Article for Public/Private Ventures 7/21/04
Christopher Largent, Consultant
   
Cutting Turnover Costs by Retaining Entry-Level Workers:
The Results of CERI (Corporate Employee Retention Initiative), a Public/Private Ventures Project Funded by the Charles Stewart Mott Foundation


   Old retention wisdom, new retention wisdom.  Recommending good retention practices is neither new nor controversial — in the case of talented workers.  But recently, some companies have begun to focus their efforts on their entire staff, beginning, most noticeably, with entry-level employees.
   
   As justification, these companies repeat the standard retention argument: a company pays to hire and train workers and loses money when the trained employee leaves.  Retaining workers makes good business sense.  But the companies focus the argument on entry-level workers.

   They don’t stop there.  Retaining entry-level employees not only saves turnover costs, these companies argue; it also makes money.  There may be an economic case to be made here.  A recent Harvard Business Review article, for instance, estimates that even a 5 percent increase in employee retention can result in a 25 to 85 percent increase in profitability.

   But these “new caring” companies base their economic argument on good treatment.  Caring about people makes them loyal, they argue.  Workers stay on the job when they’re treated humanely, and they want to help the company that helps them.

   So, well-treated entry-level workers bring greater dedication to the company — thus, greater productivity.  They’re also more creative, saving money by solving problems and enriching the company with new ideas.  In essence, well-treated entry-level workers become a pool of inexpensive, in-house consultants.

Who are these people, and do their companies succeed?

   Of course, variations of treating workers better have been emerging in business for some time.  Work-life balance has become a legitimate concern, and many companies realize that family values have to be a workplace consideration, especially in flexible scheduling and childcare.

   Discussions about trust — initiated publicly by Robert Levering, co-author of Fortune’s annual “100 Best Companies to Work for in America” — have become so prevalent that Levering’s Great Place to Work™ Institute consults to hundreds of companies on how to build trust.  The Institute’s website says straightforwardly — with research to back up their claims:  “In a high-trust environment, people cooperate and collaborate, leading to positive workplace interactions, higher profits, and greater productivity.”

   And discussions of “triple bottom lines” — “people, planet, and profit” or social concerns, environmental concerns, and economic concerns — have become common enough to have spawned yet another consulting industry and inspired a critique.
   
   The new caring companies, though, address the needs of low-wage workers, who, outside of government-focused writings, have received little in-print or in-corridors discussion.  And for good reason.  The business community knows that enhanced loyalty, dedication, and creativity — leading to better products and services — are hard to quantify.

   Nonetheless, caring companies believe that turnover and profitability statistics support them.  To be sure, many factors lead to good retention and profitability.  But these companies insist that caring and profits go together.

   And they are not shy about sharing their success stories, which helps other businesspeople understand who these companies are and, more importantly for practical purposes, what they do to retain entry-level workers.

   First example: the pharmaceutical production plant.  Looking south from its Wilmington, Delaware headquarters in the 1990s, the pharmaceutical giant AstraZeneca wanted its Newark, Delaware production plant to become the employer of choice for its industry.  AstraZeneca’s strategy?  To canvas employees about what would make the Newark facility the safest, cleanest, and best place to work.  And what AstraZeneca got was advice for treating employees … well.

  AstraZeneca’s Newark plant has been in operation for thirty years and houses approximately 700 workers, 100 of whom are independent contractors. One necessity for such a plant — a combination production facility, warehouse, distributor of finished products, and “pharmacy” for clinical testing — is cleanliness.  Entry-level employees comment repeatedly on AstraZeneca’s commitment to making the Newark plant the cleanest in the industry and note that, “we’ve worked a lot of places that don’t care about cleanliness at all.”

   But employee advice went beyond basics such as cleanliness and safety, and AstraZeneca goes far beyond basics in responding to entry-level workers’ needs.  First, they train their managers to mentor and coach new employees, to help the entry-level staff be the best it can be.  Second, they respond to these workers’ needs, from scheduling to soft skills.

   On January 1, 1999, for example, the Newark plant, responding to employee requests, became one of the first production facilities in the country to go to a four-and-a-half-day workweek, with an alternative four-day week for employees who requested it.

