FOCUS AREA BUSINESS

A Strategic Approach to EmployeeRetention

BY JOHN GERING AND JOHN CONNER, PHD, MA

/

n September 2000, Paul Rutledge,president, MidAmerica Division ofHCA, Nashville, Tennessee, initiat-

ed action to become the employer ofchoice. Previous tactical programs toretain employees had proven to beineffective. 'Ilirnover rates averaged30 percent, and the average tenure ofemployees who left was about twoyears. Across the company, 20 per-cent of departing employees hadtenure of 90 days, and 70 percent ofdeparting employees had tenure of

ISSUES AND ACTIONS

A sound retention strategy shouldincorporate a business plan, avalue FM'oposition, progress mea-sures, and management influences.

* The business plan will indicatewhether a healthcare organiza-tion will achieve a return oninvestment for its efforl.

* A value proposition will show-case an organization'sstrengths and differentiate itfrom its competitors.

* Measuring progress towardmeeting retention goals at reg-ular intervals will help keep anorganization on track.

* The best managers requireaccountability, rewardingemployees for their successesand taking corrective action asnecessary.

* Retention rate targets must beat a level that will achieve acompetitive advantage in theserved market. ws^*;

six months or less. The cost toreplace staff continued to rise, andthe number of qualified replacementcandidates continued to decline.

MidAmerica implemented a com-prehensive, mission-oriented employ-ee-retention strategy that included abusiness plan, a value proposition,progress measures, and managementinfluences designed to secure sustain-able employee-retention gains.

MidAmerica established a long-term target of meeting the nationalhealthcare turnover rate, which was19.2 percent at the time comparedwith the division's turnover rate of30 percent, A year after implementingthe retention strategy, MidAmericaimproved its employee-retention rateby 42-3 i ercent and employee-reten-tion cost by 26.7 percent.

The Importance of Retention

Retaining good workers is critical tothe U.S. healthcare industry. litera-ture and best practices indicate that ifemployers treat their empioyees asvalued contributors, the employeeswill Slay To this end, companies train,their managers, offer competitivecompensation plans, and increasebenefits to secure their employees"loyalty Despite these efforts, manyhealthcare organizations experience ashortage of employees and highturnover rates.

Healthcare organizations expendconsiderable effort in marketing theirfacilities to patients and physicians.The same type of effort should bedirected at attracting and retainingempioyees. Tb attract the best talent.

an organization needs to be viewed asthe "best place to work." A highemployee-retention rate implies thatthe organization is the employer ofchoice.

A retention strategy should speci-fy a quantified prtjblem and measur-able objectives. Good managers use aprocess approach to solving prob-lems. To achieve worthwhile results,I'ecruiting and retaining good employ-ees should be treated the same way. Aretention strategy should include abusiness plan, a value proposition,progress measures, and managementinfluences.

Business Plan

The first step in developing a reten-tion strategy' is to create a businessplan. The purpose of the plan is tohelp managers understand the costand consequences of employeeturnover, indicate whether a retentionproblem exists, and, if so, determinewhether the cost of resolving theproblem outweighs the turnover cost.

Calculating the cost of turnover isnecessary, although difficult to pin-point, because actual costs are notshown in financial reports. Many con-sulting firms have calculated the costof turnover, but to gain agreementfrom all the parties involved,MidAmerica used a conservative for-mula: 50 percent of the annual salaryand benefits for exempt employees or35 percent for nonexempt employ-ees. HCA's corporate leadership laterestablished a cost of 100 percent ofannual salary and benefits as the stan-dard business-plan guide.

HEALTHCARE FINANCIAL MANAGEMENT NOVEMBER 2002

Employee Retention

BUSINESS

Many factors contribute to thiscost (eg, contract labor, PRN, andovertime). These factors inevitablyoccur while a position is unfilled.H*Works determined that 79 |)ercentof the cost of nursing turnover is pro-ductivity-related. ' Ejnployees who areplanning to leave become less pro-ductive, and new employees requiretime to reach optimum pi-oductivity.The productivity of other employeesmay decline as they spend time train-ing and sei-ving as a resource for thenew team n:iember. Part-time replace-ment personnel typically are not asproductive as full-time, tenuredemployees. In some cases, quality ofwork could be affected during thetransition.

Retention costs also includesearch-firm fees, training, severance,sign-on bonuses, recruitment andintei view time, and legal costs.

The financial impact of turnoveron revenues should be evaluated. Forexample, if physicians routinely seethe same staff members and haveconfidence in their ability, physicianslikely will continue to send patientsto the institution. High turnover, onthe other hand, may lead physiciansto direct patients to competing insti-tutions.

