One of the biggest inhibitors to business success, especially for small businesses, is the high rates of attrition and low engagement among the workforce. Too often, small businesses, especially in retail, food service, and transportation, display a seemingly permanent “Now Hiring” sign. From a macro perspective, this problem is a double-edged sword; high attrition and low engagement impact the stability and profitability of businesses, create an artificial labor shortage, increase the government budget on unemployment, and keep employees frustrated and in economic disparity. With 44 percent of the workforce classified as low-skilled, this is a huge problem for society at large. It is a perfect storm brewing, impacting businesses, employees, and their families.
The costs of attrition
When new employees are brought into a company, employers pay in both tangible and intangible ways to onboard them, and their subsequent departures amount to a loss of that investment. Hiring a new employee may seem simple, but there are direct monetary costs associated with recruitment. Once a suitable candidate is hired, there are costs tied to training the new employee and their lowered productivity and performance until they are familiar with their responsibilities.
Some costs associated with losing employees are more intangible. In addition to the costs of hiring and training a replacement, losing a competent, trained employee can impact customer relationships and community reputation; no company wants to be known for high employee turnover. There’s also a loss of institutional knowledge when an experienced employee leaves and a cultural impact on the workplace as remaining employees may wonder about the circumstances surrounding the departure.
Misconceptions about attrition
When considering the problems posed by attrition, it is helpful to think of the labor divide not as between “skilled” and “low-skill” workers but as between those with more or fewer easily acquirable skills. So-called “skilled workers” are much less willing to change occupations between jobs, in part because their skills are harder to acquire. For example, an electrical engineer will look for another position as an electrical engineer. On the other hand, servers at local restaurants may become receptionists or cashiers at other local businesses, and their skills will either transfer relatively easily or they will acquire new skills. This willingness to change careers can make low-skill employees harder to hold on to, presenting an additional challenge for small businesses that typically hire people with skills that can be easily learned.
The divide between what employees want and what employers think employees want also makes addressing attrition difficult. In general, employees prioritize relational factors and employers prioritize (and think their employees also prioritize) benefits. Years of data support this; a 1987 study by Kenneth A. Kovach, “What Motivates Employees? Workers and Supervisors Give Different Answers,” looked at four decades of survey data and found that employers consistently rated benefits as more important to both employees and employers while employees rated relational factors as more important. These findings hold true today: a McKinsey report from 2021 surveyed employees who quit their jobs and found that 54 percent felt undervalued by their organization, 52 percent felt undervalued by their manager, and 51 percent said they did not have a sense of belonging. And, of the factors most important to employees—being valued by their managers and organizations, having a sense of belonging, and maintaining a work-life balance—employers underrated the importance of all but work-life balance. This isn’t to say that pay and benefits aren’t important; these are necessary for getting new employees in the door, but ultimately do not reduce attrition.
Proactive steps for small businesses
If employees and employers disagree on what factors are important to staying in a job and increasing pay or benefits won’t keep workers from moving on, what can small businesses do? Here are some suggestions to attract and retain employees.
- Align the company’s values. Few things are as much of a turnoff to employees as when employers express their values, but those values are absent from the working environment. Small business owners should be clear about what their values are and then ensure they are demonstrated throughout the business. Then, employees should be hired based on their alignment with those values. There is no good or bad employee: finding the right hire is about the fit between the person and the job.
- Develop a strong HR system. For small businesses, an HR system can be as simple as ensuring that job descriptions are accurate and clear so potential and new employees do not feel a disconnect between the job as advertised and the job they’re being asked to perform. It is also important to ensure necessary legal processes are in place.
- Create structures for enablement. By identifying employees’ training and retraining needs and creating a system to address them, employers can develop a stronger workforce, especially when it comes to leadership and management. Employers should remember that leadership is a skill and prioritize the promotion of employees who are good leaders rather than simply good at their jobs. Strong standard operating procedures and processes can help employers support their employees and make employee retention a business goal.
- Treat people like humans. Employees want to feel that they are seen as more than just a tool for productivity and that their hard work will be rewarded. Employers should create an environment employees want to work in, with a sense of community and camaraderie, where employees feel safe, and where the relationships are more than just transactional. In performance reviews, managers should distinguish between the employee as a person and the employee’s performance to keep feedback from feeling like a judgment of the employee.
- On-the-job factors. Most of the job factors employers think are important include paying a competitive wage, the potential for career growth, benefits, raises, and so on. While these factors are necessary to attract employees, they are less important for retention.
The consequences of the divide between what employees want and what employers think employees want are especially severe for small businesses that rely on low-skill workers. Profit margins are often smaller, the loss of institutional knowledge will have a bigger impact, and workers may be more inclined to change jobs or positions in search of a better fit. While on-the-job benefits like salary can bring new employees in the door, small business owners need to take the time to find employees who are aligned with their values, and then make sure they feel like valued members of the team. Otherwise, the “Help Wanted” sign will likely remain a permanent fixture.