   In addition, by scheduling the Friday off-shift earlier in the day — all entry-level workers are hired initially for the off-shift — the management created a three-day weekend for these employees.  That is, ending the off-shift earlier on Friday meant that employees were home from late Friday night until their return late Monday night.

   And contrary to the “old wisdom” that training entry-level workers is a waste of time, AstraZeneca’s management makes a “significant investment” in training.  This investment, says plant HR director Jay Hampel,  “starts on day one for every new employee,” with a new-hire orientation to safety, good manufacturing practices (GMPs), government regulations, plant layout, and necessary plant paperwork.  Experienced employees mentor new staff members, who also work with extensive training manuals.  In fact, documents used to train each employee become the documentation used to ensure GMPs for FDA audits.

   In addition to on-the-job training, employees attend general training sessions about GMPs, safety, government regulations, and even wellness (the plant features regular programs on disease prevention as well as workout facilities onsite).  These sessions range across many topics, including a host of soft skills.

   Employees are also reimbursed for classes they take at local colleges.  If the course is relevant to work, AstraZeneca pays for tuition and books. AstraZeneca also has an agreement with Pennsylvania’s Immaculata University to offer onsite courses, for which the company also pays.

   When asked to enumerate reasons for their attachment to the company, entry-level workers emphasize plant job security (“not laying people off”), the strong-soft-skills environment (“everyone speaks to everyone else”), outstanding top-to-bottom communication, including upper management informing employees about what is happening with the entire corporation, and “extras”: a free turkey at Thanksgiving, a gift at Christmas valued at thirty dollars, low-cost lunches (in a cafeteria that improves every time employees want better food or service), recreation such as free movies with popcorn and candy, social and family outings, take-your-children-to-work days, and rewards such as ‘AstraZeneca’ dollars that can be used at the cafeteria or changed into dollars.

   Does all this zeal for entry-level employees work?  The custodial staff summarizes its unusual dedication:  “We work hard, but we have so much fun that we would never work anywhere else.  Some friends and family think we’re strange when we say we’d never give up being custodians.  But the work is more complicated than they think it is, and we’re like one big, happy family doing it.”

   The caring ethic becomes almost an expectation, with recent hires adding that, “Older workers here sometimes forget how good they have it and want even more, even better treatment.”

   More significantly, Hampel knows all of his staff, including knowing the names and histories of the four people who left last year — three of them retired.
   
   Second example: the bank.  When First Tennessee National Corporation’s executives wanted to help their host city of Memphis, they realized that they could have the most direct impact by improving the work-life balance of their own employees.  So, following a caring-culture agenda, they made schedules more flexible, added training and advancement programs, improved communication from the top, and developed methods for getting employee feedback — all in a multi-approach program called “Firstpower,” designed to make workers feel secure, empowered, and nurtured.

   In the summer of 2003, the company added its “Managing Inclusion Initiative,” as a manager explained, “to get every employee in the house to become a high-performing team member, not just the normal high performers.  We want to include everyone on the team as a member at the highest level possible.”

   In other words, the company that already knew how to keep its talent happy began to focus even more energy on its entry-level staff.  These workers have responded with increased creativity and improved attitudes, noticed by their managers, and real enthusiasm, measured in the company’s annual Employee Value Surveys.

   But caring companies blend ideals and money: bank officials wanted to make money and not vanish in a buyout.  They wanted their employees to be working better and smarter to increase business.

   At First Tennessee, entry-level employees began to solve problems and offer ideas that saved money, generated new products and services, and materially improved existing services.  They also wanted to be trained in as many services as possible, so that they would know how to sell everything that the bank offers.  “We won’t say ‘I don’t know, I’ll have to ask the manager,’” a First Tennessee teller summarizes.  “We want to be able to offer services ourselves, right then and there.  That’s what creates the best customer service.”

   How conscious is all this banking-service idealism?  First Tennessee’s Executive Vice-President for Human Resources, Sarah Meyerrose, says that the bank’s executives “wanted to have a positive impact on the local community and realized that ‘doing the right thing’ would have to look good to Wall Street.”  The caring represented a conscious business ethic, which officials wanted to validate in dollars and cents.

