With the U.S. unemployment rate at a sixteen year low, two important labor dynamics have emerged. First, wages are rising; businesses need to pay more to get the same job done. Second, employees are increasingly tempted to leave their current job for the prospect of a better one.
Many managers believe that the solution to employee turnover is to pay above-market wages or to throw money at people when they resign in the hopes that they decide to stay. In my experience, these approaches rarely work over the long run. The main reason that money doesn’t solve your turnover problem is that money isn’t the primary reason people leave their current job.
It’s a lack of trust.
Much of the research regarding employee turnover suggests that high performers leave their current jobs due primarily to a poor relationship with their direct supervisor. Closely behind is what I’ll refer to as a lack of clarity around future job opportunities. Both of these issues boil down to a lack of trust between the employee and the manager or the company. Here are three trust-building actions you can take right now to improve trust within your organization.
Manage with consistency. Ad hoc management styles can work well in small organizations, but once your team starts to scale beyond six or seven employees, it’s just not as effective as a structured management process. Managing with consistency includes the following components:
- Company goals are defined by management and understood by all.
- Progress against company goals is communicated regularly.
- Individual goals have been set and they tie clearly to company goals.
- Individual goal attainment is actively monitored and managed.
The opposite of managing with consistency:
- Company goals aren’t defined, and/or they’re not understood by the team.
- Nobody knows how the company is doing because data is not shared freely.
- Individuals don’t have goals that tie to the bigger picture.
- Managers are not checking in with their team members regularly to check progress against plan.
Set simple, clear compensation plans. Do your people truly understand how they get paid or have you created a Byzantine pay structure where every month it’s anyone’s guess what will be in your employee’s paychecks? Based on years of observation, I can confidently tell you that most companies dramatically over-complicate their pay plans – to their great detriment.
I get that management wants to protect the company against paying out commissions or bonuses that they shouldn’t or that lead to an unprofitable business. Understand, however, that the more rules and regulations you put in place around your compensation plans, the greater the feelings of mistrust that can fester and grow. Worse yet, if your payroll accounting processes aren’t tight, you can make mistakes with commission checks. Once you accidentally underpay someone, they’ll never trust you again; they’ll triple-check every paycheck forever.
A quick pay plan checklist to gauge for simplicity:
- Can I consistently run commissions in an accurate and timely fashion?
- Can I give my team members an accurate commission report?
- Can my team members read and understand their compensation plan without needing a Ph.D. in mathematics?
If you dread the payroll cycle when commissions are paid because it takes three of you an entire week to calculate them accurately, you’re doing it wrong. Step one on the path to simplicity: read this two-part series to determine your compensation philosophy.
Acknowledge weakness and admit mistakes. No business is immune from the ups and downs of the business cycle. The key to trust-building is to acknowledge when things aren’t going well and to admit when management has made a mistake that has harmed the business.
Ask yourself the following questions to see if you pass the management fallibility test:
- When something bad happens, do we share this information with the larger organization?
- When numbers slide, do we admit that things are off-track, and publicly acknowledge that fact?
- When management makes a call that turns out to be the wrong one, do you circle back with the team to explain what happened, and why, and what you’re going to do differently next time?
Employees want to know that management is self-aware and self-confident. The greater the transparency and the freer the flow of information, the higher the level of trust that will exist.
There are enough challenges that exist in your business without committing unforced management errors. If trust is lacking in your organization, it’s due to inconsistent management, goofy pay plans, and compensation policies, or a lack of transparency when the going gets tough. All of these issues are completely and proactively addressable and when you solve them, you’ll your best people will stay with you longer.