Employee Retention in the Age of Millennials

The world is changing very quickly.  In fact, it’s a completely different place than it was when we were kids.  And, it will be completely different when our kids get to the stage in life that we have currently achieved.  So when a new generation enters the workforce, workforce managers often struggle to understand how to “manage” their younger employees.

A recent study, conducted by APICS in partnership with the Michigan State University, found that  employee retention and fast turnover of staff are big concerns that are keeping managers up at night, in particular “Millennials Job-Hopping Habits”.

We know all the millennials didn’t get together one day and collectively decided to jump jobs every year or two. So what causes this phenomenon?  Instead of generational finger pointing, which seems to be fueled by resentment on multiple fronts, I’ll attempt to explain the phenomenon the best way I understand it, mathematically.

First, I’d like to start with a few basic assumptions that I think are crucial to understanding this issue.

During each generation’s forming years the environment was vastly different. So there are two forces driving our behavioral structure. What we see in our present vs what we’re told. These two forces often present conflicting ideals, creating a dissonance between what we’re told all our lives, and what we’re seeing with our own eyes. Making what older generations know to be true about business, and the newer perspectives vastly different. The managers that started their careers 20 years ago, had a vastly different experience than those starting their careers today, with significantly different market conditions to overcome.

The next assumption is based on globalization & technology. The reason I combine these two phenomenon are simple. Globalization provides individuals the ability to move further and Technology provides the ability to “See” further. This combination gives individuals the freedom of options. If they can’t find a job within 5 miles, they can easily drive 10 or 20 miles for the right opportunity. To an ambitious employee, distance only means having to wake up a little earlier.  

The third assumption is that while most employees develop loyalties and care about the work they do, they will put their own self interests first, particularly when they believe that they could be getting a better deal for their time and effort.

These three assumptions will drive the simple mathematical analysis that will support the main point I’ll make during this article, after which I intend to make a few helpful suggestions.

Now I’m going to boil it all down to one thing. Money.

With the raising cost of living, the cost of education, and the companies’ growing list of job requirements, it seems harder and harder for people to walk out of college and into a profitable career.

This pressure creates a scramble of modern job seekers to fight for profitable positions, with the most versatile applicants willing to travel across the country to get their careers started. Using the internet to amplify their reach, they can apply to hundreds of jobs in very short periods of time.

This in turn changes the behavior of companies. With a broader range of employees to choose from, they can afford to raise the requirements needed for each job, and lower the salaries. Companies even go as far as hiring all these qualified employees without giving them any benefits by hiring in short term contracts through temporary agencies or part time instead of hiring them as full employees. A peer of mine recounts that at her first entry level job as a contractor, she’d found a coworker of hers on her 3rd 2 year contract! That’s 6 years with the same company, that the company didn’t acknowledge they worked for them, payed them below the market value for their position as they were temporary workforce, and had no claim to any of the company benefits the company proudly touted on their websites.

Once a new applicant finally takes a job in their industry, they start building their experience, which is becoming more and more relevant to higher salaried jobs. This is where the problem begins to occur. At any given job, an applicant can expect a 2-3% cost of living raise each year. However after a year of experience, that same applicant can switch jobs for a minimum of 5% over their current salary, and after two years they can expect an increase of 10-15% salary increase.

Forbes magazine recently published an article claiming that employee company loyalty has been costing employees a minimum of 50% in potential earnings over the lifetime of their career (it assumes a 10 year career). Read Forbes Article Here

Inc.com wrote a similar article stating that an employee shouldn’t switch jobs unless the offer was 30% better than your current position (easily achievable after 3-5 years of experience) Read Inc.com Article Here

With decreasing company benefits, increasing employee debts, and the wider range of opportunities available to job seekers, it’s easy to see why employee turnover (not just millennials) is on the raise. 

So how do we (as managers or as a company) fight this phenomenon?

