CHAPTER 6

Retaining the Best People

Jong Gyu Park and Maria Spencer

It is important that the federal government understand, and respond to, workforce retention issues, not only to retain key talent but also to manage morale and efficiency issues that are linked with employee turnover. Since unemployment rates and turnover are negatively correlated in both the private and public sectors (Figure 6.1), it is essential for employers to predict how their workforces will respond to fluctuations in the labor market, especially when unemployment is low. If employers do not monitor and understand the reasons their employees leave during periods of high unemployment, quit rates could easily increase when the economy recovers, the unemployment rate drops, and employee mobility increases.

FIGURE 6.1. Overall U.S. Unemployment Rate and Quit Rates by Sector: 2008–2012

Data from the Bureau of Labor Statistics: www.bls.gov/news.release/jolts.t16.htm; http://data.bls.gov/timeseries/LNU04000000.

Frank et al. defined retention as “the effort by an employer to keep desirable workers in order to meet business objectives” (2004:13). Employee retention means the existence of a continuing employment relationship. Conversely, employee turnover can be defined as the employee’s separation from the employment relationship, whether voluntary or involuntary (Huang et al., 2005). High turnover can be costly in terms of recruiting, onboarding, and training expenses as well as staff time and effort to fill a position and train a new hire. However, this does not mean that a zero percent turnover rate is desirable either, because unnaturally low turnover rates could result in a stagnant workforce or an outdated skills base. Successful organizations must strike a balance between turnover and retention; the loss of top performers puts intolerable strain on workflow management and leads to spiraling costs in the organization, while retention of irrelevant skills or unproductive workers drains resources.

Retention itself has not been difficult for the federal government; security, benefits, and a promotion system that favors seniority have all contributed to the graying of the workforce and entrenchment of staff in middle management roles. Retention of top talent, however, has not been particularly well executed by the federal system, which is still struggling to integrate merit- and competency-based standards throughout its human resource (HR) management efforts (OPM, 2014c).

The integration of merit-based hiring, training, and promotion practices is designed to offer a clear promotion and development path to top performers and to make federal employment less attractive to security-seeking marginal performers likely to entrench themselves in the civil service and accrue tenure-based, prescheduled promotions. The specific federal programs discussed in this chapter represent the combination of OPM’s central influence with regard to strategic core competency development and the agencies’ localized control over other professional details and priorities.

Several White House administrations have made efforts to chip away at the million-plus “managers” in the federal government—a management glut that that came to be known as “The Bulge.” This name was coined in light of the large proportion of federal workers classified as middle management or higher in 1982: 72 percent (Light, 2000), a rate nearly three times that in private industry. The negative attention paid to bloat in the federal ranks contributed to hiring freezes in the 1990s, which only accelerated the aforementioned graying of the federal workforce and promoted its unnatural stability.

Now, as the federal workforce becomes retirement-eligible and the pendulum prepares to swing in the other direction, the federal government must plan not only to replace a large percentage of its staff but also to update its HR policies to attract and retain the highest-performing members of a modern workforce whose values have shifted from career-long security toward meaningful work and personal fulfillment (Light, 2000). OPM’s most recent efforts to modernize onboarding and promotion efforts for federal staff include

•  Communicating better with candidates through the hiring process and allowing candidates to track the status of their applications online

•  Empowering hiring managers at the agency level with more latitude in the interview and candidate communication process (Kopp, 2011)

•  Increasing efforts to market the Senior Executive Service training and development program to women and minorities

•  Eliminating the requirement that individuals with disabilities must obtain a “job readiness certification” (Miller, 2013).

THE SIGNIFICANCE OF RETENTION

It has been shown that employee turnover has an immediate negative influence on organizational efficiency due to the loss of knowledge and skills, the negative impact on employee morale, and the expense of recruiting, hiring, and training replacement workers (Kacmar et al., 2006). Therefore, many organizations use various retention efforts to (1) reduce vulnerability to the loss of key individuals, (2) keep top performers, and (3) maintain knowledge, thus avoiding spending more time, money, and effort later to recruit new talent.

Why Do Productive Workers Leave?

