Most of us have heard managers exclaim, “Our employees are our most valuable assets.” But what does that mean exactly? While it’s true that most executives appreciate the cost of employees in a cost vs. value analysis way –i.e., benefits, training, salary, bonuses – they don’t always fully appreciate the value of increasing employee retention. The only exception would be with sales employees where the financial benefit of a high-performing employee, is tangible and easily quantifiable. But this very often intangible “human” value that socioeconomic analysts refer to as the Human Capital quotient, is less extrinsic. As it turns out, there is an entire human resources system dedicated to Human Capital Management (HCM). And, today in the HVACR industry, in this post-pandemic age, amid labor and supply shortages and an ever-evolving workforce, understanding the importance of HCM and the financial impact of high employee turnover vs. solid retention rates, has never been more crucial.
Just Capital published an in-depth report on the importance of human capital titled, The Current State of Human Capital Disclosure in Corporate America: Assessing What Data Large U.S. Employers Share. For our purposes, the following findings sum it up well:
The connection between jobs and business performance has crystallized in the last 18 months. Since 2015, JUST Capital has surveyed more than 120,000 Americans on what they consider most important to just business behavior. And, year over year, the American people make it clear what they want U.S. companies to prioritize above all else: their workers.
Tips to Increase Employee Retention in the HVACR Industry
One way that HVACR contractors can combat the labor shortage and lack of qualified candidates, is to continue to retain their best workers. This requires an understanding of and potentially a need to address any current employee concerns. Below are three top tips on ways to demonstrate your real commitment to human capital management and increase your employee retention rates.
1. Compensation Matters
Many years ago, I worked in the hospitality industry in New York for a large, very successful hotel chain. At that time, unions were threatening departmental takeovers industry-wide in the Tri-State area. The non-union hotel chain at which I was employed, made the collective decision to compete with the unions by increasing compensation and benefits across the board. The company decided to pay nearly two dollars more per hour for shift workers than their union counterparts. They also implemented management training programs and increased benefits and travel perks for all employees. My personal opinions about the importance of unions aside – the plan worked well. I recall that our company was one of the few hotels in the area that remained independent of the hotel unions for years, and where almost all employees expressed gratitude for their jobs. I can state this with confidence because I was a manager at the time, and we were consistently checking in via employee feedback and HR employee surveys. Compensation matters, it does. However, since there is often a discrepancy in what an owner deems fair compensation vs. an employee’s assessment, management must reevaluate compensation packages regularly. Since low wages can be a factor that greatly affects retention, when measuring the impact on the profit bottom line and deciding whether to raise wages, CEOs should do their homework first. In making the decision, make note of this fact – the cost of employee turnover cumulatively may justify an increase in employee wages long-term depending on your company budget. Look at the following statistics regarding the long-term cost of turnover.
An article in SNIPS titled, Understanding the Industry Costs of Worker Turnover, calls the rate of voluntary turnover in HVAC, “whopping”. According to the piece, that can be costly:
In 2015, the average employee turnover rate for service companies like those in the HVAC industry was 12.5% — and a whopping 70% of those turnovers were voluntary. Studies have found that for entry-level minimum wage employees — those making $8 an hour — it can cost a company up to $5,500 to replace them. On average, an entry-level worker is going to cost between 30-50% of their annual salary to replace. For a high-level executive, it can cost a company 400% or more of that person’s annual earnings to train a suitable replacement. For small businesses, losing a highly trained workforce can be devastating.
2. Older Workers versus Generation Z & Millennials
One of the ways to understand retention is to do employee surveys and regular check-ins with the staff. Find out what matters to your team, because it may differ from what the industry dictates. However, it’s good to reference data and trends if you are hiring or hoping to keep the team you have.
