Owners and managers of organizations both large and small have long recognized the correlation between company cultures and employee retention. It makes sense that employees feel less attached to unsatisfying work cultures and that they’ll conversely feel more engaged by satisfying ones.
But there’s a lot of gray area here. The day-to-day concerns of running a business, especially a growing one, can quickly get in the way of actually reflecting in your policies these common-sense truisms about culture. Business priorities shift, teams change, and a lot can fall through the cracks.
Managers (and even HR departments) in growing organizations can easily become detached from the wide range of employees’ on-the-ground experiences for any number of reasons. No matter the particular context, though, “sucking the engagement out of the room” will actively harm your company’s culture and start chipping away at your retention rate.
The domino effect on your bottom line can be significant. An oft-cited 1992 study looked at the cultures and retention rates at six similar firms, and found that “cultural effects are estimated to have resulted in over six million dollars difference in human resource costs between firms with different cultural values.”
With the increase in technical complexity across jobs in nearly every sector since then, it’s safe to assume that the average cost of training and onboarding new employees has been pushed ever higher for most organizations.
Many priorities
Why, then, do so many businesses still struggle to connect the dots between company culture and employee retention in a meaningful way? Often, it simply comes down to the fact that it’s very difficult to juggle multiple priorities at once. That’s where the HR department comes in: to handle internal priorities and processes.
But what about organizations whose budgets are stretched very tightly and can’t even consider creating dedicated HR departments yet? Many small businesses and nonprofit organizations have these characteristics in common. Let’s walk through a few key insights that can help you strengthen your own organization’s strategies:
- Rethink how you approach compensation.
- Take a realistic approach to engagement.
- Enact your mission whenever possible.
Supporting HR departments in the nonprofit sector, we at Astron Solutions have seen firsthand the difference that updated HR strategies and guidance can have for organizational cultures and retention rates. Let’s get started.
Rethink compensation
There’s no way around the fact that compensation is a major driving factor in employee retention. When employees are competitively compensated for their work, they’re incentivized to stay engaged and invested in the organization’s success. This doesn’t mean, however, that bonuses and raises are the only ways to boost retention. Far from it!
How your company conceptualizes compensation can be a very direct reflection of your culture. For nonprofit organizations, broadening that conceptualization can be an effective way to expand your toolkit, strengthen your culture, and become a more competitive employer despite a tight nonprofit budget.
There’s a common myth that turnover is higher in the nonprofit sector because nonprofits are typically unable to offer competitive pay to all employees. In fact, the Nonprofit Employment Practices Survey found the average turnover rate for nonprofits was 19%, lower than the voluntary quits rate for the US as a whole. A broader, more flexible approach to compensation plays a very big role in making nonprofits more competitive employers with more engaging work cultures. We dive deeper into this myth in our guide to nonprofit employee compensation.
Total Rewards approach
What does a more flexible approach look like in action? When we work with firms to update their compensation strategies, we advocate for a Total Rewards approach. This means strategically thinking about both your direct and indirect forms of compensation. Direct compensation includes salaries and bonuses. Indirect compensation includes a number of different elements:
- Benefits, like healthcare, paid time off, savings plans, etc.
- How you recognize achievements and contributions
- The work-life balance your culture promotes
- Your organization’s performance management styles
These are powerful elements of creating a more satisfying and rewarding work environment, and they’re crucial factors that play into your retention rate. An average salary at a high-quality culture that offers diverse forms of indirect compensation is just as (if not more) engaging for employees in the long run than an extremely competitive salary in a tense, unengaging, uncomfortable environment.
By strategically surveying, adapting, and actively using your company’s forms of indirect compensation as cultural assets, you can take a much more flexible approach to improve both your culture and retention at the same time.
Take a realistic approach to engagement
Engagement is key when it comes to measuring the internal health of your organization. How invested the people at your business are in their work and your overarching mission is a direct reflection of your culture. A culture that trusts employees to do their jobs well will be much more engaging than a restrictive workplace, and that difference drives healthier retention.
