3 Essential Retention Strategies for HR Leaders in 2023
Learn the top strategies to prevent attrition, motivate and inspire employees, and build a culture of trust and transparency.
If you’re like most HR leaders, retention is priority #1 in today’s landscape of record inflation, looming recession, and a tight labor market.
Why retention is so critical right now
Attrition is expensive — especially during economic downturns. Each departure costs companies about one-third of a worker’s salary, according to the World of Work’s 2022 Retention Report. That’s $25K for every worker making $75K.
The risk of employees quitting is also great if you consider that Mercer’s recent study finds 1 in 3 employees are considering quitting, up from 1 in 4 in the preceding year.
In the tech industry, 57% of workers say they plan on looking for new jobs, according to Hired’s 2022 State of Tech Salaries report.
That number signals a lot of potential disruption since that same report finds it takes U.S. businesses 60 days to fill an open role. That may even be an enviable position since companies often aren’t able to backfill roles as they tighten budgets.
When you add the increased workload and damaged morale of the employees left behind, a plan for retention becomes even more pivotal.
About this guide
While the outlook may seem bleak, there are strategies that HR leaders can start implementing today to prevent attrition anytime of the year.
To help you keep top performers, we’re sharing retention strategies and best practices that will motivate employees and build trust, while keeping processes fair and equitable.
- On-demand webinar: 3 Things HR Leaders Must Know About Retention in 2023
Download a PDF version of this guide by filling out this form, or keep scrolling to learn more.
Start with a Job Leveling Framework
This first retention strategy is all about creating clarity around roles so employees know exactly what’s expected of them and how they can progress in their careers.
A Gallup poll found that lack of role clarity is one of the top 5 reasons for employee burnout. Employees who experience burnout are:
- 2.6x more likely to be looking for a new job
- Half as likely to discuss how to approach performance goals with their manager
- 13% less confident in their performance
If you’re serious about retention, set your focus on job levels and the career pathways they support.
Job levels, defined
Job levels define the seniority, expectations, and responsibilities for a specific role. For example, engineer, senior engineer, and lead engineer are different levels of a role, each with its own competencies, responsibilities, and salary band.
Job levels create a framework for career pathways, helping employees see what they must do to excel and get promoted, and what a long-term career at a company might look like.
How to create a job leveling framework
Step 1: Meet with top execs and stakeholders
Ask execs and stakeholders to help define the competencies (skills and behaviors) of each level within the framework. Remind them of the difference between a competency and a quality. A competency, such as communication, can be measured objectively. A quality, such as fairness, is subjective.
Step 2: Recommend competencies
Propose competencies for every job level based on your conversations, taking into account business needs, strategy, and culture. You can have companywide competencies and layer on others that are specific to certain roles or functions.
Step 3: Write descriptions for every job level
Descriptions can help you measure proficiency for each competency. Aim for a clear distinction and scale of complexity between levels without getting too rigid. No two levels should have the exact description.
Step 4: Apply a salary band to each level
If you’ve already completed salary benchmarking and decided what you can afford to pay relative to the market, assign a salary band (also known as a pay range) for each job level.
Job Leveling Best Practices
Now that you know the essential steps to job leveling, here are more tips to help you create the best job leveling framework for your organization.
#1. Ask: What makes someone successful in THIS organization?
Companies have different metrics for success. In addition to competencies, think about the needs of your company. Group answers by themes and use them as a basis for your leveling.
#2. Make it measurable
Don’t make the framework too specific. For example, a checklist may not account for all the knowledge and skills an employee needs to master a role, and could lead an employee to believe they’re ready for a promotion when they’re not.
At the same time, don’t make the framework too vague. “Must know how to manage people,” leaves a lot to interpretation. But “Manage a team of 5 or more” is quantifiable.
#3. Get input from managers, not just executives
Managers are the ones who will see the roles and levels in action daily. Throughout the process, ask managers if the levels, competencies, and descriptions make sense to them. Do they support what managers see and experience? Do they reflect the company culture?
#4. Confirm internal alignment
Creating a job leveling framework can be a long and complicated process. Before rolling it out, confirm that all stakeholders agree with the final framework. It’s easier to make adjustments before you’ve placed employees in your new levels.
#5. Train managers
Even if managers weighed in on the creation of the framework, they won’t necessarily know how to use it. Train managers on how to apply the framework during hiring and promotions. Equally important, train managers on how to explain job leveling to employees in a way that’s clear and relatable. This empowers managers to have confident conversations about compensation with employees and avoid the dreaded answer, “That’s what HR told me.”
