Employee Retention Strategies & Best Practices

A number of my recent Tweets have touched on spikes in hiring activity and voluntary employee attrition levels among technology consultancies.  I see substantial anecdotal evidence of these trends in my chats with CEOs and the drivers are clear:

• A markedly improved client demand environment is driving hiring needs and increasing both competitive poaching and consultants’ confidence in making moves
• Pent-up demand among consultants for life changes, including geographic moves and career shifts, after 2-3 years of putting these things off due to unemployment fears
• Disenchantment among some consultants with their current employers stemming from firms’ recessionary cost-cutting decisions, including training and compensation reductions
• An increase in industry M&A activity, which typically results in higher attrition among the acquired firm’s consultants

As a result, consultancy leaders are increasingly shifting focus to retaining their key personnel and this interest has not been lost on consulting industry research shop Kennedy Information.  Yesterday, Kennedy’s Consulting Magazine unit hosted a webinar titled “Retention Strategies & Best Practices for Small to Mid-Sized IT Firms” in which it shared highlights of its related research and two consultancy CEOs outlined their creative approaches to retention.  I attended the webinar and have summarized the highlights below.

Consulting Magazine Research:

Jess Scheer, Consulting Magazine’s Research Director, presented data from surveys of IT consultants regarding the number of years they anticipate remaining with their current firm and their satisfaction levels with a number of career-related factors, such as firm culture, career development, leadership, client engagement, work/life balance and compensation.  The data was aggregated and parsed by staff level (from Jr. Consultant/Analyst to Consultant to Senior Consultant to Director to Partner/VP) and by those anticipating remaining for less than a year, for 1-4 years and for more than 4 years.  Many of the survey’s findings were intuitive (e.g. higher job satisfaction means longer expected tenure) but there were some interesting takeaways:

• Over half of consultants below the Partner/VP level expect to leave before mid-2014
• Attrition expectations are highest among the Consultant tier, with 66% anticipating a move within the next 4 years, and lowest (as you would expect) among the Partner tier, with only 19% expecting a change within this timeline.
• Jr. Consultant/Analysts expect to stay with firms for 6.5 years when expected overnight travel is less than one night per week, 5.2 years in 1-2 nights per week environments and 4.3 years in 3+ nights per week situations.  Unfortunately, data was not presented for higher tier consultants, who are traditionally more sensitive to travel requirements due to different stage of life family concerns.
• The impact of training was somewhat interesting, as there was no material difference in anticipated attrition among consultants at firms with low levels of training (defined as fewer than 20 hour per year) and medium levels of training (20 to 40 hours per year).  However, future expected tenure increased by nearly 60% among consultants in firms with more than 40 hours per year in training.

Jim Lewis, CEO of Cumberland Consulting:

Cumberland is a technology consulting firm with 122 professionals who travel heavily (typically Monday to Thursday) while focused on the health care provider vertical and has been among Consulting Magazine’s “Best Small Firms to Work For” in each of the last three years.  Jim talked in detail about some of the practices used by his firm to create a culture that results in low voluntary attrition despite its travel-heavy model:

• Market-based pay.  Benchmarks for market comp levels are established by the firm’s recruiting staff rather than via 3^rd party providers.  Interestingly, Jim indicated that Cumberland routinely reviews comp levels of its employees through the lens of what it would offer them in an interview environment and makes market value adjustments proactively.
• Bonus visibility.  The firm builds a 20% of salary aggregate profit sharing bonus amount into its business plan, publishes the plan and provides monthly updates on firm performance so that employees have visibility into the viability of the bonus pool.  If the firm hits the plan, it pays out the 20%.  If it exceeds the plan, they pay more.  If they fall short, they pay less.  Jim indicated that Cumberland has paid bonuses in all seven years of this approach and have paid out 20%+ in six of seven years.
• Health care benefits.  Cumberland pays 100% of the premiums and offers employees both a PPO and a HDHP (high deductible health plan).  For employees who choose the latter, Cumberland makes annual contributions to their HSA accounts for the difference in lower company premiums vis-à-vis the PPO option.
• Platinum cards.  All traveling consultants receive Platinum American Express cards, providing access to airport clubs, status bumps in travel programs, etc.  The consultants own the points generated by the cards.
• Unlimited time off.  This is an interesting one.  Cumberland’s employees are very client-centric and therefore do what it takes to deliver, resulting in frequent overtime and the potential for burnout.  Consequently, Cumberland encourages consultants to take time away as needed.  Obviously, this must be managed in the context of client engagement responsibilities and is easier handled with 1-2 day slots than multi-week vacations.   Jim indicates that the aggregate amount of vacation taken has been about the same since implementing the policy but employee satisfaction is much higher given the positive spin of the policy.
• Anniversary bonus.  Each employee receives $500 on every hiring anniversary.

