If you feel like you’re running an employment agency with all the coming and going of staff at your organization, maybe you need a different approach to human resources that focuses more on retention than on the expensive work of endless recruitment.
But first, you need to understand the problem. Here are three scientific principles driving high turnover:
1. The Law of Supply and Demand
When talent is scarce, the gap between supply of talent and demand for talent increases, which gives employees more opportunity to job shop.
It’s in the numbers: The available talent pool is shrinking. Late last year, the ManpowerGroup released its latest Talent Shortage Survey showing the most acute global shortage in talent since 2007. In addition, the percentage of Americans seeking work has been in decline for over a decade, and it will continue to decline at least through 2020, according to research by the Federal Reserve. A recent government study reported we currently face the lowest rates of labor force participation since the late 1970s, almost five percentage points below its peak in 2000.
Baby boomers, who are now 53-71 years old, are reaching retirement and doing so at an earlier age, contributing to talent scarcity. The more robust our economy, the worse the labor scarcity becomes, and the U.S. economy has grown for 75 consecutive months, a record level of growth. The Federal Reserve Board predicts that unemployment will decline to 4.5 percent in 2017 and remain there for the next two years.
Already, some industries, most notably construction, are struggling to find qualified labor at any price. I was speaking recently to a group of hospital entities, and I asked how many were experiencing difficulty filling positions. Every hand in the room went up.
These conditions create competition among employers and may well become one of the biggest obstacles to growth in the coming years.
2. Social Baseline Theory
Recent research in social psychology has found that we are hardwired from birth to perform at our best when in proximity with others who are predictable and consistent – the key building blocks of trust – and who provide regular validation, recognition, and meaningful feedback. Because of this hardwiring, those elements are key components of a healthy organizational culture.
One of the key distinguishing characteristics between one company and another is a culture where people love coming to work. Organizational culture focused on these vital drivers of excellence in human performance don’t have to worry about retention because employees feel supported, validated, and like they are critical contributors to a greater good. They offer discretionary effort to get jobs done with maximum quality.
Instead of focusing on building a positive culture, companies typically focus on compensation and perks and assume that job security is enough. In other words, employers offer the wrong incentives to stay. Salary level and job security are no longer the primary reason why new entrants to the workforce seek work or stay at work.
Millennials, and a growing percentage of other age cohorts’ members, expect more. They want meaning and purpose in what they do, they want the values of the workplace to match their own, and they look for social connection at work. This evolution in what employees seek and expect from employers is moving much more quickly than the pace of change for leaders. The resulting disconnect between what employees want and what managers provide leads to growing levels of employee disengagement and, consequently, job hopping.
Employees join companies, but they quit managers. Gallup research backs this up, finding that about 70 percent of the variance in employee engagement is determined by the quality of leadership.
3. Felt Sense of Safety
Neuroscience research shows what happens when people don’t feel emotionally safe. Our brain senses a threat and reacts accordingly, diverting resources from typical behavioral functions in order to fire up the fight-or-flight response. In other words, our brain shifts focus from the tasks at hand and dedicates limited mental resources to coping with anxiety, fear, and isolation.
The evidence demonstrates that employees who don’t feel safe on the job are more distracted, defensive, and have fewer mental resources to solve problems. Absenteeism increases along with accidents and sabotage. When talented employees who want to be engaged experience these conditions, they are much more likely to search for new jobs and then quit when they find them.
Safe, relational cultures thrive, and when senior leaders focus on creating these conditions, turnover declines, as does the cost of hiring. Any company can reduce its turnover if it creates an environment that engages and values employees.
Don Rheem is the CEO of employee engagement consultancy E3 Solutions.