Retention Strategies for

2006 and Beyond

Winter 2006
Introduction
Over two-thirds (70%) of HR managers state that employee retention is a primary business
concern, while 40% of HR managers report an increase in worker turnover during the past
eighteen months. Though HR managers currently find employee retention a business
challenge, long-term demographic changes, such as the retiring Baby Boomer population have
the potential to aggravate this issue.

According to the Bureau of Labor Statistics (BLS), the U.S. workforce grew at an annual rate of
1.6% and added 79 million workers between 1950 and 2000. This strong growth enabled U.S.
business to grow without the constraints of a limited workforce. Yet structural changes in the
U.S. population could fundamentally alter this economic advantage. According to the BLS, the
annual growth rate in the native workforce of the United States is expected to slow to .06%
between 2000 and 2050. Much of this change is due to the Baby Boomer generations’ aging
into retirement.

As a result of the Boomer retirement, one possible scenario for the U.S. is an expanding
economy constrained by a slower growing workforce. This could produce excess demand for
talented workers and significantly drive up recruiting costs forcing organizations to rethink how
they grow and maintain their workforces.

In order to address these issues, Monster has initiated a research program designed to help
employers better understand turnover and retention challenges. This study confirms that
employers view workforce retention as one of the most critical issues facing them, and identifies
strategies employers are using to retain their best employees while the competition for human
talent escalates.

TABLE OF CONTENTS
Introduction ...................................................................................................................................2
Executive Summary ......................................................................................................................3
Research Analysis and Key Conclusions .....................................................................................5
Retention Strategies for 2006 and Beyond .................................................................................10
Summary of Research Methodology...........................................................................................13

The following information is proprietary and confidential to Monster, Inc. and subject to the confidentiality provisions of your
agreement with Monster, Inc. Any unauthorized disclosure is prohibited.

Copyright © 2006 by Monster, Inc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or
transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise without the prior written
permission of Monster, Inc.

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Executive Summary

Monster conducted a study of HR managers to assess their attitudes toward worker retention
and identify best-in-class strategies they plan to implement in 2006.

Key research highlights include:

• The majority of HR managers feel that worker retention is a current concern for
their organizations and expect it to become an even bigger challenge in 2006.

• While HR managers view worker retention as an existing issue, many are

confident that they can appropriately meet its challenge in 2006. However, such
confidence diminishes as they look past 2006.

• HR managers are using a variety of methods to monitor and compile information

on worker sentiment of their jobs and companies. However, most report that little
organizational change results from the information gathered.

• HR managers report that their workforce is maturing and expect a

disproportionate number of workers will reach retirement age in the next ten
years.

• While HR managers mention turnover as a concern, few have a detailed

understanding of its true organizational cost.

• Most HR managers view an employee’s immediate supervisors as having the

greatest influence over worker retention. However, only 11% of employers tie a
supervisors’ compensation to retention results.

• The majority of HR managers state that that compensation is the number one
reason employees leave. As such, most HR managers plan to use salaries and
benefits as a primary lever to retain workers.

The Monster research revealed a number of strategies that HR managers are using to inspire
worker loyalty. These strategies include:

1. Make supervisors more accountable for worker retention by tying their

compensation to retention performance.

2. Offer a workplace that respects, encourages and enables a work/life balance.

3. Create proactive succession planning that facilitates career-pathing for top

performers.

4. Provide tools to better monitor employee sentiment throughout the employee

lifecycle.

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 5. Focus retention efforts and resources on the most talented and highest potential
workers.

6. Produce an employment brand “experience” that satisfies workers on multiple

levels.

The remainder of this report provides deeper insight and analysis regarding the issue of
employee turnover. More importantly, it offers key strategies to better manage worker retention
in 2006 and beyond.

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Research Analysis and Key Conclusions

Workforce Retention is a Common and Growing HR Issue

Over two-thirds (70%) of organizations indicate that workforce retention is a primary concern for
their businesses. HR managers indicate that their concern stems from a workplace that is
experiencing an expanding economy with an increasing worker demand and a workforce that is
more confident in their ability to obtain alternative employment opportunities.

