Employee Loyalty: Reality or Myth?

Employee Loyalty: Reality or Myth?

We've all heard the hype - a mass shortage of IT skills, lowest levels of unemployment in years, huge salaries on offer to entice employees away - encouraging a war for talent amongst IT companies. There is substance behind the hype. The Australian IT industry, whilst never being known for harvesting ‘life long' employment, is experiencing very high staff turnover. The channel in particular has ‘accepted' staff attrition levels of 17-19%. Bill Bennett, in the Australian Financial Review, commented on the global shortage of IT talent "In the US, unemployment at 3.9%, is at its lowest level since the 1960s. General IT staff unemployment is at 2.3%". Bennett goes on to say that Australia's technical employment scene is very similar. Thus supply and demand factors are now influencing salaries in an upward trend, a recent AIM salary survey shows that 63% of organisations surveyed reported salary increases during the last 6 months, with an overwhelming majority (93.2%) of respondents anticipating salaries to increase in the year to 31 August 2001.

The environment has never been so conducive to employees finding alternative employment and therefore the issue of Employee Loyalty is increasingly becoming a topic of interest.

Do we want or need Employee Loyalty?

We can have clear position descriptions and set objectives and goals for employees to reach, but most of us agree it is that ‘extra' effort from employees that really makes the difference. Employee loyalty is what motivates employees to go the extra mile to solve a customer problem, it's what encourages employees to share knowledge and skills with colleagues and work together as a team, to reach their objectives and indeed exceed them. It is this extra effort and positive ‘can do' attitude that affects the bottom line of a business and secures future business through reputation.

Apart from wanting a company powered by productive and positive staff, we want and need employee loyalty because staff attrition costs the business, and costs it dearly. A conservative measure of the cost of staff attrition is 1.5 x the annual salary of the departed employee (most management consultants say it is more accurate to use a measurement of 3 x annual salary). This cost includes the cost of recruitment, training, loss in productivity, effect on morale of team mates, loss of customers (if sales/consultant role) etc.

It starts looking pretty bad when you do the maths- Profile - A company with 80 employees, an annual staff turnover of 17% (channel industry standard), with average salaries of $50,000.

- Cost of Staff turnover - $1,020,000 per annum (conservative) or $2,040,000 per annum.

Even if you choose to dispute the 1.5x measure as too intangible and simply look at the cost of recruitment, this turnover would have cost this organization $118,320 per annum in recruitment costs (using industry average recruitment fee of 15% + advertising costs).

These are numbers we should not ‘accept' and we should do what we can to address the underlying causes. In short, employee loyalty must be a business imperative.

Does the IT industry have a right to expect Employee Loyalty?

The late 1980s, early to mid 90s and indeed a still largely accepted business practice (particularly in the IT industry) today was down-sizing via company restructure. This led to an unstable environment where employees could see no rhyme or reason as to why they (or their colleagues) took the hit and lost their jobs. From an employee perspective, it seems it is no longer enough to work hard, produce results and follow direction, for that's no longer enough to ensure job security.

Employees, feeling helpless in the face of such unpredictable change, have reacted by focusing on what they need to do to maximise their potential for future employment. It is recognised that to be highly desirable in the employment market one must have the appropriate qualifications and skills backed up with current and relevant experience.

Employees now more than ever are focusing only on themselves and approach companies with the question "What's in it for me?" So we in the IT industry must accept its volatile nature, and not ‘expect' employee loyalty, but actively work to obtain it.

What do we need to do to obtain loyalty?

This brings us back to the initial question - why are you staying?

Employees want more: Work/Life balance, the ability to socialise at work, to feel they make a difference to the the company's success, to see a future with the company, to be paid fairly and rewarded appropriately, to be treated with respect, and be given the opportunity to continue to grow and develop.

In order of priority, employees want

- Job Satisfaction - Seeing how they contribute to the big picture and help achieve corporate goals- A Great Manager - Receiving direction, support and guidance from their manager, whilst still being relatively autonomous to perform their role.

- Career Planning - Seeing a future and being helped to get there, given options of different directions their career could take & provided training.

- Rewards & Recognition - Recognition for the extra effort & great work- Salary - Remunerated fairly and competitivelyAll reasonable expectations. Why then, are so many companies getting it wrong? In general, most companies are choosing to ignore the real cost of high staff attrition and not implement and invest in the training and strategies they need.

There are many factors that influence Employee Loyalty, however there are three areas a company must focus on:

1 Get the basics right

The employees of today are more demanding and know what they can expect in an organization. Therefore salary packages should be competitive, remembering yesterdays' fancy salary packaging is today's basic - i.e. share options are now a standard part of salary packages in the IT industry. There needs to be clear position descriptions, and set clear & measurable goals and objectives. To stay on top of things, regularly ask your employees what it is that is important to them in a company.

2 Line Managers to do ‘HR'

In a recent BRW article, Lyn Ware and Bruce Fern, retention specialists with Integral Training Systems in California, were quoted saying their research consistently showed that the manager plays a significant role in influencing an employee's commitment level and retention. Similarly, the Gallup Organisation's multi-year study of 80,000 managers in 400 companies found that an employee's relationship with his or her direct boss is more important for retention than company-wide policies such as pay and perks.

Yet many companies continue to promote people into line management positions without any training.

The traditional manager/employee relationship has changed - line managers must now adopt more of a coaching and mentoring style with their employees, whilst still enabling the freedom to perform their roles.

3 Create a Positive working environment

- Why does negativity surface at work?

- Increased pace of jobs results in more stress and pressure to perform- Competition for positions threatens employee relationships- Corporate mergers contribute to insecurity and require making adjustments- Government regulations impact performance and may seem restrictive to some managers or employees- Uncertainty of changeThe leadership of companies need to set a clear vision on where they want the organisation to go and communicate the high level strategies they are employing to get them there. Organisations need to encourage open communication about the successes and failures occurring in the business and encourage employee participation in finding solutions.


Steps One, Two and Three are not easy to achieve, but if achieved they contribute significantly to the success of the business, with a much stronger and more positive work environment, loyalty from your employees, and significantly reduced attrition costs. So focus on the intangibles, realise they have a huge impact on the bottom line, and enact some positive change.

Jodette Cleary is the Human Resources Manager at Siltek Asia Pacific Pty LtdWhat is Employee Loyalty?

Employee loyalty can be defined simply as employees wanting their company to succeed. This is manifested in employee behavior such as:

- vocally supporting the company's business and direction externally- approaching their jobs, daily challenges and work colleagues positively- remaining with the company for a significant period of time, including during periods of downturn in the business.

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