We often read about how human capital is a key source of sustainable competitive advantage and how it is important to reduce turnover. So how can organizations retain high performers? What does the literature say about employee retention?
I stumbled upon two articles (referenced below) that explore a new-ish theoretical HRM framework that the authors call “employee equity“. The authors argue that if HR managers were to apply this framework, it could enhance employment and increase retention.
The concept is borrowed from Rust et al. marketing framework i.e. “customer equity”. In effect, the authors argue that employees should be considered as internal customers and treated as such. As in the customers equity framework, firms should look at the overall value of employees by discounting their “future lifetime value” to the organization. And this “future lifetime value” is function of the strength of the employee’s contribution but also of the length of the relationship with the employer.
For example, the authors write that “investment in a combination of socialization and training activities that create strong identification with a firm’s mission, values, and ethical orientation will yield loyalty, satisfaction, and retention”.
They also explain that employee equity can be broken down into three sub-categories (also borrowed from the customer equity framework).
- Value equity refers to the value the employee is perceiving to extract from her/his employment. Employees weigh their efforts against the benefits from their job. So, for a firm to improve the value equity, it should give more of what employees want and go easy on what the employees have to forfeit. That talks to me … I would value my employment better if I could work flexitime, in a nice and ergonomic environment, with a concierge who could do my errant…
- Brand equity is about the overall perception the employee has about the firm. Obviously, the perception is “subjective and emotional”. A strong brand equity helps creating a bond between the employees and the organization. I buy that too! No wonder so many people want to work for Google, a brand that oozes innovation, free spirit, respect for employees, etc. If a company develops an ethical, fun, innovative, and/or responsible image, employees will associate with the brand and stay longer.
- Retention equity is the “stickiness” of the employees to the firm. There are many ways to improve retention equity. “Golden handcuffs” i.e. pension, accrued vacation, stock options make for expensive “switching costs” should the employees lose all or a portion of these entitlements when leaving the company. Encouraging friendships in the firm (through team building, celebrations, special events and employee recognition) also create a social bond that employees might be reluctant to let go of.
Finally (and this is where I became dubious), the authors advocate categorizing the workforce as an airline would do with its passengers. The authors would segment employees into “Lead”, “Silver”, “Gold” and “Platinum” (this segmentation was obviously done prior to the gold surging and becoming more expensive than platinum…).
“Platinum” employees are “natural leaders” (sounds like Charles Darwin’s evolution theory), high potential, who “are willing to try new approaches, be innovative, and engage in extrarole (citizenship) behaviors”. “Lead” employees, on the other hand, “shirk duties, complain, require constant management attention, bad mouth the company, and cost an organization more than they are worth” (what a bunch of bad employees).
I am not a big fan of boxing individuals. The authors, on the other hand, are open supporters of the “forced distribution” HR practices that were intensively used by Jack Welch at GE. They write that the “Lead” employees should either move up or move out.
They also explain that HR programs and practices would need to be customized to meet the needs and equity requirements of each category. In other words, “Lead” employees value different things than the “Platinum” but all “Platinum” employees have the same interests! Employees have again lost their individuality.
I am not convinced. I do not think that commoditizing employees is really going to improve retention. I understand the need (or the urge) to find an easy and systematic way to recruit, manage, and motivate the workforce. But the whole (workforce) is determined by its parts (employees), and as such each employee should (and deserved) be considered unique and not as an element of a sub-group.
Cardy, R. L., Miller, J. S. & Ellis, A. D. (2007). Employee equity: Toward a person-based approach to HRM. Human Resource Management Review, 17, 140-151
Cardy, R. L. & Lengnick-Hall, M. L. (2011). Will they stay or will they go? Exploring a customer-oriented approach to employee retention. Journal of Business and Psychology, 26, 213-217.
Rust, R. T., Zeithaml, V. A., & Lemon, K. N. (2000). Driving customer equity: How customer lifetime value is reshaping corporate strategy. New York: Free Press.