Employees leave organizations for a variety of reasons, but research suggests that most actually quit their supervisors, not their jobs. Conflict with supervisors is predictive of employees’ turnover-related intentions (Frone, 2000). Interpersonal issues are frequently cited as a reason for departing from an organization—underscoring the importance of the government’s efforts to incorporate merit-based promotion. Leadership and management skills must be properly valued in promoting employees into supervisory roles, or those employees may find themselves unequipped to handle personnel issues.

Turnover is also often driven by the opportunity for career advancement. Without opportunities to move up within an organization, talented employees may be forced to move out and take their skills elsewhere. This may have been a driving consideration when the federal government decided to emphasize performance-based recognitions and promotions. Cultural change can be painfully slow, however, and efforts to standardize performance appraisal systems across agencies—and ultimately to link incentive pay to performance—are progressing slowly. To better facilitate pay-for-performance programs, OPM instituted a performance review board to promote consistency and transparency across agencies. At the heart of OPM’s efforts lies a requirement that at least 60 percent of a senior executive’s performance plan be based on the achievement of results (GAO, 2008).

Why Is Retention So Important?

Retaining skilled workers is essential to an organization’s ability to maintain continuity in its goals, leverage the experience of tenured workers, and promote stability within its culture. Savvy organizations develop career ladders and lattices that allow them to develop and promote their most talented workers, so that the organization realizes an increasing return on its training and development investment as these talented employees rise through the ranks into roles of increasing significance.

Organizations that fail to retain their workers often struggle to realize the benefits of their training investments as employees depart with the knowledge and skills the organization invested in them. Although it is difficult to fully calculate the cost of turnover (including hiring costs, training costs, productivity loss, etc.), most experts agree that it represents a significant portion of an organization’s total labor cost.

Turnover can be quite costly in many ways; depending on the position and the industry, the cost of replacing a person may be roughly equivalent to a year’s salary or more. Additional indirect costs may include inferior customer service provided by less-experienced staff, loss of continuity in projects, or general instability in the culture that can reduce morale and hinder the organization’s ability to recruit new, talented workers.

Some turnover is likely to be in an organization’s best interest. Over time, the skills that an organization needs are likely to evolve and change, so that skills held by some of its workforce will no longer be relevant. Some staff will not be a good fit with the new culture that has been cultivated. One of the more delicate truths about retention is that sometimes the organization is better served by not retaining an experienced employee.

Best practices in HR management and development focus on retaining the best talent for the organization. In practice, this is often achieved with merit-based recognitions and rewards that incentivize workers according to their contributions. When used in place of tenure-based recognition systems, merit-based recognitions and promotions help to mitigate the potential impact on organizational efficiency and morale when recognitions and rewards are given on the basis of anything but performance factors.

Effective Retention Strategies and Programs

Retention strategies and programs aim to identify and retain individuals with the most well-developed and valuable skills, knowledge, and experience and to ensure that this high-performing talent stays in the organization for the long term. Thus, the objectives of a retention strategy should include (1) reducing organizational risk associated with the loss of high performers, (2) keeping high performers productive, and (3) maintaining organization knowledge and networking power. Such a retention strategy should be a part of the total HR strategy and should be closely aligned with organizational workforce planning (International Personnel Management Association, 2002).

Each element of an organization’s retention strategies and programs must be prepared and designed to align with the values of the individuals identified as high performers. That is, retention strategies and programs must meet the needs of both the individual and the organization. Retention programs also need to be designed to fit with organizational values, to reward performance, and to encourage career development for individuals who have been identified as key retention candidates in the organization. The following are well-known retention program options that should be used in preparing an action plan for key individuals:

•  Job enhancement. Expand work options by extending the range of job duties and responsibilities (job enlargement), providing vertical job opportunities (job enrichment), and assigning critical projects.

•  Training and developmental opportunities. Support learning and career development for individuals and provide feedback and learning opportunities based on assessment.

•  Salary review. Review individual salaries to ensure not only internal organizational salary guidelines but also competitiveness with the external job market.

•  Employee value proposition (EVP). Maintain a value proposition for employees, not just for customers. EVPs can be defined as the experience offered by an employer in exchange for the productivity and performance of an employee.

•  Special fast-track or “high-potential employee” programs. Establish highly selective programs linked to career and leadership development of high performers.

•  Analysis of turnover. Analyze employee turnover trends to gather and evaluate employee perceptions of the reasons for turnover (e.g., conduct exit interviews).