The Bureau of Labor Statistics reports that since December of 2004, the voluntary
unemployment rate (September, “quits”, seasonally adjusted) has risen to 2.0 and is at its
highest level since November of 2001 (1.8%). Such an uptick in the “quits” rate is consistent
with the 40% of firms indicating that turnover has increased over the past eighteen months.

60%

50%

40%

30%

20%

10%

0%
Dramatically Increased Stayed Decreased Dramatically
increased relatively decreased
stable

What has been the status of employee turnover within your organization over the
past twelve to eighteen months?

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While many organizations are already feeling the pinch of higher workforce turnover, a greater
number of firms see a more challenging environment in the near future. Forty-five percent of
firms characterize retaining workers today as a high or very high challenge. However, fifty-five
percent of firms predict that workforce retention will be a high to very high challenge in the
coming five years.

How would you rate the level of challenges facing your organization in retaining
workers over the following time periods?
Over the next 6 - 18 In the next 18-24 Five years and
Currently
months months beyond
Very high 15% 17% 18% 24%
High 30% 37% 36% 31%
Moderate 33% 30% 31% 31%
Low 13% 10% 10% 10%
Very low 8% 7% 6% 5%

Although firms are feeling greater pressure to retain workers, most HR managers are confident
that their companies can aptly manage retention. Almost two-thirds of the respondents rate
their current organization’s ability to retain their workforce as good or excellent.

70%
60%
50%
40%
30%
20%
10%
0%
Currently Over the next 6 In the next 18- Five years and
- 18 months 24 months beyond

How would you rate your organization's ability to retain its workforce over the
following time periods? Those responding “good” or “excellent”.

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A majority of HR managers (70%) view workforce retention as an extremely important issue for
their organizations. Yet, many HR managers believe that senior management does not share
this view. HR managers believe that only 60% of senior managers and 40% of board of
directors consider the worker retention issue to be of great importance.

80%
70%
60%
50%
40%
30%
20%
10%
0%
Human resources Senior management Board of Directors

How important is workforce retention to each of the following at your current

organization? Those responding “extremely important”.

Such a divergence in priority might explain HR managers’ diminishing confidence to enact

workplace change when management or executive support is critical to creating a workplace
experience where employees feel compelled to stay.

Monitoring Employee Life-Cycle Sentiment

As retention pressures increase, monitoring worker sentiment will become more critical to
successful workforce management. The continuous flow of employee feedback enables
employers to quickly identify workforce issues and be proactive in resolution.

Many of the HR managers who report actively monitoring worker sentiment also feel that they
do not receive the full value of this information. That is, HR policies are rarely affected by the
results of employee feedback.

Almost half (48%) of the surveyed HR managers reported that they use exit interviews to survey
leaving workers. In addition, many HR managers believe that outsourcing exit interviews is an
opportunity to lower the costs of these HR tools, while allowing those interviewed to be more
candid.

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While exit interviews are
100%
widely used to discover
90%
workplace issues, only one- 80%
third of HR managers report 70%
making personnel and 60%
workplace changes as a 50%
result of the captured 40%
30%
information. However, when
20%
exit interview feedback is 10%
used, HR managers state that 0%
changes to compensation and Exit Interview On-Board Employee Worker
benefits are a common result. Interview Satisfaction Environment
HR managers also cite
Does your firm use any of the following employee surveys or interviewing
greater management training techniques?
as a frequent outcome of exit
interview results.

Firms who noted positive change due to exit interviews reported that they frequently and
formally distribute the results of exit interviews to senior management.

Six out of ten HR managers report doing some form of initial interviews as employees become
integrated with their job and company culture. However, only about a quarter (27%) of HR
managers use these on-boarding interviews as a standard practice while most are completed on
an ad-hoc basis.

General employee satisfaction surveys are used by 69% of HR managers. Yet, once again,
most employee satisfaction surveys are done as an ad-hoc, rather than a standard, practice.

