers-look-to-modernize-the-employee-value-proposition.

Knight, R. (2015). How to Tell Someone They’re Being Laid Off, Harvard Business Review, Retrieved from: https://hbr.org/2015/06/how-to-tell-someone-theyre-being-laid-off

SHRM, (2015). Employee Job Satisfaction and Engagement: Revitalizing a Changing Workforce, Society for Human Resource Management (SHRM) Retrieved from: https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/2016-Employee-Job-Satisfaction-and-Engagement-Report.pdf