•  Cash incentives:

Severance offers protection in the event of termination without cause.

Stay bonuses are paid to an employee who stays with the organization for a specified period.

Performance incentives are bonuses tied to future performance goals.

As part of their retention programs, organizations should also consider restructuring job and work processes to allow flexible work schedules, job-sharing arrangements, and telecommuting programs. Reorganizing the work environment around teamwork and empowerment will give employees new skills and give the organization insight into its work processes. Employees should be encouraged to continuously identify areas for potential improvement and to collaborate to solve problems; front-line employees should be empowered to make more decisions about how work should be done.

Retention in Federal Government

Leaders in the federal government are attempting to change the federal work culture by aligning workforce planning with each unit’s goals and unifying programs across the government to move promotion and recognition programs away from automatic, tenure-based, noncompetitive ranking systems toward an integrated talent management system. These initiatives must overcome a long history of tenure-based promotions and a culture of stagnation and entitlement.

To guide and inform their improvement efforts, leaders have increasingly turned to research from both the public and private sectors. OPM has studied retention as it relates to workplace, environmental, demographic, and organizational factors. Across sectors, correlations have been drawn among age, positive interpersonal relationships, and workplace satisfaction (Pitts et al., 2011). This research underscores how important it is that retention strategies resonate with younger workers, ensure that managers have appropriate supervisory skills, and account for the importance of work processes in each worker’s decision to remain committed to an organization.

A FEDERAL GOVERNMENT RETENTION STRATEGY

OPM faces challenges integrating a merit-based retention system into a federal government culture that has historically favored loyalty above all else (OPM, 2014b). Adopting retention initiatives also has to account for changing demographics in the government workforce; the percentage of federal workers more than 55 years old increased more than ten percent between 1998 and 2010, while workers aged 39 to 49 declined more than 12 percent during the same period (Copeland, 2011). This demographic shift testifies to the federal government’s difficulty attracting and retaining younger workers. Light (2000) found that the Millennials entering the workforce tend to value the nature and impact of their work more highly than the security of a particular position. As the federal government relies more and more on contractors to deliver government services, talented younger workers have the option of providing those services without ever becoming a government employee. Although this approach may arguably lend some efficiency to government service, it also creates a degree of instability in the federal workforce and complicates long-range workforce planning.

To overcome these and many other challenges, OPM has increasingly sought research and best-practice solutions from private industry. For example, in 2010 President Obama organized the White House Forum to Modernize Government. The goal of this particular effort, in addition to seeking technology best practices from private industry, was to identify the leadership characteristics that the federal government could implement from corporate leaders (White House, 2010). Agencies are encouraged by OPM to measure their own HR management and development outcomes:

•  Type of work asked of employees

•  Regularity and nature of feedback and coaching

•  Opportunity for employees to learn

•  Training and development effectiveness

•  Recognition of merit and performance. (OPM, 2014b)

OPM has identified priorities for federal agency retention:

•  Designing job announcements that attract the best candidates

•  Developing effective employee orientation programs

•  Building a culture of high performance

•  Designing career development plans

•  Developing effective mentoring programs

•  Implementing coaching programs

•  Designing easy-to-use performance management systems

•  Analyzing factors that impact turnover

•  Identifying management and supervisory best practices for retaining great employees. (OPM, 2013)

As part of efforts directed at retaining talented workers, OPM has integrated succession planning efforts into its practices in the form of professional development programs. These require nominations and applications and awarding membership on a competitive basis. A prime example is the Senior Executive Service, which competitively selects trainees based on skill and experience criteria and grooms the most promising staff for executive-level service with a series of classroom and field-based educational experiences, team training, and leadership development (OPM, 2014b). Such programmatic efforts not only recognize good performance but reward it; they route top talent into training and development, thereby maximizing the value of senior staff.

Long-term career opportunities for the workforce have also been considered by OPM. A 2004 Merit Systems Protection Board (MSPB) report suggested that the agencies need to hire workers who will stay for a long period, because workers who perform consistently well during the long term contribute positively to long-term organizational performance (MSPB, 2004). The most recent OPM strategic plan operationalizes the concept of aligning organizational strategy with talent management practices by ensuring that staff are aware of their impact on the government’s performance. This is done with targeted training and agency reporting that includes human capital metrics (OPM, 2012f).

