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Golden rules to retain staff
Govindkrishna Seshan | April 11, 2007
A few weeks ago, a software engineer friend was griping about his company's exit interview. With a better paying and better prospects career offer in hand, he had put in his papers. He wasn't alone - about 10 other people resigned the same week.
The worried CEO rushed to Mumbai to meet the resigning executives. He spoke at length about the company, its values and how these are invaluable. The employees - who had expected a discussion on better compensation packages and growth opportunities - were disappointed and the resignations remained.
Ten resignations a week is increasingly becoming commonplace - and so are situations like the one above, where there is a huge disconnect between the expectations of the company and the departing executive.
The Indian economy's double-digit growth has meant huge opportunities for players across industries - between March 2004 and March 2006, foreign direct investment into India doubled from Rs 12,117 crore (Rs 121.17 billion) to Rs 24,613 crore (Rs 246.13 billion).
The figure had further grown to Rs 27,873 crore (Rs 278.73 billion) by October 2006 (source: Ernst & Young). From automobiles to airlines, every industry has seen new entrants: some as a result of local players diversifying and others due to India-bound foreign players.
When competition arrives, the first reaction of the incumbent players is to plan protection strategies for their products. But as talent becomes increasingly scarce, perhaps they need to pay more attention to retaining employees. the strategist spoke with three companies that have successfully faced the heat - in the market and in the workplace - to find out what to do when competition comes calling.
Show them the money
Yes, money isn't everything. But it remains a darned good motivator, especially as an immediate deterrent to departure. Most HR consultants agree that when companies know rivals are approaching, a quick, mid-term appraisal with announcements of better salaries is a good, short-term strategy.
Needless to say, conditions apply: the work culture of the organisation should be favourable, the pay hikes should be teamed with career development initiatives and employees should feel they are wanted. The hike needn't necessarily be substantial: if employees are already motivated and engaged, then even a nominal increase sends the right signals.
Says Purvi Sheth, vice president at HR consulting firm Shilputsi Consultants, "When competition is increasing, organisations need to do a climate survey. If employee morale is high, then a raise in salaries will work as an exit barrier."
Maruti Udyog's HR head S Y Siddiqui agrees. Attrition at the car manufacturer was climbing rapidly in 2001-02, when Hyundai and Daewoo were hiring on a large scale.
"The competition had begun expansion and we were in a tight spot. In fact, many people were writing us off," recalls Siddiqui. Attrition increased from 6 per cent in 2002 to 9 per cent the next year.
Maruti promptly undertook an extensive study of pay scales in both auto-engineering companies and non-engineering companies. Based on the findings, it restructured its compensation plan and career growth policies.
The changes were then communicated to employees - here, the personal touch was important. Rather than depend on official letters, Maruti's management spoke to all potential targets in one-on-one meetings. Regular training sessions to help achieve goals on personalised career graphs and adventure camps at Rishikesh and Ajmer are also now an integral part of the company's HR programme.
The strategy worked. "The quick round of appraisals worked in our favour. It sent a positive message and had the desired impact," says Siddiqui. Since 2003, attrition at the car company has increased only 0.5 per cent.
Maruti isn't alone in believing money is a good retention tool. Air-India, too, resorted to pay hikes after losing people across all functions - pilots, ground and ticketing staff - to the new crop of airlines in the country. Last year, the national carrier improved compensation packages for employees at all levels.
It claims to have seen a huge improvement since then - where earlier it lost employees in batches of five and 10 every year, there have been no such resignations since the policy change last year. Agrees V A Ferreira, director, HRD and IFS, Air-India, "Changing our compensation package helped us retain talent."
Of course, not everyone agrees that retention solutions need to involve money. ICICI Bank, for instance, claims to mirror the American government's policy with terrorists - no negotiations.
In the past few years, the country's largest private bank has steadily lost people, across all levels of seniority, to large foreign banks like Citibank and ABN Amro as well as homegrown financial institutions like Yes Bank.
But group chief HR officer K Ramkumar is firm: "If an employee has a better offer, we will only say 'best of luck'." He explains the bank's reasoning. "We don't believe in knee-jerk reactions like salary raises. They make the company vulnerable."
Stay and win
So how does ICICI Bank retain its employees? "ESOPs make great sense," says Ramkumar. His explanation: "Compared to salaries, the benefits in retention bonuses are higher. If an employee purchases a share for Rs 10, in five years it is sure to be worth more than Rs 25. So employees don't leave."
Since 1999, ICICI Bank has given the ESOP incentive to over 700 of its 1,200 middle- and senior-level managers. "We extend the offer to all employees whom we see as a future leaders," Ramkumar adds.
It isn't as if loyalty incentives aren't about the money - the difference is that the deferred reward system can be rewarding for the organisation as well as the employee. Employees get a guaranteed sum at the end of a predetermined period, while the employer gets to retain his people and defer the payout to a future date.