The financial impact cjf turnoveron markel share also should be calcu-lated. For example, if a healthcareorganization has annual revenues of#300 million and a 30 percent marketshare, each market-share point isworth SIO million. If employeeturnover could cause physicians tosend patients to competing hospitals,the business plan must reflect thefinancial consequences.

After turnover costs have beendetermined, tbe financial benefits ofreducing these costs become appar-ent. Furthermore, reducing high

Niiisc Rt-'criiilJiwnl and Relenlton Fngagemeiit., n,t;.: H'Works, 20111).

employee turnover can improvepatient care. Long-term employeesgain ct)nsiderable experience inpatient care. The longer employeesremain with an organization, thegreater the potential benefit topatients.

Because employees

want their personal

and practical needs to

be met, employers

need to offer tbe

compensation,

benefits, and

scheduling that

employees desire.

Next, the cost of implementinga retention strateg\- must be deter-mined. These costs include itemssuch as compensation, managementdevelopment, and marketingcojnmunications.

Compensation. Competitivecompensation packages are impera-tive. Employers must know how thecompensation they offer for criticalpositions compares with compensa-tion for similar positions at otherorganizations in the sei-ved market. Ita healthcare organization is perceivedt(] be a great place to work in termst)f such factors as training, resources,technology, work environment,staffing, and scheduling, the organiza-tion may be able to pay less than itscompetitors do (within an acceptablerange).

If competitors are viewed morefavorably as an employer, on the

12 Questions to MeasureEmployee Satisfaction

1. Do I know what is expected ofme at work?

2. Do I have the materials andequipment I need to do my workright?

3. At work, do I have the oppor-tunity to do what I do best everyday?

4. In the last seven days, have Ireceived recognition or praise fordoing good work?

5. Does my supervisor, orsomeone at work, seem to careabout me as a person?

6. Is there someone at work whoencourages my development?

7. At work, do my opinions seemto count?

8. Does the mission/purpose ofmy company make me feel my jobis important?

9. Are my coworkers committedto doing quality work?

10. Do I have a best friend atwork?

11. In the last six months, hassomeone at work talked to meabout my progress?

12. This last year, have I hadopportunities at work to learn andgrow?

Source: Buckingham, Marcus, and Coffman,Curt, First, Break All ihe Rules: What theWorW's Greatest Managers Do Differently.New York, New York: Simon S< Schuster,1999, p. 28.

HEALTHCARE FINANCIAL MANAGEMENT NOVEMBER 2002

Employee Retention

other hand, the organization wiUneed to use compensation as itsleverage. However, any retentionstrategy based solely on compensa-tion will not succeed in the long run.A successful .strategy combines mar-ket-rate compensation and a workenvironment that is competitivelydistinctive.

Managevtent development.Exit interviews have shown that manyemployees harbor negative feelingsabout their managers' abilities. Con-seciuently, management developmentis essential to an effective retentionstrategy. Management training notonly should focus on skills such ascoaching, delegating, and communi-cating, but also should prepare man-agers to meet and be accountable forspecified standards of performance.Training costs can be determined bycapturing the c(jst of curriculum andmaterials, printing, instructors, facili-ties, time away from job (and possibleback-up requirements), and travel.

Marketing communications.Organizations must make theiremployees feel valued to earn theirloyalty to the organization. One effec-tive too! for this purpose is marketingcommunications, which can be used

to inform employees cjf the organiza-tion's vision, direction, and guidingprinciples. Effective organizations usemarketing communications to tell

Employees want to

feel that their

contributions are

important and want

employers to

demonstrate their

commitment to stated

corporate values.

employees whether the organization ismeeting its goals and, if not, whatneeds to be done to get back on track.Marketing communications costsinvolve such factors as creation time;execution elements, such as web site,print, direct mail, posters, and focusgroups; and recognition efforts.

EXHIBIT 1: RELATIONSHIP BERWEEN JOB SATISFACTION AND AnRITION

EmployeeSatisfaction Factors

Use of my skills and abilitiesAbility of top managementCompany has a clear sense

of directionAdvancement opportunitiesOpportunity to leam new skillsCoaching and counseling from

one's own supervisorPayTraining

Employees Planning to

Stay for More than

Two Years (%)

8374

575066

545154

Employees Planning

to Leave in Less than

Two Years (%)

4941

272238

262536

Soorre: The Hay Group, The RefenEran CWemmo: Wliy fVoductive Worlisr^ leave—Seven Suffiesuons (or Ksejiing Them. PhiladeifihisPennsylvania, The Hay Group. 2001 (www.haygroup com/online hbraryflBS.html).

Once turnover and remedy costshave been validated, return on invest-ment can be computed for varyinglevels of turnover. Conservative short-and long-term goals can be estab-lished to measure the effectiveness ofthe strategy.