As trends go, older workers indeed care about compensatory packages more than millennials and Generation Z. While Gen Z still has income concerns, much of what they care about goes beyond salaries. Watching their parents struggle in the 2008 recession, made this generation and the one just before, or millennials, more practical and vigilant about the companies they align with. Millennials are concerned with the future (as in retirement savings plans and company matching), but both Gen Z and Millennials greatly value a good work-life balance. Not only that, but the younger generations grew up entirely on social media. They are accustomed to referring to YouTube university to get answers quickly. And they know how to find information and alternative employment options fast. Company loyalty doesn’t hold a high value for this generational employee. Many young employees desire flexibility, and more vacation days including flexible PTO, as well as 401K matching. And Gen Z and Millennials pay close attention to company ethics and values. They may ask questions that have nothing to do with money, i.e., does the company value energy alternatives; does it care about the climate and regulatory changes moving forward; they may ask about sustainability ethics; others may question whether there are community volunteering and philanthropy programs as part of the company culture; and/or does the company have a diversity & inclusion policy. It’s important to know your current and potential team members’ personal “stay with the company deal-breakers” especially when you have a younger workforce or a goal to attract younger employees. Gen Z workers especially, tend to start looking for new employment as soon as they become unhappy.
Remember, you only need to ask to find out what your team cares about and what must-haves might lead to better retention rates. There are intangibles beyond pay and benefits that determine how long an employee stays loyal to a company. So, if your business model cannot sustain higher wages currently, where can you show your current team more value, recognition, and appreciation? If you endeavor to value human capital as much as you value tangible capital, this will help to increase retention, at least according to the varied and ubiquitous studies I have read over the past few years.
3. Encourage Employee Engagement:
Many of the HVACR owners I have talked to during my tenure as managing editor point to one of the contributing factors to their success as a direct correlation to having a team of loyal, enthusiastic, and engaged employees. Therefore, it’s important to check in often with your team so they remain happy. Get employee feedback either in person or through company surveys. Sponsor events that will foster team spirit. Be sure to read Beth Rovazzini’s 20Q in this August issue! Rovazzini references her team as “like family” and she has mastered the art of retention since some of her members have been with the company for two decades. But she embodies a real commitment to it. She spoke of encouraging her older workers to bond and share work and life experiences with the younger recruits. This approach to team engagement led to success. The same premise can apply to your company, or any business at any level, whether you are a start-up or a 20-year-old HVACR company. The goal for employers should be to ensure that each employee derives satisfaction from their work and feels their value. Engaging one-on-one with employees consistently will help forge a clear communication path toward improvement. Also, encouraging programs, meetings, training programs, and team events that allow employees to engage with other team members and grow with the company, will increase company morale and even allow some older employees to act as mentors to new technicians and apprentices.
Other benefits that can balance out compensation:
• Demonstrate a viable career path. An employer should provide career development opportunities for employees to ensure that there is room to grow with the company.
• Provide training opportunities for employees to learn. Employees should have opportunities to train and gain skills at all levels. If you don’t have training policies or programs in place, it might be a good time to review this strategy.
• Encourage Work-Life Balance. Whether it’s flexible work schedules or encouraging employees to take their vacation days, showing that you value work-life balance is key. Employees who have more control over their work-life balance tend to experience higher fulfillment from their work. This can lead to lower turnover.
Understanding the value of Human Capital Management at your company is a positive step toward business success. The next step is to track and deliver an increased rate of retention. In that way, you will attain competitive growth and expansion into the future no matter what the economy dictates.
I’ve included a bonus below, a tool from Hubspot from an article, How to Calculate Employee Retention Rate. It includes a formula so you can figure out your rate of retention. According to the platform:
The formula to calculate your employee retention rate is rather straightforward. You simply divide your total number of remaining employees during a set period by the total number of employees you began with during that same period and multiply the number by 100. For example, let’s say you began Q1 with 43 employees and finished Q1 with 39 employees. Your equation would look like this: (39 / 43) x 100. And your employee retention rate would be 90.69%, or 90.7% rounded to the nearest 10th.
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Heather Langone is the Managing Editor at HVACR Business Magazine and a regular features and column contributor.