The 2007/08 Employee Satisfaction and Retention Survey Maura Pallera, Global Research Analyst,

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1 i n s i g h t March 2008 The 2007/08 Employee Satisfaction and Retention Survey Maura Pallera, Global Research Analyst, mpallera@salary.com Bottom Line Subjects Employers understand reasons for employee retention and turnover but need to address how they manage performance and reward results in an effort to develop a motivated and engaged employee population. 2007/08 Employee Satisfaction and Retention Survey Results, Performance Management About the Survey The Salary.com 2007/08 Employee Satisfaction and Retention Survey. In late 2007, Salary.com conducted its third annual survey of employee job satisfaction and the factors that contribute to satisfaction and retention. A cross-section of individual employees and business representatives from across America were invited to participate. Prospective participants received an containing the survey questionnaire. Participants completed as many sections of the survey as they desired and submitted their results to Salary.com electronically. Salary.com compensation professionals reviewed the data for consistency and accuracy, excluding any data appearing to be invalid. A total of 7,482 individuals and 245 human resource or other company representatives responded to our survey. Among the individual employee respondents, 7,101 were employed and provided valid responses. Women represent 57 percent of the total employee respondents and men represent 43 percent. The average annual salary reported for all employees responding to the survey is approximately $73,000. This study highlights findings in topics that include: Employee Satisfaction Employee Job Search Activities Reasons for Leaving or Staying in a Job Employee Turnover Costs and Counter-Offers Employee Benefits Employer Perceptions Approximately 84 percent of employers responding to this year s survey feel they are at least somewhat perceptive about employee satisfaction within their organization. This study reveals that overall, employers have a good understanding of what motivates employees to stay or leave their current jobs. What is unclear is what efforts are being made by these employers to develop, motivate and retain an engaged workforce. In some areas, employers misjudge employee attitudes. They underestimate the extent to which employees are pursuing job searches. Employers generally overestimate how much additional pay employees would require to stay in their current jobs. Employers also underestimate how conservative employees are in terms of their willingness to move to a new job within a different organization. For the third year in a row, inadequate compensation remains the top reason employees leave a job More than half of employee respondents did not list any reasons for staying in their current job. When asked about reasons for staying in a job, women focus more on desirable work hours and good working relationships while men focus more on compensation. Although employees express interest in intensifying a job search, most expect a competitive offer to include a significant increase in salary for them to seriously consider accepting that offer. Copyright Salary.com Surveys. All rights reserved. 1

2 i n s i g h t March 2008 It is important to note that although an employee indicates a desire to intensify a job search in the near future, this does not necessarily mean they will act on that desire. What this increased interest does indicate, however, is job dissatisfaction. It is reasonable to assume that an employee who is content in their current position would not be planning to launch a job search in the near future. Almost 60 percent of employees responding to this survey indicated a desire to intensify a job search within the next three months. Employee Job Search Activities In the three years this study has been conducted, employees have consistently indicated they are much more involved in job search activities than employers expect. This year, 57 percent of employees indicated they are somewhat or very likely to intensify their job search in the next three months. This number is down only slightly from last year s figure of 62 percent. Once again, the most popular job search activities that employees are involved in are, in order of preference: surfing online job postings, updating resume, reading classified employment listings, networking with friends, and posting or ing resume to prospects. Once again, the most popular job search activities in which employees are involved, in order of preference: Job Search Activity Updated Resume Surfed online postings Read classified job listings Posted or ed resume 30% 42% 46% Employer Employee Networked with friends/colleagues 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Percent of Respondents Reasons Employees Leave or Stay in a Job The most common reasons employees leave their current job are: inadequate compensation, lack of career advancement, insufficient recognition, boredom, and inadequate opportunity for professional development. These are the same reasons in the same order of preference that have been reported for the past three years. Of special interest this year was the fact that although 30 percent of employers felt that a good manager/employee relationship was a major factor in employees choosing to leave a job, only 6 percent of employees responded the same. In terms of what encourages employees to stay in a job, good relationships with co-workers, good relationships with managers, desirable working hours, attractive compensation and attractive benefits were the most common responses given by employee respondents. These are the same reasons reported in last year s study with the exception that attractive compensation replaced job security in the top 5 this year. Interestingly, more than half of the employee respondents did not list any reasons for staying in their job on this year s questionnaire. The following chart summarizes the top reasons employees either stay in or leave a job. The top five responses in each category are shown along with the percentage of employers and employees selecting those individual responses. Survey participants could select more than one response to these questions resulting in percentages totaling more than one hundred. Copyright Salary.com Surveys. All rights reserved. 2