NONCOMPENSATIONAL PRACTICES FOR RETENTION

Noncompensational retention practices can reinforce motivation and maintain morale and productivity. Nonmonetary retention programs include employment branding, performance management, turnover analysis, strategic planning, succession planning, work-life balance, and so on. Monetary rewards are used to motivate and retain talent in the federal government. However, many retention programs also focus on noncompensational factors that avoid pay-level conflict, enhance employees’ positive attitudes, and contribute to intrinsic motivation.

Enhancing the Organization’s Image

Consumer perception is the image of an organization derived from all interactions, experiences, and touch-points with a product or service. This can be managed by organizational efforts to create a positive image of the product or service. Similarly, an employer image can be managed to make a clear and lasting impression of what it’s like to work for an organization. Employment branding serves as the foundation that defines the value of a job and drives the culture, attitudes, and behaviors of employees. Thus, HR professionals agree that an organization should strive to improve its image and be a place where people want to work.

As an example, the Government Accountability Office (GAO) developed a two-year professional development program to keep entry-level employees happy and satisfied with their jobs. The key element of the program is a requirement to work in at least three different positions during the first two years of employment. This program gives new employees the opportunity not only to gain various experiences, but also to get a broad view of the organization. GAO conducted and analyzed feedback through a survey of entry-level employees to estimate their satisfaction with aspects of organization and their jobs (Horan, 2007) and, armed with this greater understanding, developed the program to help retain new hires.

This program is also closely related to employment branding, the building of a belief among potential employees that an organization has a desirable work environment relative to other organizations (Ewing et al., 2002). One well-known example is the U.S. Army, which has used various employment branding programs, including recruitment advertising campaigns such as “Army Strong” and “Officership,” to showcase the benefits of a career with the U.S. Army. According to Keeter (2008), these employment branding initiatives in the army have led to an increase in recruitment numbers and enhanced its employer brand.

Performance Management

Performance management is a process that links employees and their jobs to the strategy and objectives of the organization. It is also a systematic approach to managing employees that relies on positive reinforcement as the major way of optimizing their performance. Built on the belief that employees are motivated when they are in the process of achieving an organizational performance and goal, performance management approaches help maintain employee morale by providing adequate feedback and rewarding for good performance as it relates to the success of the organization.

In its Handbook for Measuring Employee Performance (2011), which provides standard performance management guidelines for federal supervisors and employees, OPM describes performance management as a systematic, cyclical process of (1) planning work and setting expectations, (2) continually monitoring performance, (3) developing the capacity to perform, (4) periodically rating performance in a summary fashion, and (5) rewarding good performance (Figure 6.2).

This process involves setting performance goals and then evaluating how well employees meet these standards. Feedback is later given and recommendations are made as to which employees are to be promoted. All employee accomplishments are also acknowledged as a way of recognizing results. Thus, employees can be motivated and engaged through the performance management process.

FIGURE 6.2. Performance Management’s Five Key Components

OPM, 2011b.

Analyzing Turnover

Determining the strategies to use to retain employees requires understanding not only who is leaving but also why. A range of potential reasons for employee turnover exists, such as lack of management or leadership skill and low levels of employee motivation and commitment. Until there is certainty as to the underlying causes of turnover, any attempt at remedial action is premature. Organizations should periodically examine retention policies and techniques and analyze the effectiveness of current programs. Organizations lacking a formal retention program should consider implementing exit surveys and interviews as a means of identifying and analyzing problems.

The Treasury Department’s standard exit survey can be used across the Department’s branches (Figure 6.3). This survey helped pinpoint the specific reasons employees decided to leave the organization as well as the degree of importance employees assigned to each factor that contributed to their decision to quit the job. The U.S. Patent and Trademark Office also conducts in-depth exit surveys to better understand why employees are leaving. The exit survey is designed to obtain candid feedback regarding the circumstances under which employees leave and to give employees an opportunity to make suggestions to improve the organization.

FIGURE 6.3. Section of the Department of the Treasury Agencywide Exit Survey

Treasury, 2014. Questions 1–15 of the survey (not shown) are general demographic questions.

OPM has also emphasized the importance of retention among its senior management staff. It conducts exit interviews to collect turnover data and involves front-line supervisors and HR staff in analyzing and responding to the data with integrated planning efforts (OPM, 2005e).

