MBA Research

Trend #50: Employee Loyalty—Keeping Top Talent

What’s keeping employers up at night? Employee retention.  A more transient society plays into this but so does a struggle by employers to offer the pay and benefits necessary to keep employees with them long term. One study indicates that 69 percent of employees say searching for new jobs is a regular part of their routine. This month's Action Brief explores the changing landscape of employee loyalty and what businesses can do to decrease turnover of valued workers.

The unemployment rate, currently at just over 4 percent, is partially driving what is known right now as an “employees market.” The natural rate of unemployment is between 4.5 and 5 percent. Rates below that threshold make it increasingly difficult for businesses to retain enough workers to maintain ideal operational capacity. In addition, there is a mismatch between the skill sets employers need and those possessed by the unemployed population

Further complicating things for employers is the tendency of millennials and members of Generation Z to change jobs more frequently than their baby boomer counterparts. In 2016, a U.S. Bureau of Labor Statistics study showed that 18-35 year-olds in the workforce had an average tenure of 1.6 years on the job. The “gig” economy and the of lure entrepreneurial adventures are detracting even further from workforce stability. In addition, some urban areas experiencing high-business growth are also facing housing shortages and/or unaffordable housing prices for middle and lower class workers, making it difficult for potential employees to help fill jobs in those locales.

Even if businesses aren’t feeling the pinch in the recruiting and hiring stages, it's still important for them to evaluate their employee loyalty levels and retention plans. Why? Turnover can be expensive—some studies put the cost at 6-9 months of the employee’s salary—other studies estimate a higher cost. Turnover can also lower productivity levels, reduce employee morale, and jeopardize trade secrets.

Why aren’t workers more loyal? Studies show that workers who are changing jobs are doing so for a number of reasons including:

  • Lack of career advancement pathways
  • Underutilization of skill sets
  • Need for greater flexibility and better work-life balance
  • Unsatisfactory pay and benefits packages
  • Lack of engagement in the company and work efforts (A recent Gallup poll shows that 87% of employees are disengaged at work.)


Besides competitive compensation and traditional benefits, what will help employees want to stay? Businesses are working to find the right answer to this question. They are finding that employees want more generous benefits, such as:

  • Mentoring, training, professional development, and coaching
  • Student loan repayment assistance (PwC offers each of its employees $1,200 for this purpose.)
  • More lifestyle perks including childcare benefits, access to mental health services, and expanded leave options

Some employers are getting creative with benefits to help promote work/life balance. Salesforce provides employees with six days of paid volunteer time per year and $1,000 a year to donate to a charity of their choosing. Airbnb provides employees with an annual stipend of $2,000 to travel and stay in any Airbnb location worldwide. Netflix provides new parents with one paid year off and the option to return to work part-time. While these benefits would be challenging for some companies to provide, they can still appeal to potential and current employees with wellness programs, free snacks, flexible work hours, and relaxed working environments.

Employers are also discovering that workplace culture and employee engagement play a huge role in retention. Studies show that engaged employees are more productive, more customer-focused and can help companies be more profitable. How can employers promote engagement? Some of the top drivers in this area are:

  • Demonstrating ethical leadership skills and commitment to the success of the organization 
  • Being transparent to promote trusting relationships and rapport with employees
  • Making sure employees feel valued and that they understand they are the most important resources in the organization
  • Encouraging employees to problem solve and innovate
  • Offering employees professional growth and career development opportunities
  • Aligning organizational goals across all employees and rewarding them with profit sharing or gain sharing


Human resources professionals also recommend looking at the entire employment lifecycle when strategizing about how to retain top talent:

  • During the recruitment and selection stages, ensure that employee and employer are well matched. This lays the groundwork for a long relationship. This is an important time to make sure that employee and employer expectations and ideas about the job and company and candidate values are well understood.
  • The onboarding process helps set some of the early expectations for how employees will be treated and valued throughout their tenure. Having a strong training and orientation program, sends a message to new employees that they are important to the success of the organization.
  • Millennials and employees in general are asking for, and receiving, more regular feedback in the form of formal performance evaluations. Among other thingsthis feedback can allow both the employer and employee a chance to evaluate prospects for advancement. They use this opportunity to seek feedback from employees about the organization as well. It’s better to get this input during the employee lifecycle rather than during the exit stage.
  • Challenging and motivating employees throughout the employment lifecycle are key to making sure they stay engaged.
  • Employee recognition is a key component for ensuring an organizational climate that is positive, productive, and innovative.
  • When the exit stage is reached, employers need to take full advantage of what employees have to say about their work experiences in the organization and what types of things would have improved the experience.

Classroom Implications

Students can start to understand the concept of loyalty and engagement based on jobs, volunteer work, school clubs, or sports teams. Ask them to think about the factors that influence their participation (or lack of participation) in their current daily worlds. Have them think about whether engagement is an employer responsibility only, or if the employee plays a role as well.

Encourage students to identify their values as well as factors about work that are important to them and to share what benefits, besides pay, are important to them. Discuss ways that these issues and values can be talked about during the interview with employers.

Have students research companies to find out how they are addressing loyalty and retention issues.

Have students read this article about the natural rate of unemployment and discuss how unemployment rates can affect employee loyalty.       

ACTION BRIEF UPDATE:

One of our Action Brief Advisors, Rusty Poeppelmeier, a Bond Manager with Liberty Mutual Surety in Cincinnati, Ohio responded to our January Action Brief with the following comments:

Each generation has differences that create challenges and opportunities. People leave jobs for a lot of reasons and students should learn more about those trends. The interesting part is that most studies vary in what are considered the top three reasons that employees leave jobs. This is partly because they change over time and each generation is different. But the reasons generally revolve around topics related to empowerment, engagement, and recognition. Students should read and understand the different answers and understand they can and will change over time.

Students should spend time learning the history of employee rights and what drove the need for change. The landmark acts such as the social security act of 1935, Fair labor standards act of 1938, Civil rights act of 1964, OSHA act of 1970, the ADA of 1991 and others are good to study for context. What events led to the formation of unions would be another. Students might be surprised to learn that there were times in recent history when employee safety was not the highest priority. What might seem trivial or automatically expected by one generation was not to another. Employees fought to get those benefits and some retired never seeing them. Students should study how each generation was shaped and why it led to these differences. All too often I hear people talk about how this group or that group had it easier or harder. The reality is each group grew up in different times with a different set of variables. The newer generations will deal with issues the previous generations never faced. Some have never seen a world war while others saw two. One generation never had a computer while another rarely used a piece of paper or signed by “blue” pen. Others were somewhere in the middle.

Students should learn about the history and differences so they can broaden their perspective and understanding. This is important because some day they will be the leaders and will have to address retention issues with the generations that follow. Students who have a broader mindset and openness to change will be more successful in retaining and empowering employees. They will look for ways to engage, empower, and recognize employees, which will lead to better retention over time. It will give them a competitive edge in acquiring and attracting talent in the labor force.