Chris Smith, Founding Partner of Arryve Consulting:

Arryve is a Seattle-based management and technology consultancy and one of Consulting Magazine’s “7 Small Jewels” for 2010.  Like Jim, Chris talked about some of his firm’s practices that drive retention of key employees:

• PTO.  All employees, irrespective of tenure or job level, receive 20 days PTO.
• Health care benefits.  Arryve pays 100% of the premiums.
• Training.  Employees receive unlimited firm-provided training.
• 401k.  The firm provides a 100% match of employee contributions, with immediate vesting.
• Employee referrals.  Employees receive $2,500 for the first hired referral, with $500 increases to the amount for each subsequent referral.  Candidates via this program make it past the phone screen 72% more than non-referral candidates and are extended an offer 33% of the time, compared to 14% for non-referral candidates.   Chris indicated that 90% of the firm’s employees have come via this program and that over $100,000 has been paid out over the program’s four-year life.
• Celebration events.  Quarterly goal-based celebration events are budgeted and include summer retreats, family picnics, happy hours, holiday galas, etc.
• “Voice of the Employee” program.  Issues/concerns surfaced via employee satisfaction surveys are put back in the hands of employee teams empowered to solve them.  Chris indicates this has been a relatively low-cost program that has increased employee skin-in-the-game in building a better culture.
• “Loyalty Matters” program.  In order to fight the typical 3 and 5-year tenure departures by consultants, the firm has targeted retention incentives built around those milestones.  Every employee every three years earns one month of “personal innovation time.”  This is non-client delivery time to focus on non-client passions, including training, developing new ideas for services offerings, industry segments, etc.  Every five years, the employee may choose between a $25k cash bonus or a 2 month paid sabbatical.
• “Make Arryve Better” program.  Every year, every employee gets a $500 stipend to make the company better.  Employee spending has included espresso machines, a company library, organic food delivery, a bowling night and on-site neck/shoulder massages.

Conclusions:

It’s clear to me that the talent war, which had slipped into a cold war state with some tactical skirmishes from 2008-2010, has flared back up and I expect it to heat up further over the next couple of years.  Developing an effective strategy to thrive in this environment is no simple thing and is heavily dependent upon the unique circumstances surrounding the individual firm.  Obviously, the significant missing variable necessary to more fully evaluate the approaches of Cumberland and Arryve is the return on investment levels of these programs, so I pass them on not as an endorsement but as a window on the practices of industry peers.

Ultimately, success must be measured by the enterprise value of the firm, as a consultant’s nirvana with high pay, great benefits, and low utilization expectations can also be a going-out-of-business strategy if the cumulative employee retention investments don’t pay off.  In fact, in evaluating consultancies, very low turnover levels can sometimes indicate the sleepy, entitlement culture of poorly-performing firm.  I find that many savvy firms focus less on overall retention levels and more on minimizing attrition among their top 20% A-level players.  In any event, firms must measure the benefits of generating greater attraction, retention and job satisfaction of strong consultants against the cost to do so and recognize that measures such as employee satisfaction and attrition are but means to the end of generating greater enterprise value.