Financially speaking an 8% yearly raise should neutralize the financial attraction to change jobs.  Even if an applicant could attract a 10% higher offer at the end of the year, a 2% increase would not be enough to seduce an employee to go through all the trouble of starting over at a new company, particularly if they don’t have any strong qualms regarding their current position.  I can already hear all the bemoaning about this not being a “financially feasible” strategy for a company, and people saying “I don’t even get that much of a rise!” but the numbers don’t lie and financially speaking employee loyalty is no longer the dominant strategy it used to be.

IF this strategy is not available, the next question would be, how do we, as a company, convince our employees to continuously select a career strategy against their financial interest?

I’ll use this moment to interject another critical distinction to my argument.  This analysis is primarily for skilled and degreed employees.  Minimum wage and non salaried employees will be addressed at a later time, but the rule of thumb would be, the further they are from a basic livable wage in their location, the harder it will be to keep them in sub-optimal conditions.

A few things have, so far, been proven to increase employee satisfaction, and therefore decrease employee turnover. The first would be positive work relationships.  While an employee might not feel particularly strong loyalty to a company’s mission statement, it is more likely that they’ll feel strong loyalty to a positive manager, co-worker, or group of work peers.  Research has shown that strong positive relationships at work, decrease stress, increase employee happiness, and provide intrinsic reasons to show up to work other than just doing it to get a pay check.  Investing money, time, and effort, to ensure that these relationships are fostered and maintained will increase moral, and reduce employee turnover over the long run.  A more sophisticated approach to this would be to foster a strong and positive sense of community.  This sense of community can make an employee feel secure in their position, care for the quality of work produced, and connect them to the greater picture.  Threats to this sense of community, are neglectful managers, embittered employees, lack of corporate transparency, and lack of accountability.  These threats can be extremely harmful to the overall moral, increase workplace tension, and decrease workplace happiness and productivity.

The next point I want to bring up, in an effort to decrease employee turnover, are the good, old-fashioned benefits.  A new employee, will often weight similar job opportunities against each other by the benefits they offer.  An employee expecting a family in the near future, will be drawn to a company with a comprehensive maternity/paternity plan over one that doesn’t.  A new employee motivated to continue their education will choose a company that helps them advance in their personal education goals with tuition assistance programs over one that doesn’t. All these benefits will inevitably hold sway as employees weight the “Stay or Leave” decisions when other opportunities come along.  

The final, non-financial incentive to increase employee retention I want to bring up in this article is a comprehensive training and growth program.  This particular benefit will not stop employee turnover, but it will increase the incentives to stay for longer periods of time, particularly with employees recently out of college.  An employee fresh out of college is still accustomed to the high pressure learning and stimulating environment that all colleges intrinsically have.  If an entry level employee goes from this highly stimulating, rich learning environment to a boring cubicle to crank out the exact same report week after week, they will inevitably feel bored, unchallenged and restless.  The same employee cranking out the same weekly report, will feel a lot more connected to their job, if they can also allocate time to personal passion projects, training/growth assignments, and participate actively in other company projects that expose them to every facet of the business they’re trying to build a career in.  Learning at early career stages has tremendous valuable to entry level employees, even over immediate financial compensation, as it might mean greater financial compensation in the future.  Nothing will make an ambitious employee leave a company faster, than the feeling they’re not gaining anything by being there.

“Train people well enough so they can leave, treat them well enough, so they don’t want to”– Richard Branson

In summary, in an environment where change is the dominant strategy, no one single piece of “Advice” or one single strategy will persuade people to act against their own interest, however given the complex natures of human behavior, it is, in fact, possible and even common, to provide enough intrinsic incentives for an employee to happily WANT to stay with a company, in spite of the financial opportunity cost.  The priorities of each individual are unique, and understanding these priorities against the opportunity cost that each employee is leaving on the table by continuing to work for a company can help those companies leverage against the loss of good, hardworking, and productive employees.

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