HR managers revealed three opportunities for employers to more effectively monitor employee
sentiment:

1. Firms need to survey employees throughout their full employment full life-cycle.

2. Employee monitoring needs to be a continuous and frequent practice rather than ad-hoc
or in response to an identified problem.

3. Exit interview information must be distributed to senior management who has the ability
to drive organizational change.

Measuring Retention Costs

Measuring and understanding the cost of employee retention is a primary step in determining its
full impact on an organization. However, only a minority of HR managers said they calculate
what it actually costs when an employee leaves their company.

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One-third of HR managers report that they calculate the cost of voluntary termination. Yet, most
HR managers typically only cite the overt costs such as advertising and recruitment fees to
replace an employee. Unfortunately, these costs understate the true impact of employee
turnover. To better understand the true cost of employees leaving, HR managers suggest
identifying the hidden costs of voluntary termination. For example, these managers consider
the lost productivity cost or the lost sales cost when a sales employee leaves.

With such analytical insight and the ability to better demonstrate the true business impact , HR
managers are in a better position to take a “cost of doing business” expense and elevate it to
support a strategic cause. Thus, HR managers that know the turnover cost are in a better
position to deliver a business case that justifies investments in retention practices.

Supervisor Accountability

HR managers think supervisors have the greatest influence over employees and ultimately their
workforce retention efforts. Yet, few firms make supervisors accountable for turnover by tying
their compensation to retention efforts. It is expected that this lever is likely to become more
common as the cost of keeping employees rises.

Only 11% of surveyed firms report having managers’ compensation tied to employee retention.
These HR managers say that a supervisor’s poor retention grades can reduce the merit
increase of a manager or result in a smaller bonus. In extreme cases, a manager’s poor
retention grades can be grounds for dismissal.

Supervisors are perhaps the strongest lever for improving worker turnover. Therefore, there is a
strong opportunity to influence retention by better aligning company retention goals with the
objectives and compensation of supervisors.

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Retention Strategies for 2006 and Beyond
HR managers report that turnover has increased somewhat in 2005 and retention is now a 2006
priority within their organizations. Regardless of whether increased turnover is due to the
improving labor market or the start of a mature workforce heading into retirement, HR managers
need a comprehensive plan to inspire worker loyalty and commitment.

Many HR managers increase compensation and benefits as their primary method to retain
workers. However, such a strategy implies that the organization is in a position to increase its
compensation. While some firms will be able to offer above average compensation to retain
employees, most firms will be unable to deliver this competitive advantage. Therefore, HR
managers must consider retention strategies that do not rely on the organization’s ability to
increase compensation expenses.

Monster research uncovered several strategic opportunities for HR managers to consider as

they manage their workforce retention. While each of these opportunities can be thought of
independently, ideally, they should be considered in a holistic approach to worker retention.

1. Hold Supervisors Accountable

Typically, employee retention and morale is the broad responsibility of the HR department.
However, HR managers agree that supervisors are in the best position to directly influence
employee morale and other attributes that ultimately determine employee retention.

Firms have an opportunity to align corporate retention goals to those of supervisors by:

• Tying supervisors’ compensation to retention goals.

• Promoting turnover as a corporate objective.

• Training supervisors to become more aware of worker retention issues and how to
manage it on a departmental basis.

2. Deliver a Balanced Workplace

HR managers describe a workplace where employees struggle with the demands of their
jobs conflicting with the satisfaction of their personal lives. As a result, employees are
more inclined to become disenfranchised with their companies and more at risk of leaving.

Companies are now rationalizing the work/life balance to help employees feel personal
satisfaction while meeting the company objectives.

Here is some anecdotal evidence of what companies are doing to promote a balanced
workplace for their employees:

• BEA Systems has an auto detailer visit its campus so that employees can care for their
cars without having to spend personal time with this chore.
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 • Google offers its employees onsite dry cleaning services and coin-free laundry rooms at
its main campus.

• Yahoo! offers onsite dental services at some of its locations.

• Jet Blue’s 800 plus reservation agents all work from their home offices. The company
reports that agent retention is well above industry average while agents have become
25% more productive.