#6. Share the framework with employees
Workers want to know that pay at their company is not random. A job leveling framework (along with salary bands and your compensation philosophy) can show employees there’s a strategy behind pay decisions.
How you share your framework, and how much of it you share, is up to your company. What’s important is making everything easy to understand. Include examples and definitions of any technical terms that may be unfamiliar to employees.
#7. Revisit your framework often
No matter how successful, the framework you have today might not suit your company in the future. Include a review of your framework in your normal compensation process. Update your framework as needed.
If the idea of constructing a job leveling framework sounds daunting, don’t try to reinvent the wheel. There are plenty of templates and resources that can make the process a breeze. Our Services team also specializes in developing Job Architecture Frameworks, so feel free to reach out.
Career Pathway Best Practices
Once your job levels are ready to go, begin developing career pathways that motivate employees to grow their skills and envision a future with your company. Here are best practices for creating inspiring and clear career paths.
#1. Ask employees what they want
Don’t make assumptions about someone’s goals. While some workers have their eyes on promotions, others might be satisfied in their current role and simply want more work-life flexibility in recognition of great performance. By learning about individual motivations, you can tailor plans and support.
If an employee doesn’t know what they want, be ready with suggestions that can help them discover a career path that they’re excited about. Ask questions like: What are your strengths? What are you good at? What are you curious about?
#2. Make career plans simple and flexible
Goals may evolve and trends for a role may shift. Design career pathways to allow for modifications along the way. This includes giving people an opportunity to change their minds if they discover they’re no longer interested in a particular path. It’s easier for smaller organizations to be flexible, but that doesn’t mean pathways have to be set in stone at larger organizations.
#3. Consider individual situations
The most motivated employees aren’t necessarily the ones who raise their hands. For example, an employee may want to take on a special project but can’t work the extra hours needed because they have young children. In circumstances such as this, how can you provide opportunities that suit that employee’s situation?
#4. Make the goal setting process and objectives and key results (OKRs) transparent
While career pathways are about individuals, everyone is driving toward the same department-specific and company-wide goals. By knowing the ultimate goals, you can identify where the employee can contribute, where there are gaps in knowledge or skills, and what kind of support you can provide.
This ties back to goal-setting conversations and how an employee can build knowledge as they progress up the ladder. It’s not about checking off boxes in the job description.
#5. Check in often
Frequent check-ins, conversations with managers, and regular feedback can help keep employees on track, both in formal reviews and informally during 1:1s. These interactions can also help managers spot problems and learn where an employee might need more help.
Offer guidance, but ultimately, employees must own their career paths. Encourage them to identify their own stretch goals and, like a coach, steer them in the right direction if the goals are too ambitious or not ambitious enough.
The Art of Failing Fast & Learning From it in HRRead More
Build Motivation with Merit Cycles
A merit cycle (aka focal reviews or annual reviews) is the process of determining salary adjustments based on performance. They usually follow or coincide with the performance review process. Adjustments can be in the form of promotions, bonuses, or additional equity grants. These adjustments are separate from annual cost-of-living increases.
Why merit cycles matter
Because merit increases recognize employees for their contributions, they can play an important role in retention when done right.
According to a Gallup-Workhuman study, employees of companies who prioritize recognition are:
- 56% less likely to be looking for new jobs
- 3x as likely to feel loyal to their organization
- 4x as likely to strongly agree they would recommend their organization as a great place to work
- 5x as likely to see a path to grow at their organization
So how can your company make sure its merit program creates an empowered and loyal workforce? The next chapter’s best practices can set you on the right path.
Merit Cycle Best Practices
Here are more tips for creating a fair, consistent, and motivating merit cycle process.
#1 Be specific about eligibility criteria
Don’t begin a merit cycle until you know exactly which employees qualify. For example:
- Is eligibility based on hire date?
- Are certain roles excluded?
- Is it only for the top 25% of performers?
- Are part-time employees eligible?
#2. Get buy-in from leadership on behaviors the company rewards
The achievements you reward during a merit cycle reflect a company’s culture and vision. Confirm your merit cycle plan with leadership before rolling it out to make sure you’re encouraging behaviors that support the company’s goals.
#3. Determine frequency
Merit cycles can be conducted annually, twice a year, or quarterly. The more often you have merit cycles, the more work is required for all involved. But frequency also affects the message you send to employees and job candidates about what your company values, so consider the cadence carefully.
If you’re a small or younger company who’s competing against a FAANG, it may benefit you to do merit cycles more than once a year. A frequent cadence also gives you more opportunities to talk about performance.
