How Firing Hammers Hiring
PHil Wagner

Adapted from “Measuring What Matters – Retention,” 2009 Recruiting Metrics and Performance Benchmark Report

Layoffs affect morale; morale affects retention; retention affects recruiting. Any recruiting manager who has ever worked through a down business cycle intuitively understands this. But to what extent?

Charlie Trevor and Anthony Nyberg at the University of Wisconsin-Madison studied two years of data submitted by companies seeking to qualify for Fortune Magazine’s annual list of the 100 best companies to work for. Their findings suggest a measurable relationship between firing and retention.

It didn’t take much to move the needle. On average, involuntary turnover of as little as 1% of a workforce resulted in a 31% increase in voluntary turnover. Larger layoffs generally resulted in even greater turnover. The data had an interesting link – career development programs.

The authors suggest that the data identifies a delicate tipping point at which employees decide that their employer has changed from being a stable employment environment to an unstable one, from being a non-downsizer to a downsizer. Crossing that tipping point by even a small amount substantially increases the number of people who start looking for new jobs. Career development programs may factor in by prompting people to actively re-evaluate their careers and begin thinking about investigating alternatives and increasing their job market visibility.

“If you’re not thinking forward, you’re moving backward.” (Business Week)

Terminations aside, there has always been a tight, symbiotic relationship between recruiting new employees and retaining them. If the enterprise that’s recruiting talent doesn’t have an effective plan for retaining talent there will always be additional costs, including extra recruiting and training; lost expertise, relationships and institutional knowledge; and dips in productivity. The total tab will always be much higher than a traditional financial analysis would suggest.

For years, we have advocated measuring candidates’ qualifications and performance throughout their introductory hiring period. That period can be surprisingly short. An Aberdeen Group 2008 study (All Aboard: Effective Onboarding Techniques and Strategies) reported that 86% of all respondents decide within six months whether to stay with a company or not. As in a poor marriage, it’s easier to leave before commitments run too deep.

For months after they start, new hires still have their search network in place and friends, family and former co-workers asking, “Are you happy there?” or “Are you glad you made the switch?” And, for top or rare talent, headhunters armed with home and cell phone numbers are still checking in to make sure the new job is working out.

In addition to the core retention metrics presented in our upcoming 2009 Recruiting Metrics and Performance Benchmarks Report, the Aberdeen study described other significant retention-related measurements that recruiters can monitor, including

•    Time-to-productivity
•    Employee retention within first 6 and 12 months
•    New employee engagement
•    Onboarding cost per employee

Recruiting cannot be held accountable for new employee defection beyond the one-year mark, at which point “new” no longer applies. But before then, recruiting is squarely on the hook. Whatever the actual cause for high early turnover – and there can be many - the scapegoat is too frequently recruiting, blamed for having “brought in the wrong people.”

For the sake of its own credibility, recruiting must always have insight into the organization’s onboarding process. In addition to objective measurements of candidate qualifications and job competency, it must also support measurements of:

•    belonging
•    communication
•    chemistry
•    shared vision and mission
•    shared expectations
•    engagement
•    and trust.

In a 2009 follow-up study (Fully on-Board: Getting the Most from Your Talent in the First Year), Aberdeen found that best-in-class organizations shared these characteristics:

•    84% observed a standardized onboarding process
•    84% enabled collaboration throughout that process between HR, recruiting and hiring managers
•    67% began the onboarding process before a new employee’s first day.

Last year, 72% of these best-in-class respondents claimed to be using a formal onboarding process. This year, that number surged to 83%.

The Business Impact

Recruiting has a vested interest in retention.  Every extra body lost is another body that has to be replaced. A company that is growing at 20%, but losing 20% of its people to turnover, has to recruit and train 50% more people than the company that is only losing 10%. That’s a competitive disadvantage in any economy, and especially now.