   Does the bank look good to Wall Street?  Instead of being bought out by a larger competitor, First Tennessee is buying other companies — mortgage companies, in this case — expanding its 3500-employee base to nearly 12,000 employees nationwide.  And it wants to teach those companies how to engage in Caring culture practices and management for their entry-level workers.

   The bank’s 2002 year-end summary reported $23.8 billion in assets and $4.6 billion in market capitalization, making it the 31st largest bank holding company in the U.S. in asset size and 30th in market capitalization.  First Tennessee made the Forbes Platinum 400 list for eight consecutive years (1996-2003), with its 5-year average return on capital ranked second among all bank holding companies on this list.

   And to make its idealist executives happy, First Tennessee has been named by Business Week, Working Mother, and Fortune as one of the best places to work in America.
   
   Third example: the restaurant.  At Phillips Restaurants, dotting Maryland’s Eastern Shore and stretching south into Washington DC and on to the Carolinas, managers discuss retaining entry-level workers the way most people talk about their children’s academic successes.  And there is a similarity.  The Phillips family wants its workers to feel like family members.  Phillips’ low-wage employees are invited to make work their home away from home — the first principle of good business for Phillips.

   What this means in practice is the idealists’ mantra: care about employees.  Phillips’ executives offer flexible scheduling, open communication, security in a stable company, and good training to keep staff on the job.  They also train their managers to share their idealism, so that both “front-of-the-house” and “back-of-the-house” staff finds managers consistently supportive:  “They’ve helped people to not get evicted or to pay their bills,” a food preparer notes.  “They work with people who have part-time jobs in other places, to make sure they can keep both jobs, if they need to,“ another reports.

   And executives themselves want their entry-level workers be “the best they can,” because they’re “the face of the company,” and “they’re like family,” according to HR Director Jim Knudson.

   What stands out here is that low-wage workers take good business management and standards for granted — Phillips has a high-class reputation among restaurant workers — and emphasize the extra mile managers go to treat entry-level employees as valued human beings.

   Does this work?  Phillips remains one of the most successful family-owned businesses in the country.  And while the restaurant industry struggles with high turnover rates — from 500% in decades past to a present low of 76% — Phillips’ turnover rate for its nearly 2000 employees ranges from 20 to 30%.

   How do they do it?

   The practices.  Caring companies and practices may be found in many economic sectors.  The hospitality industry hosts such companies, including Marriott International and Hyatt Hotels.  In the food industry, Boston’s successful bakery, My Grandma’s Coffee Cakes of New England, runs according to emphatic caring-culture values.  In Baltimore, Johns Hopkins trains entry-level employees in ways that would please idealist training advocates.  North of Atlanta, Ryla Teleservices successfully competes with offshore call centers, while treating its low-wage employees unusually well.  And in northern Virginia, health-care giant Inova cares for more than just its employees’ health.

   What do these companies do, exactly, that converts their entry-level workers into loyal ranks and files?

   Generally, they offer their new hires combinations of: attractive wage and benefit packages, innovative recruitment and interview processes, orientations and internships, mentoring and support for higher learning, career advancement and skills upgrade training, and supervisor training for those considering management.

   Though the companies are an ambitious lot and tend toward almost utopian caring, they have the problems of normal companies — and their entry-level workforces struggle with everything that low-wage workers confront nationally.  But the companies and their management believe that a caring culture can deal with these problems and still be profitable.  At least, these are the goals of their strategies:

   1. Putting their money where their mouths are.   Naturally, these companies want to offer competitive pay and good benefits.  They understand that workers need to think about their bottom lines, too.

   AstraZeneca, for instance, studies its own industry to keep its entry-level salary on par with its best-paying competition.  First Tennessee has a similar approach, offering merit raises as quickly and often as it can.  My Grandma’s offers a competitive salary and benefits program, to which it adds cash gifts at seasonal parties.

   Georgia’s innovative call center, Ryla Teleservices, offers cash awards for outstanding sales and service to augment its entry-level pay, as does Phillips Restaurants.  Phillips also sponsors team competitions, whose winners get a range of prizes, including financial ones.  Phillips also offers vacation days to part-timers, something almost unheard-of in the restaurant industry.

