How to Win at Employee Retention: Learn from a Nobel Prize Winner
Behavioral economist, Richard Thaler recently won the Nobel Prize for his work that essentially demonstrated that people are illogical and while believing that they make great choices, consistently do not. Remember how several years ago companies world-wide started to automatically enroll employees in retirement savings plans? That was due to Thaler’s work. Before Thaler, economists used models predicated on the thought that people based their financial decisions on logic. So why does this matter?
Here’s why. Ask any retiree without a pension if they saved enough for retirement, and if the answer is no it’s because due to old economic models, companies didn’t think that employees needed help to save for retirement because the models said that the employees would save on their own because it was in their best interests to do so.
Thanks to Thaler and his cohorts proving that automatic enrollment in retirement plans would work, hundreds of billions of additional retirement dollars will be saved over the coming decades.
Very Interesting. How Does This Help with Employee Retention?
Thaler’s work is fascinating, not only for the economic benefits, but also for the application that it allows everywhere, including employee retention. Employee retention is an issue that affects all companies at one point or another, and it’s drastically cheaper to retain employees than to replace them. According to the model by Karlyn Borysenko cited in this article, employee turnover cost can be roughly 30 to 50 percent of an entry-level employee’s annual salary, 150 percent of a mid-level employee’s annual earnings, and as much as 400 percent of the average salary of a high-level or highly-specialized employee.
If we think like Thaler we will quickly realize that, in at least some of the cases, employees may not be acting logically by leaving. How can we change this? Just as Thaler recommended automatic saving plans be initiated to move employees toward saving more for retirement, employers can institute similar retention strategies.
For example, if employees are leaving due to a lack of engagement, issuing raises or bonuses will never resolve the core problem. In this case, employers can issue optional paid time off to be used for group charity events, brainstorming sessions, or inter-departmental mixers.
If employees are leaving because they believe that the “grass is always greener,” employers can respond by proactively demonstrating where the company is heading and how those individual departments or employees are integral to the future success.
How can an Employment Verification Vendor Help?
Your employment verification vendor can assist you with your retention by first identifying retention-related patterns via data analytics. Thaler spent years researching data to prove that employees were making illogical decisions consistently forcing economists and companies to change how retirement planning was managed.
Thankfully, when you outsource employment verification, your vendor already has everything they need to help you with this valuable exercise. Work with your vendor to answer retention-based questions such as:
1) Has turnover increased since a former manager left?
2) Will offering a more flexible work schedule stop employees from quitting to join a competitor?
3) Are there historical patterns that can be used to increase retention?
At i2Verify we’ll provide data analytics that will help you retain your employees and more with our employment verification service that’s free for employers. For more information, please contact i2Verify here.