3 Top 5 Reasons to leave a job Employees Say Empoyers Think Top 5 Reasons to Stay in a Job Employees Say Empoyers Think Inadequate Compensation 36% Relationships with Co-Workers 25% Lack of Career Development 19% 30% Relationship with Manager(s) 25% Insufficient Recognition 17% Desirable Working Hours Boredom 11% 7% Attractive Compensation 20% 31% 17% 23% Inadequate Professional Development Opportunity 11% 12% Attractive Benefits 20% Gender appears to play a role in how employees responded to questions about leaving or staying in a job. Men and women continue to agree on reasons for leaving a job which are the same reasons listed above. Although men and women selected the same reasons for staying in a job, women place a higher importance on desirable working hours and positive relationships with manger(s) and co-workers while men focus more on compensation. A summary of reasons for staying in a job and their relative importance by gender group follows: % of Women Selecting this Option* % of Men Selecting this Option* Relationship with co-workers 28% Relationship with manager(s) Desirable working hours 26% Attractive benefits Attractive Compensation 16% * Respondents could select more than one option resulting in percentage totals of more than 100% Employee Turnover For the third year in a row, survey statistics reveal that companies are most likely to lose employees who have been in their current job for 3 to 10 years. Since this is considered to be a point in an employees tenure when they are most productive, this can represent a significant cost to employers. Sixty-two percent of employees responding to this survey who have been in their current position for 1-3 years indicate interest in looking for a new job, 63 percent of respondents who have been in their jobs for 3-5 years indicate a desire to seek new employment, and 59 percent of those who have been in their jobs for 5-10 years express a desire to look for a new job. In 2006/2007, employers estimated it would cost, on average, $15,000 to replace a typical employee due to turnover. This year, employers estimate those costs will average $21,000. This represents a 40 percent increase in anticipated replacement costs which reveals that employers understand the escalating costs of replacing employees. Employers were also asked to estimate what it would cost, on average, to replace an employee due to turnover and express that cost as a percentage of the replaced employee s salary. The average estimate was 34 percent although some estimates were significantly higher. The following chart summarizes the industries reporting the highest replacement costs expressed in dollars and estimated costs in those same industries expressed as a percent of the previous employee s base salary. Copyright Salary.com Surveys. All rights reserved. 3

4 Highest Estimated Cost Expressed as Annual Salary Estimated Cost as % of Previous Employee s Base Salary * Biotechnology $46,250 38% Aerospace and Defense $30,875 42% Energy and Utilities $28,512 31% Retail and Wholesale $27,545 47% MFG-Non-Durable $26,944 30% Industries reporting hightest estimated cost as % of Previous Employee s Base Salary Telecom: 93%, Transportation: 63%, Financial Services: 52% Competitive and Counter Offers Management may underestimate how much of a salary increase employees are looking for when considering a competitive job offer. In terms of competitive offers, 50 percent of employers feel that an offer of 8-15 percent from a competitor would be enough to lure an employee away. Only 31 percent of employees indicated the same. In fact, 38 percent of employees would consider a percent increase and 17 percent would want and increase of 31 percent or more to be lured away. Employers may be off the mark in terms of dollars required to lure staff away, but they seem to understand to some degree employees unwillingness to make a job change in light of current challenges in the economy. When asked if they extend counter-offers to retain a current employee, 51 percent of employers report they sometimes make counter-offers and 35 percent report never making counter offers. Although employers recognize the rising costs of replacing employees due to turnover, they will only offer, on average, a 7 percent increase to entice a valued employee to stay in their current job. This conservative figure may stem from employers confidence that the majority of their staff would be unwilling to accept a competitive job offer. Benefits When employees were asked what benefits, outside of compensation, would entice them to stay in their current jobs, the most popular responses were professional development, ability to work from home, additional vacation time, and flexible work schedule. Benefits that were not listed as an option in the survey but were written in by survey respondents include offering a 401(k) program or offering a more generous employer contribution to an existing 401(k) program as well as enhanced health insurance benefits. These responses highlight the growing interest in work/life balance and flexibility on the part of employees. Again, employees express the interest in and need for professional development. As stated before, this is one of the top reasons employees choose to leave a job. Performance Management There is general agreement that the best way to reduce recruiting costs is to decrease employee turnover. An effective Performance Management program is one tool that can be used to help decrease employee turnover. A Salary.com study of Performance Management Programs was conducted in the fall of The study revealed that only 15 percent of employees responding indicated their organization has a formal goal-setting process which is initiated at the beginning of the year that is linked with pay policies that differentiate rewards based on employee performance and achievement of goals. Only 30 percent of employee respondents indicated that informal discussions about performance occur with their manager through out the year. Key objectives of a Performance Management program include the following: Align employee performance objectives with corporate strategies and goals. Set qualitative and quantitative goals with descriptions, measures, targets, and dates. Copyright Salary.com Surveys. All rights reserved. 4

5 Monitor goal achievement throughout the year and manage performance planning. Connect performance outcomes to reward guidelines. Encourage better manager/employee communication. Allow career paths to become clearer and set the groundwork for individual development plans. Ensure top performers are rewarded and retained. Summary Employers remain vulnerable to losing key talent while implementing costly retention plans or programs that don t meet employees needs for job satisfaction. The 2007/2008 Employee Satisfaction and Retention Survey reveals that employees feel their accomplishments are not recognized and rewarded appropriately. Professional development, career paths and opportunities for career advancement appear to be lacking. In some cases, employees are actually bored. In addition, employees across all industries feel they are not adequately compensated for the work they do which indicates the need for employers to do a better job of communicating about pay. TalentManager Performance driven compensation HR Approved. Manager Friendly Empower your team and inspire your workforce with TalentManager, the ondemand pay for-performance software. TalentManager provides the robust functionality HR professionals require while delivering intuitive, easy-to-use solutions managers and employees demand. TalentManager offers a flexible set of in-depth compensation and performance management modules that configure to your company practices and ease your administrative burden. We help you instill a collaborative, informed and accountable performance culture that supports diverse pay and performance programs, empowers line mangers and delivers meaningful talent development. Learn more To learn more about TalentManager or to schedule an online demonstration, visit: tmdemo.salary.com To speak with a product specialist: Phone: DEMO I demorequest@salary.com CompAnalyst The easy to use survey management suite that streamlines and centralizes all aspects of market pricing, survey participation and pay program and analysis. CompAnalyst Executive The leading executive compensation benchmarking tool that combines a comprehensive data source with dynamic reporting features for fast and efficient executive pay research. ITG Competency Group The most extensive database of competency data commercially available today to help you effectively and consistently deploy, develop, and retain your organization s talent. 160 Gould Street, Suite 300 Needham, MA (866)-SALARY1 Copyright Salary.com Surveys. All rights reserved. 5