   My Grandma’s Coffee Cakes’ management promotes as often as possible, so workers see that their salaries can go up.  In fact, as-rapid-as-possible advancement is a strategy at most of these companies, with First Tennessee even breaking its own rules to promote talented employees as soon as a worker seems ready to advance.  

   2. Really communicating.  Ryla Teleservices “huddles.”  When any issue arises, Ryla CEO Mark Wilson huddles with his staff to deal with it.  This, as Wilson notes, is in addition to the “literally open door policy” for the company’s entire management staff, so that even executive officers are always available to the workers — who also have their cell phone numbers.

   At Phillips Restaurants, supervisors are not only available to the staff, but they also have regular meetings with teams and individuals through the company’s mentoring program.  Phillips’ owners and executives hobnob with workers at company functions, and workers report that the “higher-ups … talk to us like regular people.”

   At My Grandma’s Coffee Cakes, a worker walking into the office of CEO Robert Katz is not going over a supervisor’s head.  Bob Katz expects his staff to talk to him about anything that is on their minds, and he sits with them until grievances are heard, ideas are explained, or solutions are found.      

   3. Allowing for sick kids and school schedules.  The companies also want to work with employees to allow for crises, especially family emergencies.  AstraZeneca, for instance, allows employees to use flexible scheduling and even call in — before a shift starts — to choose a different shift or add hours to respond to an unexpected family or health emergency.  Ryla Teleservices, First Tennessee, and My Grandma’s similarly keep scheduling flexible to allow for family needs.

   Phillips Restaurants encourages its college-age staff to put education above work.  As one manager said, “I remind the students that their classes and exams come first.  We need to work around those.”

   In addition to allowing for school schedules, Phillips also keeps a caring eye on family budget needs.  Because its work is seasonal, Phillips’ managers know that some of their staff’s hours will reduce, which could wreak havoc when employee pay is supporting either education or a family.  To keep pay at expected levels, managers move these workers to other locations, including the company’s seafood packing plant in Baltimore.

   4. Investing in training. Nationally, Marriott International sponsors Pathways to Independence, a training program that provides public assistance recipients the opportunity to be hired into entry-level positions.  To the Pathways program, Marriott adds the Career Advancement Training initiative (CAT) to help newly employed, entry-level workers gain the skills and confidence to attain higher positions in the hotel.

   The program also cross-trains employees in diverse areas, so that lower wage employees experience new occupations and gain a broader view of hotel operations generally.  For instance, housekeeping staff can cross-train in food and beverage, front office, building maintenance, or security.

    More importantly for going above and beyond mere job preparedness, CAT trains workers in customer service as well as Marriott culture, in goal setting and teamwork as well as Marriott hospitality, in resume writing and time management as well as Marriott professional standards.  In short, CAT boosts workers’ employability self-esteem by offering them transferable skills.

   Similarly, Johns Hopkins Hospital offers its low-wage workforce the opportunity to master a wide range of skills.  For the past ten years, Johns Hopkins has offered its Skills Enhancement Program (SEP), which by 1999 had 300 participants annually.   SEP provides basics classes, leading either to a high school diploma or the equivalent academic skills necessary to qualify for occupational training in higher-wage jobs within the medical center.

   Run by the Hospital’s Office of Community and Education Projects, SEP includes three levels of GED preparation, computer skills, medical terminology, American Sign Language, and college entrance preparation.  Students also have access to group tutorials to improve basic academic skills.  With the hospital covering tuition, students pay only for books and supplies.  Even the cost of the GED exam is reimbursed by the hospital after the worker passes the exam.

   And a survey of 443 workers who completed SEP between 1998 and 2001 made Johns Hopkins’ Caring cultures happy:  84% remained with the hospital — and this in an industry with a turnover rate of 40% — and 32% of the retained group moved to a higher pay grade, with 4% moving into management.

   5. High expectations — just in case employees are human adults.  Caring companies appreciate what psychologist Daniel Goleman reported in his bestseller, Working with Emotional Intelligence — that high expectations of employees are self-fulfilling.