Points out Anita Belani, country head of human capital firm Watson Wyatt, "Typically, retention rewards involve lumpsums. They, therefore, work well in holding back talent. We have recently recommended the policy to a leading bank." Air-India already has such a policy - employees are awarded 13 months' salary at the completion of five years' service.
Catch them young
Ultimately, though, money and other financial incentives are short-term interventions. To effectively stave off the threat from poachers, what is required are longer-term strategies and policies that are in place long before rivals arrive.
Chandra Mohan Sethi, chairman and managing director, Reckitt Benckiser, agrees. "You don't start building a brand like Dettol after competition arrives or when it is about to arrive. You begin much before. Similarly, in HR, you have to consider long-term strategies." One way of doing that is to fine tune hiring policies.
Consider Maruti again. Last year, for the first time, the auto major recruited 25 graduates from the best colleges across the country, relaxing its earlier policies of hiring only from the top B-schools. This year, the number has increased to 30. At the same time, the company has also initiated a buddy and mentor system to train freshers.
All new employees are assigned "buddies" who are about four or five years senior. The buddy helps the new recruit understand the working of the organisation and make friends - critical if he is to settle in quickly and comfortably. After a year in the organisation, a deputy general manager is assigned to take over as the mentor. Siddiqui believes the advantages of such a system makes it well worth the effort.
"Management graduates have strong career aspirations and, therefore, switch jobs faster. It has been our experience that fresh, non-management graduates who are custom trained in this fashion learn a lot more and, hence, stay with the company longer."
Air-India, too, is attempting something similar with its pilots. It now recruits fresh engineering graduates and facilitates their entry into flight training schools. They are provided financial assistance in exchange for a seven-year contract with the company.
Existing employees with engineering degrees - including flight pursers and cabin crew - are also being encouraged to learn flying, with shorter, five-year contracts. Since its initiation last year, more than 2,000 people have already signed contracts with the airline. Says Ferreira, "We have seen that in high skill categories, it is much better to pick up young talent and train them."
ICICI Bank, too, agrees that hiring right is critical to employee retention. Industry sources say the bank receives 150,000 applications every year, but hires only 15,000 -figures the bank neither confirms nor denies. That's the pull of the bank's "brand power", believes Ramkumar. "When people look up to you as a brand, they are eager to work with you and are likely to stay with you longer," he points out.
If you can't beat 'em...
So much for the carrots. Some companies also use the stick to ensure their people don't leave to join competitors. Typically, most organisations make their top-level employees as well as those with access to sensitive information sign non-competing clauses.
Maruti Udyog, Reckitt Benckiser and Star Network all have legal contracts preventing senior managers from joining rival organisations for a predetermined period, typically two years, after resigning from these companies.
Then, there's always the option of doing unto others before it is done unto you. In the past three years, Maruti has increased its lateral hiring from less than 5 per cent to a high 50 per cent. "Broadening our recruitment to lateral hiring has helped us find talented people faster," says Siddiqui.
Citibank officials, too, say they can no longer afford to ignore any source of people. Yes, external lateral hires are harder to secure, expensive and non-sustainable as an exclusive source. But given the scarcity of human resources, they probably don't have a choice. Take your people where you find them.
While a company can never have 0 per cent attrition, the companies believe their strategies have worked well for them. Maruti's 9.5 per cent attrition level is less than half of what the auto industry is facing. ICICI Bank, too, claims that middle- and senior-level management departures are just 1 per cent, compared to the industry average of 10-15 per cent.
Air-India's Ferreira, doesn't share figures but claims attrition rates have been "arrested". Like Ramkumar, my engineer friend's boss clearly doesn't believe in negotiating rates at the door. But if he had tried some of these strategies much earlier, perhaps the need would have never arisen.
That the talent shortage is global is evident from the way companies all over the world are adopting novel methods to woo them. And the compensation and promotion policy do not depend on hierarchy alone.
Companies like Microsoft or GE will promote even an average accountant to a manager and pay him similar amounts because he has the potential to outperform an outstanding accountant in the same managerial position. This doesn't mean that the outstanding accountant should be ignored, but the career ladder for him may possibly lie sideways rather than head upward.
One solution they adopt is moving away from the culture of rigidly hierarchical structures. Microsoft has created a separate status scale for its software engineers who can get higher compensation and external profile than managers, the idea being that managers gain promotion as they take on more people and greater responsibility, and software engineers gain in status and pay as they demonstrate brilliance. The company believes that the old corporate ladder that stretches to the executive suite need not be available for everybody.
Quite a few other companies use the concept of intrapreneurs to stop people from moving out. Young and bright managers are put in independent charge of strategic business units.While a complete independence in decision making is allowed through the year, the board takes stock at the end of the year. Coca-Cola has used this with great effect all over the world and found that intrapreneurs fill the corporate office with the entrepreneurial spirit that is so necessary to reinvigorate a corporate culture.