Retaining key staff in a competitive market

Written by
Changeboard Team

10 Jan 2015

10 Jan 2015 • by Changeboard Team

Retention not just about money

Retaining your key staff and protecting your business while money is still tight and competitor companies begin to recruit again has never been more important. To address retention issues within the company, employers should be listening to the grumbles of the current workforce and evaluating the exiting employees' reasons for leaving, e.g. through exit interviews, appraisals and employee attitude surveys.

After hearing what the staff have to say, employers can work out the best retention strategy. Are there common themes, whether monetary or managerial? Such a strategy may include increasing training and development opportunities, improving pay and benefits where budgets permit (or holiday where they do not), or improving the process for induction of new employees into the organisation.

Even just improving the day-to-day working environment for employees (a lick of paint here, a drinks event there, an emphasis on proper respect and courtesy towards staff from management) may also help boost job satisfaction with little cash outlay. Issues of manners, pastoral support, perceived appreciation, friendly colleagues, etc. will often outweigh a little more money on offer elsewhere.

How to incentivise staff

Bonuses have come under the spotlight in the past couple of years, particularly in the financial services sector. They have long been a fairly effective way of motivating and retaining key and senior employees. However, in recent times companies have had to strike a difficult balance between holding on to their best staff in this way and preventing undue pressure on the balance sheet. For retention purposes, the employer can consider either the traditional discretionary bonus or, particularly where retention over a specific period is required, a fixed loyalty payment. Both have their issues.

The prospect of a discretionary bonus may keep an employee in post for a while but as a retention device it suffers from the necessary lack of certainty by the employee as to its amount or indeed that he will ever receive it. It's good practice for discretionary bonus schemes to exclude from eligibility staff who have left or given or received notice prior to the payment date, even if for a no-fault reason, such as redundancy. In straitened circumstances the final number offered by the employer may seem both potentially smaller and further away than any guarantee offered by a prospective new employer. A figure which is smaller than expected or less than that of a colleague may have an actively alienating effect, the very opposite of that intended.

As a result, loyalty bonus schemes tend by contrast to offer a simple and definite commitment – “if you stay with us at least until x date we will pay you £y”. That does not oblige the employee to stay but at the same time both gives him a reason to do so and makes him less attractive to another hirer which might have to pick up the £y instead. Recognising that the greater the time and other obstacles which lie between the employee and receipt of his bonus, the smaller the retention effect will be, a sensible loyalty scheme will still pay out all or a proportion of £y in the case of an earlier termination, so long as it is not by reason of the employee’s voluntary resignation or gross misconduct, both matters under his control. 

All these points apply equally to deferred compensation schemes, whether cash – or stock– based. The employee should have something to lose from resigning, or as a minimum impose an off-putting additional cost on his next employer in replacing that loss.

Retention through deterrance restrictive covenants

The most effective form of protection available is the inclusion of express restrictive covenants in an employee’s contract. There are a number of duties which are implied into an employment contract such as the duty not to use or disclose any of the employer’s trade secrets and not to act against its best interests during employment, but these implied duties will not last beyond termination of the contract of employment, and so do not have the same deterrent effect for the next employer.

Post-termination restrictions are best operated in conjunction with proper garden leave clauses which, albeit at some cost to the current employer, delay the employee's release and so his attractiveness as a hire to a new employer.

How to avoid team moves

Increasingly employers are poaching whole teams from their competitors as a means of boosting ailing balance sheets. Employers must stay vigilant to the more common signs of an impending team move, such as:

  • meetings of the team, away from the office
  • drop in work performance, unusual absences or inexplicable travel arrangements
  • text messaging among team members
  • team members asking questions about their contracts of employment or staff handbooks
  • closed door conversations and hushed discussions
  • telephone calls to members of the team via the company switchboard, regarding unspecified matters - often this will be the head-hunter co-ordinating the move
  • spurious allegations of breach of contract
  • "lost" mobiles or blackberries
  • the sending by staff of emails to their home address so they can “work at home”.

How can employers deal with team moves?

Employers can take a number of legal and practical steps to head off team moves: 

  • ensure that there is a strong general retention effort in place (see above)
  • ensure that contracts of employment for key employees contain effective and properly-drafted restrictive covenants. It's also possible to include a clause in a contract of employment stating that the employee will inform his employer if he or (if he knows) any team colleague is approached by a competitor. An employee is unlikely to do so in practice but not doing so would, of course, be a breach of contract. It's not clear whether this would be sufficient to allow an injunction by itself.

If you become aware that a team move is likely, you needs to consider quickly whether the employees who may be planning to leave have committed any breach of their duties owed to the employer. These could be express or implied duties and (usually in the case of the new employer) possibly the tort of inducing a breach of the employees’ contracts of employment.

Threatening or taking legal action in such circumstances may provide some "scalps" for the employer with which to deter others, so if there seem to be potential claims, the current employer should take action as quickly as possible, as any delay in doing so could be criticised by the Court.

Such action usually involves the following:

  • undertaking investigations (this is likely to involve a degree of forensic IT expertise
  • formally warning the employees (and possibly the new or prospective employer) of the suspected breaches and the consequences
  • potentially taking protective action in the High Court by seeking an injunction. This is however an expensive and time-consuming business and expert legal advice should be sought prior to taking this step. Ultimately the High Court cannot require an employee to continue working for his employer, so this is less about retention and more about slowing down his entry to a competitor, though this of itself may lessen his job offers from outside companies.