If you stick to once a year and consider retention a priority, there’s a greater need for you to get it right every time. Otherwise, you may see turnover.
#4. Know your budget
How much money do you have to work with and what’s your budget based on? If finance says your budget is 3%, ask 3% of what? Is it based on salaries for all of those who are eligible? Or is it based on all employees as of a specific date?
#5. Take time for compensation benchmarking
Regular compensation benchmarking will help you keep track of the current market. If you don’t take time for this step, you risk being behind the curve.
However, keeping the pulse of market shifts doesn’t mean you have to adjust your pay bands every quarter. Respond to trends over time, not just in a single quarter.
#6. Have a communication plan & talking points for managers
Share the merit cycle plan and criteria with employees well before they meet with managers. And look for ways to take some of the communication responsibilities off the shoulders of your managers. For example, take the mic at an all-hands meeting to explain the process and answer questions.
In addition, train managers on how to talk about compensation and the merit process in a way that employees can understand easily — while making them feel valued and appreciated. That’s a tall order, so give managers all the tools and support they need.
#7. Don’t skip performance calibrations
During performance calibrations, executives and/or managers meet to review performance ratings for individual employees. This allows participants to get aligned on how they’re rating employees, check for biases, and make necessary rating adjustments based on what they’ve learned.
#8. Conduct a pay equity analysis
Before you distribute merit awards, conduct a pay equity analysis to identify pay gaps.
Once you’ve identified a gap, look for the reason. It may be because an individual was promoted off-cycle and is in the lower part of a new pay band. Even if you don’t need to make adjustments, it’s good to know where the gaps are.
#9. Budget for adjustments
If you’ve identified a pay gap that exists without a fair or logical reason, make the adjustment as soon as you can. If you don’t have the budget to make adjustments right away, have a plan for phasing in the adjustment over time.
One strategy for budgeting for adjustments is holding back a percentage of your overall merit cycle budget. If your budget is 3%, you might reserve a quarter point. If you end up not using that reserve, fold it into another operating expense.
Employees will appreciate the effort you’ve made to make things right. According to a report by industry leader and HR analyst Josh Bersin, companies who make reward fair and equitable are:
- 5x more likely to accomplish outstanding people outcomes (retention and engagement)
- 5x more like to have outstanding financial and customer service
- 6x more likely to innovate and adapt well to change
Prepare for Pay Transparency Legislation
Pay transparency is no longer an option. It’s quickly becoming law in many states and localities and is demanded by workers. A recent survey of 1,000 employees found that 68% said they’d switch to a more transparent employer — even for the same pay.
So how can you ensure that your company is able to meet the moment? These best practices can get you started.
Pay transparency best practices
#1. Document and share compensation policies and procedures
Put in writing all the information that explains how your company makes pay decisions and share it with employees and candidates. This information includes your salary bands and compensation philosophy, the formal statement that explains how you pay and reward employees.
#2. Review pay ranges annually
Make sure your pay ranges are aligned to the current market by benchmarking and reviewing your ranges at least once a year. Adjust your salary bands as needed.
#3. Conduct a pay equity analysis before posting pay ranges
If you’re posting pay ranges for the first time, conduct a pay equity analysis to identify people who are being paid below a range.
If you identify people below range, figure out why. Are those employees mapped to the right job level? Were there biases in your permanence review? Are the pay bands wrong? As with merit cycles, make necessary adjustments as soon as possible.
Pay equity audits can be a time-consuming process, especially if you’re doing it manually with spreadsheets. If you can, enlist a third party, or get one for free when you join OPEN Imperative.
#4. Add context to posted salary bands
Go a step beyond just posting salary bands. Include a summary of your compensation philosophy so candidates understand your pay strategy. And include information about how candidates will be assessed during the interview process to determine their place in the pay range.
#5. Prepare managers for tough conversations
Inevitably, posting pay ranges will lead employees to managers’ doors with questions about their own pay. That’s why manager training and education is key here as well. Managers must know how pay ranges were created and how people are placed within a range so they’re able to explain variations in pay among people in the same role.
Stay ahead of pay transparency laws
States like California, Colorado, and Washington have pay transparency laws that require salary bands in job postings. Others like Illinois require annual reporting on pay by gender, race and job category — and more states are sure to follow. Keep track of where pay transparency is now the law. Bookmark our Pay Transparency Legislation Tracker to stay up to date.
Boost retention — add OpenComp Merit Cycle to your tech stack
Manual processes are susceptible to errors and biases. Add compensation and HR technology to your tech stack for faster and more accurate decision making to prevent attrition, keep things equitable, and help managers and people leaders navigate difficult conversations.