   Accordingly, workers at both First Tennessee and AstraZeneca are encouraged to be creative, take risks, think outside the box, and “even make mistakes,” as employees note.  Phillips’ workers find that their managers expect them to be responsible and “run the restaurant, almost as if there’s no manager around.”  Though carefully trained, Ryla’s call-center employees are expected to generate individual scripts that both fit them and work best with their clients.    

   6. Working and playing.  Some retention experts complain that work should be work, separate from fun.  But caring-culture companies combine a light touch with at-work demands.

   For Phillips back-of-the-house food preparers, for instance, “Every day, you work in an oven or a refrigerator … and there are always new challenges.”  But “we have fun,” one preparer insisted.  Another reported, “Sometimes the managers and supervisors not only keep the jokes going but start them.”  Nonetheless, Phillips’ managers noted that the company’s standards are so high that, “we’re not for everyone, especially those people who tend to be unhappy or sloppy on the job.”

   At Ryla Teleservices — where the motto for customer contact is “excellent interactions every time” — employees discover the good humor of their managers while equally recognizing their high professional standards.

   And AstraZeneca’s custodial staff, referring to themselves in communal terms, emphasizes the “fun” they have creating what they consider to be the country’s cleanest pharmaceutical production plant.

   7. “Handling normal problems.”  While praising their caring managers, entry-level employees do not idealize their workplaces.  They know that difficulties arise.  But it’s a caring-culture tenet that problems are to be solved rather than ignored or moved from department to department.  These companies usually establish problem-solving and conflict-resolution methods formally through soft-skills training or informally during on-the-job mentoring.  And this training or mentoring is done early on, aimed at the entry-level staff.

   8. Nice work.  Such companies also tend to give positive feedback and affirmation.  And their entry-level employees appreciate this approach.  They want critiques to help make them better workers, but they respond better when treated as respected employees whose development helps the company.

   At Ryla, though the “Quality and Assurance” team monitors workers randomly, their critiques are given in such positive terms that the “Q and A” evaluators remain favorites of frontline workers.

   Similarly, at Phillips Restaurants, workers are expected to meet the company’s high standards, but they are also given praise and prizes: parties, trips, baseball tickets, passes to local tourist sites, Employee of the Year awards, and a prestigious President’s Club membership for top workers.

   After commenting on the company’s high standards, one worker notes, “The general manager compliments us all the time.  It’s easy to feel loyal to a place that tells you how great you’re doing.”

   The banking industry’s expansion creates high knowledge demands for entry-level workers.  But First Tennessee workers receive acknowledgment when they master their fields or offer good service.  In addition to a regular array of prizes and awards, First Tennessee has instituted an Internet device that allows managers and staff to send each other emails praising good work they happen to notice — and this has become common practice at the bank.

   Finally, managers at My Grandma’s Coffee Cakes of New England handle their year-end reviews like coaching sessions.  “We don’t criticize people,” the office manager reports.  “We ask them what they’ve done this year that they feel proud of and what they want to improve.  And we let them know what they’ve done well.  They get that in words as well as in gifts and prizes at the end of the year.”    

    9. “It’s business, but it’s personal to me.”  Caring companies argue that a personal-touch caring approach produces loyalty, which produces creativity, which means profitability.    First Tennessee discovered that employees listed their personal connections within the company as a factor in their staying on the job — and First Tennessee is intentional about this factor.  At AstraZeneca, as one worker marvels, “I’ve never worked in a place like this where they really care about you as a person.”  Ryla workers discover the personal touch early on.  When an employee moves from a part-time, temp-agency status at Ryla to full time at other companies, owners Mark and Shelly Wilson take the employee who is leaving out to dinner to congratulate them on their new job.  
   
The “Other” Business Ethic?

   The practical persuasiveness of caring companies’ arguments rests on business as well as idealistic foundations.  None of their efforts to transform new hires into loyal employees fall outside of normal business operations.  In fact, most are common retention practices.