Strategic Planning

The 1993 Government Performance and Results Act (GPRA) was implemented to aid agencies in focusing on results. Its goal was to improve federal program effectiveness, accountability, and internal management by requiring assessment of organizational results through strategic planning and performance measures. Strategic planning can link employee performance to strategic organizational goals and motivate employees by sharing information with them about those strategic goals. Thus, strategic planning ensures the effectiveness of HR programs such as performance management, attraction, and retention by communicating details that increase employee motivation and retention. When HR programs communicate effectively, employees receive clear messages about organizational goals, strategies, and objectives. Employees with clear awareness of organizational goals understand how their actions influence organizational performance. According to Howard and Gould (2000), strategic planning positively influences employees’ work performance, absenteeism, and retention, because it includes procedures for the organization to listen carefully to employees and respond to their needs.

Following the guidelines laid out in GPRA, federal agencies carry out a three-step strategic planning process (Figure 6.4).

FIGURE 6.4. Simplified GPRA Strategic Planning Process

OPM, 1999a:5.

Because sharing business information and engaging in constant communication with employees are key factors in effective talent management and retention (WorldatWork and Towers Watson, 2009), the GPRA strategic planning process can be an effective strategy for agencies seeking to improve employee retention. It allows them to map out what retention goals they want to achieve, where they are in relation to these goals, and how they plan meet them. For instance, Department of Defense GPRA performance planning involved measures to indicate progress in achieving organizational attraction and retention targets, measuring not only the overall quality of recruitment officers and enlisted personnel but also its first-year retention rate.

Succession Planning

Succession planning has long been a strategic employee retention method, especially in the private sector. A retention program is part of a broader people-oriented strategy developed for the future of organizations and is closely linked to organizational design and staffing.

Rothwell (2001) defined succession planning as the process that helps ensure the stability of tenure of employees. Succession planning includes any organizational effort designed to ensure continued effective performance by making provisions for the development, replacement, and strategic application of key employees. Many studies have shown that well-designed and well-structured succession planning efforts can assist in retention, perhaps because employees are heartened to learn that management is interested in their career advancement and in providing the training needed to achieve their career goals. Often, “lack of career advancement” is a primary motivating factor in employee turnover. Many federal agencies have recognized this, and some work with employees to create workforce plans, including personal development plans. Retention is more successful when employees are aware of their personal and career development prospects.

Succession planning starts when a key position or positions are identified as being at risk of attrition. In the past, succession planning targeted only key leadership positions in the organization; however, it is important to include key positions in a variety of job categories for today’s organizations. The National Institute on Aging (NIA) chose three job categories as key positions: supervisory/senior health administrators, senior research assistants/lab technicians, and administrative officers. Using data gathered from focus groups of employees, the NIA developed specific plans not only for dealing with these specific groups but also with overall retention in the organization. NIA also uses the following succession planning strategies (PPS and Booz Allen, 2011):

•  Diversity of strategies. Various techniques are used to retain employees at all stages of their careers.

•  Competency-based hiring. The NIA attempts to find the best candidates to fill open positions.

•  Leadership development. A leadership speaker series was developed so that senior managers can share knowledge and experiences.

•  Communication plan. This organizationwide plan is designed to promote retention and succession strategies by explaining how important it is to retain employees and by encouraging employee feedback.

Work-Life Balance

Well-designed work-life balance programs, such as flexible work schedules or childcare services, represent one of the best approaches to retention, because a good work-life balance is becoming more and more important to federal employees (Bertelli, 2007). OPM provides such benefits as telework, flexible work scheduling, and a compressed workweek to federal employees. Table 6.1 describes some of the programs that federal agencies provide for their employees.

TABLE 6.1. Federal Work-Life Balance Programs

OPM 2005f, 2014d.

OPM already supports flexible work schedules and encourages agencies to support telecommuting, but not all supervisors feel comfortable with this approach and may need support beyond what their agencies can provide. OPM’s Office of Work-Life Wellness serves federal agencies with assistance, guidance, and general information pertaining to employee wellness programs. OPM has created formal working groups, sponsored training sessions for agency officials, and made sure that guidelines are in place for work-life programs. Most agency officials who responded to a GAO survey reported that OPM’s help was most welcome and effective (GAO, 2010).

