In an uncertain job market, how can companies retain workers?

Although some employees might decide to stick with their jobs when the market appears uncertain, work force reductions can, conversely, spur more quitting

By Ellen Rosen

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Published: Sat 18 Feb 2023, 11:29 PM

Reports of layoffs have cast a shadow over the recent surge in quitting. Tech behemoths like Amazon and Meta and, most recently, Dell and Microsoft have led the way in cutting jobs, along with companies like BlackRock and Goldman Sachs; layoffs are planned at McDonald’s, as well.

In absolute terms, resignations still far outnumber reductions — people are quitting at three times the rate of layoffs, said Anthony Klotz, an associate professor of organisational behaviour at the University College London’s School of Management. (He coined the term the Great Resignation.) Indeed, the US Labor Department’s January jobs report said employers had added over 500,000 jobs, exceeding expectations and bringing the unemployment rate down to 3.4 per cent, the lowest since 1969.

Nonetheless, frequent headlines of workforce reductions across industries may be having a cumulative effect on the collective labour market psyche. Although some workers — even unhappy ones — might decide to stick with their jobs when the market appears uncertain, news of layoffs can, conversely, spur more quitting.

Layoffs “create an environment where people worry it might happen to them next,” said Laszlo Bock, who was Google’s senior vice president for people operations before helping found the human resources platform Humu. Poorly handled reductions may “degrade trust in management as people start hearing rumours of further cuts,” he said, and “that in turn raises anxiety, which causes more people to quit.”

The most recent data shows that while quitting has slowed, it still surpasses pre-pandemic numbers, Klotz said. The number of people quitting peaked at approximately 3.4% of the workforce early in 2022; by November it had fallen to 2.9%. While that may not sound significant, it translates to more than 4 million workers per month.

As a result, companies in a range of industries are taking steps to discourage departures and retain talent. Creating mentorship programmes; prioritising diversity, equity and inclusion efforts; and hiring career development officers have become standard practice at many larger companies. Spurred by a competitive labour market and increasing transparency in many industries, companies are now viewing competitive compensation and benefits as necessities.

Changes like these have, in reality, created a new floor as to what employees can expect — so these changes won’t necessarily solve attrition issues.

Donald Sull, a senior lecturer at the MIT Sloan School of Management, was a co-author of a study of attrition that examined a period between April 2021 to September 2021, incorporating employee reviews from Glassdoor, a jobs website. The study found that corporate environment ranked as the top factor in employee retention. A toxic corporate culture was “10 times more predictive of having a higher-than-industry-average attrition rate than compensation,” Sull said. While there is no standard definition of a toxic culture, it can involve a lack of respect for employees, a noninclusive environment, unethical as well as cutthroat behaviour and, most strikingly, abusive management, he said. (Sull and his son Charles founded Culture X, a firm that focuses on improving corporate environment.)

Klotz said leaders needed to be listening to their workers right now. “They need to ask, how are you experiencing the late pandemic, the cost-of-living crisis and other things going on in your life?” he said, adding that high levels of “burnout and stress are predictors of quitting.”

As a result, managers should be checking with their employees in one-to-one conversations as well as with large-scale questionnaires. The software giant HubSpot, for example, conducts quarterly employee engagement surveys. “We can get up to 7,000 comments and we literally read and analyse every single one of them to understand how we’re doing,” Eimear Marrinan, the company’s senior director of culture, said.

Of course, analysis is only an initial step; taking action is the next, and it is the one most likely to affect employees directly. In 2021, HubSpot “heard an overwhelming amount of feedback that our employees were burned out and that we weren’t doing enough for our employees’ mental health,” Marrinan said. The fix centred on “unplugging” HubSpot as an organisation, she said. That included giving employees a week of rest every July. And no internal meetings are permitted on Fridays, “so that employees can actually disconnect from Zoom,” she added.

In addition, all managers “had psychological safety training to make sure they could show up in the right way for our employees,” Marrinan said. The company also began offering more extensive mental health benefits.

Marrinan said the efforts paid off: The company “halved the level of burnout” over the course of the year, as determined by subsequent surveys.

Two other factors that have been found to help retain employees are offering remote work options and more consistent scheduling for those for whom remote work is not an option, Sull’s 2021 analysis found.

At Hilton Worldwide Holdings, for example, Laura Fuentes, the company’s chief human resources officer, said creating policies could be complicated when the workforce was divided between those working at one of its 18 brands and those who work at corporate headquarters. But “we know all team members want flexibility,” she said.

Meaningful feedback can also help with retention. At Littler Mendelson, a global law firm specialising in labour matters, Erin Webber, its president and managing director, said the firm revamped its review process several years ago.

Younger associates in particular are given written reviews before they have an in-person meeting to discuss performance. “If they read the reviews and think there is something wrong, they can come to us and explain what happened in the situation — we want to give people the opportunity to improve,” Webber said, acknowledging that “it’s not always easy”. The lawyers “have to remind ourselves that this is what we’d tell our clients — that they need to be transparent,” she added.

Just as reviews are critical, first impressions also count. The success of an employee’s initial months at a company — including the onboarding process — can determine whether an employee stays, said Fuentes of Hilton.

Companies striving to retain their employees should also focus on personal growth and development. Sull’s analysis found that providing lateral job moves was 12 times as important as promotions are in encouraging retention. “It’s important to let the employees know that someone is focusing on what they’re learning and that it’s going to pay off in the future,” Bock of Google said.

Hilton, for example, offers training opportunities and skill-building programmes for its employees, Fuentes said, including those who perform housekeeping and other maintenance jobs. The training can occur during work hours or on their own time.

Companies, irrespective of size, need to focus on building a supportive corporate culture beyond values statements. Cross-function meetings, where employees in different divisions are introduced, can help. While it may not seem intuitive that those in sales have much in common with engineers, for example, they can discuss how customers ultimately use the product, Bock said.

Ultimately, corporate leaders need to follow the values they include in their public statements and websites. “We compared how heavily companies weighted the values in their public statements versus how employees assess them in terms of how well they did on those very values,” Sull said of his study. It found that companies that preached values most loudly didn’t necessarily practise them. Companies where leaders practiced their values “are the exception, not the rule,” he added.

In the end, while compensation is important for employee morale, it is not the top factor in retaining employees. “Pay is never far from employees’ minds, and with the cost-of-living crisis right now that’s even more the case,” Klotz said. “If you’re not in the right ballpark when it comes to pay and benefits, it’s going to be hard to get employees to fully invest their energy back into their jobs.” He said that while compensation was important, it was not a very effective motivator: “Pay is like the entry fee to engaging employees. It needs to be there, but don’t expect it to drive outstanding performance.”

If a recession happens this year, however, the entire calculus may change again, Sull said.

“Companies will be under a lot of pressure to manage costs,” he said, including by scaling back budgets. “These are the trade-offs that leaders will have to manage.”

This article originally appeared in The New York Times.

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