Value Proposition

A value proposition puts forwardthe organization's strengths. It identi-fies tbe needs that the organi;;ationcan satisfy and how the organizationdiffers from its competition. Tohelp pinpoint its unique competitivecharacteristics, the organizationcan conduct employee focus groupsand/or review exit-interview datato determine employees' initialperceived attraction to the organiza-tion and whether this perceptionproved true.

Exhibit 1 shows results of onestudy that demonstrates the relation-ship between specific satisfaction fac-tors and retention. If needs such asthose shown in Exhibit 1 are met,employees will want to stay with theircurrent employer; ifthe needs arenot met, employees will look else-where.

To reduce turnover, managersmust show a genuine interest in theiremployees' development and suc-cess. Employees want to feel thattheir contributions are important andwant employers to demonstrate theircommitment to stated corporate val-ues. In addition to their technicalskills, employees want to be appreci-ated for their work ethic, workingwell with customers and coworkers,and performing high-quality work.

Development programs prepareemployees to perform their jobs satis-factorily and be accountable for theirjob performance, Employees need tobe rewarded for their achievementsand provided an opportunity foradvancement.

HEALTHCARE FINANCIAL MANAGEMENT NOVEMBER 2002

Employee Retention

The Hay Group reported thatmore than half of the employeessui'veyed said they believe theircompanies routinely tolerate poorperformance. '

The best employees would I'atherassume more responsibility thanwork with those who care little aboutthe company, customers, and others.The best employees want to win, andwinners want to work with winners.

HG\ determined through exitinterviews that people joined thecompany because they sought goodcareer opportunities. Ironically, oneofthe top reasons they left was for"better career opportunity" alongwith manager/supervisor issues,

An effective retention strategyrests on a combination of factors.Employees want their personal andpractical needs to be met: personalneeds such as compensation, benefits,and scheduling; practical needs suchas development, resources, tools, andtechnology. They also want to feel val-ued by the organization. Therefore,these imperatives become the founda-tion of the value proposition, as evi-denced by the organization's vision,mission, values, and strategies.

Progress Measures andManagement Influences

Progress toward meeting retentiongoals should be measured regularlyOne tool for such measurement isthe Gallup Organization's 12 ques-tions to measure employee satisfac-tion (see sidebar, page 41). After sur-veying hundreds of thousands ofemployees across numerous indus-tries, Gallup has been able to accu-rately correlate responses to thequestions anti the predictability of

employee retention, productivity, andprofitability^^ Organizations and man-agers that receive high scores on

b. The Hay Group, The Reieniioii Dilemma: WlyyI'rociuctive Workers Leave—Seven Suf^estionsforKeeping Them, Philadelphia, Pennsylrania, The HayGniup, 2001 (www.haygroup.com/onlinejibrary/

c. Bill, kiiigh^m, Mait'us. ;md Coffman, Curt, Firsi.Hreak Ail Ihe Rules: What Ihe Worlil's GreatesIMciiici^i'rx Do Differc'iilly, New Vljrk, New York:Simon & Sduisier, 1999. p. 28.

these questions predictably performvery well, while low scores confirmp(K5r performers.

Other indicators of employeeretention also should be tracked andreviewed. Indicators of the long-termsuccess of a healthcare organization'sretention strategy include:

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Employee Retention

BUSINESS

Low absenteei.sm and tardiness;Employee investment in the com-pany retirement plan;Employee volunteerism for commu-nity service or special tio-pay pro-jects supportec! by the employer;

Recruitment of friends to work forthe employer;Management's ability to forecastturnover; andManagement's commitment to theretention strategy.

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In addition, organizationscan increase retention by usingeffective performance manage-ment. Performance managementshould clearly c<.)mmunicateexpectations and motivate anddevelop employees.

Conclusion

Taking a strategic approach toemployee retention, the bestmanagers:

• Plan and expect an acceptablereturn on investment;

• Provide compelling reasons foremployees to be a part of theorganii;ation;

• Satisfy the personal and practicalneeds of employees;

• Demonstrate the value of eachemployee;

• Execute management processesthat provide daily engagementanti advancement for employees;

• Provide focused reward andrecognition; and

• Act on unacceptable performance,tleaiing equally with technicaland behavioral deficiencies.

Organizations may achieveshort-term success v 'ith quick fixes,but only a strategic approach willachieve long-term, sustainable,marketable success. The goal is aculture change to sustain and growthe organization's business. •

John Gering is a partner, Conner & Gering

Associates, Brentwood, Tennessee.

John Conner, PhD, MA, is a partner, Conner

& Gering Associates, Brentwood, Tennessee.

Questions or comments regarding this

article may be sent to John Gering at john.

gering@cgaa,biz.

HEALTHCARE FINANCIAL MANAGEMENT NOVEMBER 2002