   Again, what is unusual is the focus on the low-wage sector, claiming that training this group to be creative employees is good for the company, good for the workers, and may positively impact the larger society — reducing poverty, strengthening the local tax base, and providing more consumers for the local economy.

   Ryla’s Mark Wilson, for example, teams with local businesses to offer his employees discounts, which in turn encourages them to do more business locally.  He has also been asked by neighboring state officials to develop call centers to offer more employment opportunities in those states.

   Whatever impact this “other” ethic may have on the business community as a whole, it is a reality for this segment.  And the results for caring-culture businesses are that their entry-level workers benefit, their communities benefit, and their bottom lines benefit.

   Perceiving the world this way, caring companies claim that their practices are good business, even the equivalent of common sense.  And their entry-level workers support them and the caring ethic, which they and their employers believe makes companies what all businesses want to be — successes.
 


Notes:  Some of these companies have seen changes (mostly positive) in the last two decades.  Most notably, Mark and Shelly Wilson have moved on to Chime Solutions (founded in 2016) to help underserved communities (and we will be covering Chime in this project in the future).

A. Caring-culture companies were the subject of the Corporate Employment Retention Initiative (CERI), funded by the Charles Stewart Mott Foundation between 2001 and 2004.  CERI was a project of the social policy research organization Public/Private Ventures (see www.ppv.org), which was created by the U.S. Labor Department and funded by the Ford Foundation and functioned from 1978 to 2012.  The employee-retention initiative (which went under different titles) focused on companies with exemplary retention practices in dealing with low-wage, entry-level employees.

Even companies not part of this study may reflect, if only partially, the “other” ethic of caring that combines doing the right thing with profitability.  For example, Costco CEO James D. Sinegal, defending his company’s decision to pay employees higher salaries than arch-rival Sam’s Place — and thus reaping a huge savings in turnover as well as greater productivity — was quoted in Business Week (April 12, 2004: “Social Issues: Commentary — The Costco Way”) as saying, “Paying your employees well is not only the right thing to do, but it makes for good business.”   

B.  Caring companies had ally in public opinion from early in the 21st Century.  Corporate Voices for Working Families released a September, 2003 study, “The Economic Security of Low-Wage Workers: An Analysis of Public Opinion Data,” which included this conclusion: “Corporations that align themselves with the concerns of low-wage workers are likely to be valued by the public.  Research for the Ford Foundation found the public wants corporations as well as government to invest in the workforce. … They also feel that business has at least some responsibility for helping families who are working, but poor — 80% say at least some responsibility, 37% believe business has a lot of responsibility in helping the working poor” (p. 7).

In terms of specific policies, the study added that:  “In June 2002, 51% of the public strongly favored increasing the minimum wage from $5.15 to $8; 71% strongly supported requiring companies to provide full-time employees with at least five days off with pay annually for illness or a family emergency; 54% strongly favored expanding day care subsidies to parents of young children who are working but poor; and 52% strongly favored health insurance to low-wage workers whose employers do not provide it.  Strong opposition to these policies did not reach 25%” (p. 6).

C.  The definition of entry-level jobs is straightforward in any company.  The definition of “low wage,” however, is not.  A Families and Work Institute study (Bond, 2003) wanted to use $8.96 per hour or $18,637 per year, while a Corporate Voices for Working Families study (Litchfield et al, “Increasing the Visibility of the Invisible Workforce”) asked companies about programs benefiting “the bottom 25% of the pay scale at their organization” (p. 6), which yielded an average of “$8.71 per hour (or $18, 125 per year).”  The CERI study looked at companies paying in this range — sometimes higher — with the lowest being $8.50 per hour (excepting the restaurant industry, where hourly wages are difficult to determine precisely, but in the companies studied, workers’ estimated earning fall in the ranges given above).  With this definition, the percentage of workers that fall in this range or just above is important in the United States.  The Litchfield study cites (p. 8) the statistic that in 1998, 52% of Americans earned less than $25,000 annually.  Public perception of low-wage workers may sometimes be as negative as some businesspeople.  Researchers, however, usually find these individuals to be hard-working and devoted to their families.  See, for instance, Katherine S. Newman, No Shame in My Game: The Working Poor in the Inner City.