In the past I have provided a couple of workshops on turnover and ways to improve retention, especially among top performers. A recent article* in the Academy of Management Journal is particularly pertinent to this topic, so I thought I would take a few moments to summarize the article and suggest some implications from the research study.
The focus of the article was on two specific types of Human Resource Management (HRM) practices and their effects on quit rates for both good and poor performers. The first type of HRM practice described is titled "inducement and investment" practices. These are incentive-oriented practices such as pay bonuses, pay raises, and benefits, that affect the outcomes expected by the employee. The second type of practice is termed "expectation-enhancing" practices. This is increasing employee expectations for job performance through pay-for-performance programs or goal setting, to name a few methods.
So how do these type of practices effect quit rates among employees? The authors surveyed HRM managers in two studies. The first looked at the trucking industry, and the second looked at independent supermarkets. They surveyed managers on various practices, specifically, pay level, benefits level, and job security as examples of inducement and investment practices; for expectation-enhancing practices they looked at pay-for-performance, performance appraisals, and employee monitoring (for trucking that would include activities such as tracking hours driven and miles driven with GPS units; for the supermarket it meant surveillance cameras to detect sloughing off).
The authors found that in the case of good performers, when inducements were low and expectations were low, quit rates were higher than if inducements were low but expectations were high. And when inducements are high, quit rates are low when expectations are high or low. For poor performers, we find that when inducements and expectations are high, or when inducements are low and expectations are low, quit rates are lower than when inducements are low and expectations are high.
From a practical standpoint, what does this mean? This means that when you use incentives as the only means to reduce turnover, you will likely retain both good and poor performers. Keep in mind, though, that retention is not the same as productivity. Other studies suggest that though you will retain good performers with high inducements, they will not be challenged and so productivity will slip. In addition, poor performers will stay because they have no reason to go. If, however, you want to weed out poor performers and increase productivity among high performers, back off on trying to incentivize workers and start challenging them with higher expectations. This is especially important in these tough economic times, where money for added benefits is scarce, and in some cases benefits are decreasing. By challenging good performers, you are appealing to their sense of self-worth and desire for accomplishment beyond just a financial gain. Poor performers are less likely to want to deal with increased expectations, and will weed themselves out through voluntary turnover.
Now, a note of caution should be mentioned. This is not to say that you can reduce current pay and benefits and increase expectations and get good performers to perform (and stay). A certain level of incentive is expected and should be provided. Nor should we be overly ambitious in generalizing the results of this study to every industry. However, I do think it is safe to say that if you incentivize and increase expectations for good performers, you will likely see improved performance from already good performers, and you will see poor performers more likely to leave.
Good luck and happy managing.
*Shaw, J.D., Dineen, B.R., Fang, R., & Vellella, R.F. 2009. Employee-organization exchange relationships, HRM practices, and quit rates of good and poor performers. Academy of Management Journal, 52(5): 1016-1033.