COMPENSATIONAL PRACTICES FOR RETENTION

Compensational programs such as retention incentives, recognition incentives, student loan repayment, tuition assistance, and the like are traditionally used to motivate and retain talent in federal agencies. These monetary rewards are used in an effort to emphasize the message that employees are valued in the organization.

Retention Incentives

Retention incentives or bonuses are one of the few—and most effective—tools to retain an employee who has received a job offer elsewhere and is seriously considering leaving an organization. OPM has implemented retention incentives as tools to improve the attractiveness of the federal government as an employer since 1991.

Moreover, federal agencies have had the flexibility to use financial compensation as part of the recruitment, relocation, and retention incentives needed to attract and retain a highly qualified workforce. OPM has issued guidelines for agencies to follow in using this authority:

•  An agency may pay a retention incentive to a current employee if the agency determines the unusually high or unique qualifications of the employee or a special need of the agency for the employee’s services make it essential to retain the employee and the employee would be likely to leave the federal service in the absence of a retention incentive.

•  An agency may also authorize retention incentives for a group or category of employees under these conditions.

•  A retention incentive may not exceed 25 percent of the basic pay rate for an individual employee or 10 percent for a group or category of employees. (OPM may approve retention incentives in excess of these limits of up to 50 percent of basic pay.).

•  The incentive may be paid in biweekly installments without a service agreement, in other installments after the completion of specified periods of service within the full period of service required by a service agreement, or in a single lump sum after completion of the full period of service required by a service agreement. (OPM, 2013h)

According to a former director of OPM (Berry, 2010), the central agency’s retention incentive program has proven to be a valuable compensation tool. As a result of its positive evaluation of the program, OPM has developed more guidance and tools to help agencies not only set stronger justifications for retention incentives but also establish more explicit internal monitoring processes. OPM also proposed regulations to require federal agencies to review retention incentives annually to determine whether they should be revised or discontinued.

Recognition Incentives

Employee recognition is an effective element of an employee retention program. This means providing incentives and recognition to employees for their performance and acknowledging their contributions to organizational performance. OPM also acknowledges talent contributions and good performance with a formal cash incentive and recognition awards programs.

Each agency in the federal government has discretionary authority to grant an employee a lump-sum cash award based on a “fully successful” or better rating of record. These are called rating-based cash awards. OPM recommends that each agency provide not only grant rating-based cash awards but also other cash awards. A cash award may be granted to an employee, individually or as a member of a group, in recognition of accomplishments that contribute to the efficiency, economy, or other improvement of government operations (OPM, 2008).

Agencies also use honorary and informal recognition programs that use recognition gifts as awards to acknowledge individual and group performance. Recognition gifts must

•  Be something the recipient could reasonably be expected to value, but not something that conveys a sense of monetary value.

•  Have a lasting trophy value.

•  Clearly symbolize the employer-employee relationship.

•  Take an appropriate form to be used in the public sector and to be purchased with public funds. (OPM, 2013h)

Student Loan Repayment

Agencies also may repay certain types of federally made, insured, or guaranteed student loans to attract job candidates or retain current employees; they are authorized to set up their own loan repayment programs to attract or retain highly qualified employees. Agencies may make payments to a loan holder of up to $10,000 for an employee in a calendar year and not more than $60,000 in total for any one employee. In return, employees must sign a service agreement to remain in the service of the paying agency for a period of at least three years (OPM, 2008).

Tuition Assistance

Federal laws and regulations provide many ways to support employees’ training and development. Agencies are encouraged to use this flexibility to meet agency needs and support employee self-development and learning; they may offer employees assistance to attend academic courses that are job-related (OPM, 2012d). Within a tuition assistance program, agencies pay for individual courses or classes, and although employees are not required to compete for funds on the basis of merit, supervisors should adhere to the type and title of training when choosing which classes or courses to pay for.

Generally, tuition-related programs require that employees work at least a year in the federal government. Sometimes increased pay is available for employees who need to use a language other than English, and agencies can also offer subsidies for childcare and transportation.

Other Benefits

The federal government provides an array of traditional and contemporary benefits to employees, retirees, and their families to help attract and retain the best talent, such as health benefits, thrift savings plans, flexible spending accounts, defined-benefit pension plans, life insurance, and long-term care insurance.