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Why Bonuses Can’t Solve Your Retention Problems

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Hiring is important, but the act of getting a candidate to sign their working life over on the dotted line is only the first step in that employee’s relationship with your company. In order for your company’s staffing efforts to be truly effective, you need to make sure that the people you’re hiring, actually sticking around for a while to do some good work for your company. Because that’s what hiring is, not an end to itself, but the process of finding the best possible person to fill a role within your company. If employees are leaving your company just as fast as you can fill positions (or even faster) then you’ve got to place more of an emphasis on strengthening the retention arm of your staffing function. Even if you had the most efficient, broad and selective candidate screening process in the world, it wouldn’t mean a thing if the hires that you make don’t stick around for long enough to give you some return on your investment. In light of the increasingly difficult hiring conditions faced by employers in this country and the accelerating rate of turnover, it’s more important now than ever before to make retaining the talent that you can attract, a top priority.

First, let’s talk a little bit about what makes a person leave their job. Think back to the last time you took that job and shoved it. What caused you to decide that you needed to get out of there? Did your co-workers make fun of your hair and steal your lunch from the fridge? Did your manager’s demeanor alternate from extreme confusion to extreme anger on the drop of a hat? Was your workflow constricted by rigid company policies that wasted more time than they saved?

Whatever the case, job satisfaction can be a difficult state of mind to hold onto, most professionals opting to look for greener pastures rather than try to work with what they’ve already got. Tech workers in particular have a uniquely frustrating blend of being highly in demand and being incredibly short in supply. In short, these workers have options and they sure as heck know it. According to research from Dice, 65% of surveyed tech professionals were confident that they’d find a “new, better position” in the near future. So, with the majority of the most in-demand professionals in the country excited to get into a new, better job, you can see why a hiring function without a corresponding retention function is unsuited to today’s talent market. According to the Cielo Talent Solutions, here’s how companies have been trying to promote retention among their ranks:

  1. More interesting or challenging assignments (17%)
  2. Increased compensation (17%)
  3. Flexible work location/Telecommuting opportunities (10%)
  4. Flexible work hours (9%)
  5. Training, high-level recognition or other (8%)
  6. Promotion or new title (5%)
  7. Offered no motivators (34%)

Let’s go back to that last job that you left. Most employees, especially well paid tech talent, don’t derive their job satisfaction from how much money they make. Once a person has enough money to live comfortably, money ceases to be as strong of a motivator . Money is a necessity in this country just as much as food and water (because you need money for food and water!) and, once a person no longer fears starving to death, they start to think about all of the other things in life that could be going a bit better. The fact that increased compensation was tied for first with making someone’s job more interesting and the largest percentage of businesses tried offering “no motivators” to employees just goes to show how backwards employee/employer relations have become.

Yes, a raise is a good thing and, yes, paying an employee more shows them that they’re important to your company, but, as economics taught us, resources are scarce and cannot meet everyone’s demands for those resources. I mean, besides the fact that giving everyone a raise could bankrupt you, giving out monetary compensation to encourage retention rarely ends well. Many companies are unwilling to invest in increasing the salaries of their top performers, opting to pay out retention bonuses to increase employee loyalty instead. The only problem is, retention bonuses don’t work. According to Dr. John Sullivan, here are the big 3 reasons why Employee Retention Bonuses don’t work:

  • ERBs are evil because they are a form of “paid servitude,” where you buy rather than earn employee loyalty.
  • ERBs don’t actually work in a time when turnover rates have gone up 45 percent.
  • ERBs have many negative unintended consequences that unintentionally create damage.

Besides these big bad reasons why you shouldn’t invest in ERBs, Dr. Sullivan insists that in he’s never seen any convincing corporate data proving the effectiveness of these bonuses. At best, throwing more money at your retention problem will only cause a temporary spike in employee engagement and retention. Once the fleeting glow of that extra cash has faded, you’ll be exactly where you started, if not worse in that employee’s book. Offering retention bonuses can be a red flag for employees, the gesture suggesting that the company is in dire financial straights or has an out of control retention problem. Besides the weakness that ERBs can suggest, bonuses can also get you a whole lot of resentment from employees who you didn’t pay out to.

Instead of using this ineffectual retention strategy, use one that works! In order to curb a retention problem, there must be a larger emphasis on the connection between employees and management. By conducting a yearly or semi-annual “stay interview” (an informal discussion with every employee about their job satisfaction and what could be improved), you can get advanced warning of an employee leaving and even get the chance to change their mind. Stay interviews also provide you with the reasons that people plan to leave, giving you insight into some of the workplace factors that could be driving employees away.

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