Book Excerpt January 8, 2010, 3:03PM EST

Book Excerpt: Rethinking Retention

In an adapted excerpt from his new book, Rethinking Retention in Good Times and Bad, Richard P. Finnegan makes the case for making senior management accountable for hanging on to prize employees

Figure: The Rethinking Retention Model

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Imagine you are reading this book in the summer of 2007. Surrounded by a blazing economy, you would find data here regarding the high number of jobs vs. workers across most industries and the challenges U.S. companies face to hire and retain good or even serviceable workers.

But the U.S. economy made a hairpin turn near the end of 2007, moving from very healthy to officially in recession in a matter of months. This stark contrast of economies offers a good look at employees' quitting patterns during down economic times.

For most of 2007, the U.S. economy was riding high and few economists were predicting danger ahead. The recession began in December of that year but wasn't officially announced until a full year later. During that 12-month lapse the U.S. became a different country.

By the mid-point of 2008 the economy showed the following changes since year-end 2007:

• The Dow Jones Industrials had dropped more than 14%
• Inflation had increased over 4%
• Gas prices had shot up an even dollar
• The Consumer Confidence Index had fallen 44%
• Major layoffs had increased by 22% compared to the same period of the previous year and had put nearly 1 million Americans out of work.

These are the times when executives expect workers to hold onto their jobs.

Toward the fall, our government furthered our worry by passing legislation to bail out banks, mortgage companies, automakers, and an insurance company for a total cost of nearly $1.4 trillion. We were told that our financial system would have collapsed without government support. Then in November, President-elect Obama warned that "we could lose millions of jobs next year."

By the end of 2008, the ubiquitous media was telling American workers what the year had been like for their peers. Compared to 2007, 43% more had been laid off and unemployment had increased to 7.2%, a jump of 26% over the previous year. Surely American workers were pleased to have a job…any job.

But the data tell a different story. The number of voluntary quits did drop during year one of this recession, but only by 11%. This meant that your chance of losing an employee you wanted to keep in 2008 was 89% as strong as it was during the strong economy of 2007.

And while concerns grew deeper as the year went on, the difference in voluntary quits between the fourth quarters of 2008 versus 2007 was just 20%. So there was an 80%-as-strong likelihood of losing a productive worker in the 4th quarter of 2008 versus the same period in the previous year.

More importantly, there is good reason to believe that those who walk away from their jobs during recessions are usually your best performers. Open jobs declined by 18% from 2007 to 2008, while layoffs and the hike in unemployment put many more applicants on the streets. One study estimates there were nearly three times as many applicants for openings during the recession as there were before it. As a result, companies became more selective and applicants found stiff competition for most openings. Those who left you had probably already secured a new job and beaten out the masses to win it.

These are the employees with stronger skills and work ethics, the ones you can least afford to lose. Poor performers, on the other hand, were holding on for their paychecks and knew they must be fired in order to earn unemployment benefits.

Viewed from a higher level, this data tells us we can always lose the employees who keep us in business, in good times and bad.

Senior executives seem to know this. In a study, top execs from the largest 1,000 companies in the U.S. said their greatest staffing concern was retention, and the survey was conducted in September and October of 2008…a high time for media frenzy about the economy, bailouts, and layoffs.

The Price of High Turnover

How much does employee turnover cost? Studies by PricewaterhouseCoopers' Saratoga Institute indicate turnover costs organizations more than 12% of pretax income, all the way up to 40% for some.