• During the summer months, PepsiCo offers its employees a shorter workweek, allowing
them greater personal time.

Senior managers are growing more supportive and even forceful in promoting work/life
balance as they realize the benefits of higher worker satisfaction and lower employee
turnover. In fact, one HR manager relayed that his company’s CEO routinely called senior
managers to discuss their work habits when he felt they were working too much.

Only 55% of HR managers report offering their employees social activities and about 15%
offer employee sports leagues. These types of social events enable workers to create the
social bonds that emotionally tie them to their work and employer.

While these events offer employees the chance to meet and bond socially, they also
demonstrate to potential employees the value a company places on personal fulfillment,
which can dramatically differentiate one company from another during the recruiting
process.

3. Pro-Actively Manage Succession

The majority of HR managers are considering opportunities to manage retention. However,

a growing number of HR managers are now focused on succession planning as a means to
reduce worker turnover.

To ensure employees know what to expect and what is expected of them, these HR
managers promote inclusive succession plans that prepare each employee for a two-year
business cycle and how they will be compensated as a result of achievements. These
succession plans are aligned with corporate goals and strategies to ensure that the
business is operating as a single, unified organization.

HR managers who report using succession planning have enabled their companies to
better focus on the business, while freeing employees from the distracting thoughts of
compensation and advancement.

4. Stay Connected to Employees

New survey technologies are enabling companies to continually monitor employee morale
without its traditionally high costs. Moreover, this allows companies to monitor and
measure worker morale throughout the employee lifecycle.

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 Having a real-time and continuous practice to monitor employee sentiment regarding their
jobs is becoming a necessity in a workplace expected to be more competitive.

In fact, some HR managers use this streaming data as part of a business dashboard that,
in turn, senior management uses to gauge the health of their company. With this insight,
company managers now have more germane information to effectively manage turnover.

5. Measure the True Cost of Retention

The old adage, “if you can measure it, you can improve it” is applicable here. Only a
minority of HR managers (33%) report calculating the employee turnover cost. In the
absence of knowing the true cost of turnover, it is much more difficult for a firm to determine
its business impact.

Calculating employee turnover cost enables a company to consider what the business
impact is and what the appropriate investment should be to keep employees. A similar
exercise has helped the retail industry determine that investing in existing customer
relationships has become cheaper than acquiring new customers in a competitive market.

HR managers are using detailed cost analysis to help convince senior managers of the
need for better retention tools and to enable them to better prioritize retention issues
against other corporate objectives.

6. Build a Workplace Brand Experience

Developing a recruitment brand strategy has become a successful recruitment tool used by
competitive companies. Now, HR managers are extending this strategy by creating a
workplace brand value proposition that defines the “employee experience” and is designed
to build worker loyalty.

Thus, the recruitment brand has become shorthand for communicating the workplace
image of a company and is used to attract the right talent.. By extension, the employment
brand experience presents an image of what it is like to work at a company and all the
components that contribute to offering a workplace that inspires loyalty and longevity.

For example, PepsiCo, which employs 153,000 employees worldwide, promotes “PepsiCo
– Taste the Success!” as its employment brand statement to convey the excitement of
working at this global company. However, PepsiCo promotes “Its Powerful Brands”,
“Passion For Growth”, “Culture of Shared Principles”, “Commitment To Results”, “Ability To
Make An Impact” and “Quality People” as the main components of its workplace
experience.

The use of employment brands has gained popularity as a tool to attract the right talent.
Managing the employment brand experience as a strategy is gaining popularity as firms
refocus on worker retention and reducing the cost of turnover.

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Summary of Research Methodology

The findings presented here are the results of telephone interviews and a nationwide online
survey conducted by Monster between August and October 2005.

The research sample consisted of 600 HR managers whose responsibilities gave them intimate
knowledge of the retention practices and strategies within their respective company. The HR
managers were selected from a list of diverse industries and ranged in size from companies
with fewer than 25 employees to firms with more than 2,000 employees.

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