An Anti-Employee Retention Strategy

There are many articles and strategies about how to improve employee retention and reduce the costs and consequences of employee turnover.

Taking a slightly different approach, this article is about how not to increase employee turnover (and lower performance!) based on a true situation recently occurring in the city of Syracuse, New York, a city I know well.

In 2005, the city's mayor, running for re-election, signed a living wage law two months before the election, ensuring that employees of contractors and sub-contractors doing business with the city would earn an hourly wage placing them above the federal poverty level.

Under the new law, hourly wages of city-owned parking garage security personnel were raised from $11.00 to $13.11.

Recently, with the mayor's approval, the city found a way to place these employees under the auspices of a state contract instead, allowing the city to lower their wages back to $11.00 per hour.

The city's budget director estimates annual savings of about $50,000.

No doubt this money is important to a cash-strapped city such as this one; however, I suggest this cost savings will be counter productive in the long run, given four important consequences Syracuse is likely to incur.

1. Encouraging employees to do as little as possible

Garage security personnel are now likely to decide to only do as much as they have to in order to keep their jobs, and no more. Forget about going the extra mile, or even the extra inch, in terms of doing jobs better to help garage patrons or city managers.

2. Sending a negative message to other employees

What might other employees think about how the city may attempt to deal with their compensation and contracts? Will it attempt to cut their wages, too? What message does this send about the value the city places on its employees and the results they produce?
Nothing positive.

3. Thousands of dollars more in employee turnover costs

How many good city employees are likely to begin looking for other jobs if at all possible once the recession is over? And how many tens of thousands, or even hundreds of thousands of dollars, in turnover costs will the city incur to replace them?

One study, reported by SHRM, the Society for Human Resource Management, stated it costs $3,500 to replace one $8.00 per hour employee after all turnover costs have been calculated. (On this basis, if 14 city employees leave, the city's $50,000 savings will have evaporated).

4. Downgraded desirability as an employer

The city's actions certainly don't encourage capable employees to consider it as a potential employer, likely forcing it to spend more in recruiting costs, and getting more candidates rejected by other employers.

Contrast these actions with what Lance, a Charlotte, North Carolina, based maker of snack foods did earlier this year after purchasing an Archway Cookie plant in Ohio that closed without warning.

Lance gave all 300 of Archway's former employees a debit card for $1,500 for expenses, and immediately hired back 60 employees, with plans to hire back more as business improves.

Do you think Lance will more than earn back its $450,000 investment in its employees in terms of increased cooperation, quality, flexibility, and productivity? It's obviously betting it will, and I agree.

Do you think the city of Syracuse is likely to lose more than its contract-breaking savings of $50,000 in lowered productivity and increased employee turnover costs? More than likely, yes; it's a short term savings with long term negative implications.

Many employee retention practitioners promote quick retention strategies such as dress down days and company picnics which employees appreciate, but which don't directly impact retention.

In my experience, the most effective employee retention strategies are almost always based on improving how an organization works with its employees, and in building long term relationships with them where communication and meeting mutual needs and expectations are key.

Unfortunately, in this instance, Syracuse's efforts fail the test. (In fairness, in many ways, it's a great city and area in which to live).

Be certain cost-savings strategies don’t cost you more in the long run by decreasing morale and productivity and increasing employee turnover.

© 2009 Ross Blake Associates, Inc.