Monday, March 14, 2011

Protect Your Business When An Employee Leaves

Judy Marsales took it as a personal blow when a major national real estate company poached two top sales associates from her independently owned firm.

"It was a shock," recalls the owner and operator of Judy Marsales Real Estate Ltd., based in Hamilton, Ont. "They had been with us since they started in the business…and were both at the top of their game."

She describes the loss as an "emotional setback" for the company as a whole, and for her personally.

"One of the individuals, I shared a lot of my personal contacts with her and that helped her be very successful," she laments. "It certainly caused a temporary emotional setback for us because they had established friendships and work relationships" which were affected when they moved on to work for a major competitor.

For small and medium-sized businesses, losing even one employee can have much more devastating effects than in larger organizations, from the emotional blow to other employees to the loss of an individual's particular skills and experience, to the financial costs associated with replacing valuable talent.

The loss of just a single employee can alter the chemistry of a team, causing a downward spiral in overall morale, which could lead to the loss of even more staff, says Carmine Domanico, president and chief executive officer of Cristal International, a Toronto-based human resources consulting firm.

That's why it is important for small and mid-sized companies to understand the impact of and know how to deal with the loss of valuable employees. Better yet, they should have plans in place to overcome the effects when inevitable departures occur. And they're even more likely now that the economy is recovering and the competition for skilled workers is heating up again, says Jordan Rodney, president of Maximum People Performance Inc., a human resources consulting firm based in Thornhill, Ont.

"Small businesses feel the pain more if a person leaves the organization [than a big corporation]," says Mr. Domanico, whose firm specializes in small and mid-sized companies.

When an employee suddenly heads for the exit door, a company can "lose specific expertise or skills that they couldn't have forecasted or prepared for. Lot of times, they don't have the resources to immediately slot someone else in."

The learning curve can be long, potentially causing other employees to feel extra burdens and clients to start feeling insecure and search out other organizations they perceive to be more stable, he says.

It isn't cheap to replace staff, either, says Nick Bontis, an associate professor who studies intellectual and human capital at McMaster University's DeGroote School of Business in Hamilton.

He estimates it runs anywhere from 1.5 times to 2.5 times the salary of employees, from those on the lowest to the highest rungs, to cover such direct costs as recruitment and training and such indirect costs as lowered productivity.

Perhaps even more debilitating is the damage that losing a valued employee can cause to a smaller organization's morale, says Mr. Rodney, whose firm provides services to companies too small to have their own human resources staff.

"There is definitely a heightened sense of loss," he says. "When it's a large company, employees can be just a number and, in the end, you are replaceable. But in a small business, you can see the contributions [made by individuals] and, when they leave, it can be devastating."

One key employee leaving can start to foster feelings of dissatisfaction among remaining staff and even become "the catalyst for others to follow," he says. "Employees may not possess the courage initially [but] once the first person leaves, they may feel 'if he can take the risk, so can I.'"

Mr. Domanico agrees. "Absolutely, it can go viral, especially if the departed employee has easy access (and most do through Facebook, Twitter, LinkedIn, e-mails, texts, etc.) to former colleagues, and is able to talk about how much greener the grass really is in the new company."

He says he has seen this happen when companies are able "to entice employees by using recently hired employees as the source of knowledge with respect to who are the most talented people in the organization they just left. There may even be incentive referral plans to reward the new employee who helps to attract an ex-colleague to the new company."

There are ways, however, for companies to mitigate the effects. The best way to minimize the damage to morale is to confront it head-on, the consultants say.

"The most important step for an organization is to be candid with the remaining employees and not ignore the issue or sugarcoat it," Mr. Rodney says.

"This will only make the situation worse and increase the inter-office gossip, resulting in greater frustration by the staff. "

He says it is important for employers to keep on top of how satisfied employees are feeling, at least temporarily stepping up the frequency of meetings that focus more on employees' personal development and career goals than on business objectives, so that staff feel valued.

The industry term for anticipating abrupt personnel loss is "succession planning." It may sound daunting, but firms can take many steps to ensure they protect themselves from employee departures.

"Immediately block access to corporate information, hard-copy materials and all databases, including telephone, company cell [and] smart phones, [and] monitor any chatter on social networks to see what is being said about your company," Mr. Domanico recommends.

He also says that if a company has non-disclosure, non-compete and confidentiality policies in place, the employer "should write to the departing employee and remind them that policies may still apply to them and they should conduct themselves appropriately."

In fact, these kinds of policies are "critical" for any company's protection, regardless of its size, Prof. Bontis says.

Even without such policies, he says "what a lot of people don't understand is that whatever is in your PC, filing cabinets, all that information belongs to the corporation." That includes the company's client list. "They can't take the top customers with them. They can be sued for that."

Small and mid-sized companies have size on their side, too. Because they usually have less rigid hierarchies and more flexibility when it comes to job descriptions, this allows for more cross-training and knowledge-sharing, the experts say.

Mr. Domanico recommended just this kind of strategy to one of his clients, Professional Hair Care Products of Mississauga, Ont.

"We were small enough that we could cross-train everyone," says Heidi Schwarzkopf, president and general manager of the family-owned manufacturing company, which has 58 employees. That means all employees are trained to function in any role with a minimum of disruption, she says.

Beyond safeguarding against employee loss, it also makes for a healthier workplace, Ms. Schwarzkopf adds.

"[It] gave the employees more flexibility and freedom, which was necessary since many had their own family pressures to contend with in the form of young children and elderly parents. …They do feel more loyalty because they have more freedom."

Every company is going to lose good employees at some point, Mr. Rodney says, and another way to minimize the impact is to keep an informal network of potential workers to fill in.

"Hire co-op students or interns," he advises. "They don't have the depth of experience but can take on entry level functions" and free up others to take on the responsibilities of a departed worker.

"Time is of the essence," he insists. "Quickly sort out and reassign responsibilities … and ensure that timely and meaningful recognition is provided for stepping up in [the] time of need….Often these remaining employees step up in the situation and exert a greater discretionary effort to get the job done."

"Lastly, hire a replacement who possesses more talent than the employee who left, creating an incentive for others to stay based on the change," he says.

That's exactly what Ms. Marsales did. "We hired new people who brought a new sense of vibrancy with them … There comes a point in time where you have to regenerate and rejuvenate. It was a blessing in disguise."

Thanks to KALYANI VITTALA / Special to Globe & Mail Update

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