Qualitative observations are definitely useful for gauging engagement, but it’s important to have more quantitative methods in place to measure it, as well. These are what allow you to develop actionable strategies and recognize when they need updating. However, you have to make sure that your entire approach is properly oriented before building out new strategies.
That is, your organization must take a realistic approach to engagement and have realistic expectations of what success means before you can effectively measure it. This best practice is particularly important for growing businesses and startups.
A Deloitte study found that 94% of executives and 88% of employees believe a distinct workplace culture is important for business success. Clearly, the relationship between culture and success are understood. However, “distinct” does not necessarily mean “engaging.”
Distinct and engaging
The startup mentality is a powerful driving force for many small businesses. The original team is guided by a closely shared passion and vision. As an organization grows, though, so do its internal complexities. A culture that is distinct but doesn’t take a flexible approach to the forms of indirect compensation discussed above won’t feel as genuinely engaging for the employees who weren’t there in the startup days.
In many ways, startup culture has contributed to a sense that we should all follow our passions and feel 100% invested in our work. Your company isn’t every employee’s dream job, and that’s fine. Even for nonprofits, whose operations are very explicitly guided by a shared mission statement, engaging employees as people and not as supporters is essential for success.
Understanding this reality and creating a work environment that’s nonetheless a positive part of employees’ everyday lives is what can distinguish a “distinct” but unsatisfying culture from a more engaging, authentic one. This type of realistic approach should inform all of your strategies for boosting engagement.
Live your mission
Every organization, not just nonprofits, should have a guiding mission. Corporate mission statements have been around for a long time now. The rise of corporate social responsibility as an important element of public perception and brand building has made them even more integral to success than before, especially for growing businesses.
Younger organizations and startups often put their mission front and center. This is an effective way to develop a distinct and socially-conscious brand identity, and it can go a long way to make you a more attractive employer.
However, your mission isn’t truly effective as an engaging rallying point for employees unless it’s actually enacted in your day-to-day operations. Even as businesses make bigger philanthropic impacts than ever, an organization can miss out on major benefits if its mission isn’t an integral and active part of its culture. Consider these strategies for more concretely incorporating your mission into your operations and culture:
- Communicate it — If you want your mission to become an embedded part of your culture, start by communicating it to employees every chance you get. Connect any new goals, projects, or processes directly to your overarching mission. How does each new development better position your company to make a difference?
- Set internal goals — Establishing new business priorities for each quarter or year is a tried and true best practice, but you should set internal goals directly related to your mission, as well. If part of your mission is to better your community, encourage your team to collectively volunteer a certain total number of hours. If you want your organization to be a positive part of employees’ lives, set some health and wellness goals to pursue together.
- Build outside relationships — Another effective way to ensure your employees engage with your mission beyond just lip-service is to build meaningful relationships with other organizations that they care about. Corporate philanthropy programs are an excellent way to build connections with nonprofits, and with volunteer grant or matching gift programs, your employees can help to directly guide your efforts. For example, check out the American Foundation for Suicide Prevention’s matching gifts page to see how these programs work at the individual level.
Any of these strategies can help to extend your mission beyond your marketing materials and into the day-to-day experiences of your employees. The main takeaway is that a more tangible mission will contribute to a more engaging culture to support your retention goals.
Engagement has many ingredients
A lot goes into building a company culture that engages employees and encourages them to stay engaged. Even without a very flexible budget or plenty of free time across your team, there are simple steps you can take to start building improvements. Many of these steps start with simply taking a broader look at your existing approaches!
Nonprofit organizations often succeed as attractive employers because their limitations encourage them to look for new ways to improve. The Total Rewards concept of compensation, encompassing both direct and indirect benefits, is a good example.
It’s clear that culture, compensation, engagement, and retention are all closely tied together, so it can feel overwhelming for small businesses to get a handle on them, especially during periods of growth. However, taking a broader look at your available tools and an open approach to communication can make a very big difference!