Retention Factors - 1

A COMPARISON STUDY OF THE MAJOR FACTORS AFFECTING EMPLOYEE

RETENTION IN THE U.S.ARMY AND CORPORATE AMERICA

Dr. Lyle J. Hogue

Science Application International Corporation

From Science to Solutions

July 6, 2006
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TABLE OF CONTENTS

THE CRITICALITY OF EMPLOYEE RETENTION ............................................................... 3

Introduction ................................................................................................................................. 3

Loyalty and its Effect on Employee Retention ............................................................................. 4

RETENTION DRIVERS OF THE U.S. ARMY......................................................................... 6

Army Retention ............................................................................................................................ 6

Military Compensation ................................................................................................................ 6

Army Retention Results................................................................................................................ 7

Compensation as a Driver........................................................................................................... 7

Professional Development as a Driver........................................................................................ 9

RETENTION DRIVERS OF CORPORATE AMERICA ........................................................ 10

Organizational Commitment ..................................................................................................... 10

Communication, Balance, and Meaning as Drivers ................................................................. 11

Compensation as a Driver......................................................................................................... 12

COMPARISON BETWEEN THE TWO GROUPS ................................................................. 14

Identifying Incongruence........................................................................................................... 14

Similarities................................................................................................................................. 15

Differences................................................................................................................................. 15

LIMITATIONS OF THIS STUDY AND OPPORTUNITIES FOR FUTURE RESEARCH .. 16

References ................................................................................................................................. 17
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THE CRITICALITY OF EMPLOYEE RETENTION

Introduction

This paper provides a review of potential motivating events or “drivers” of employee

retention in corporate occupations and the U.S Army’s enlisted population. Organizations

normally view employee retention as a fundamental aspect of human resource management

(HRM). Employee retention is essential to promoting organizational culture, providing

uninterrupted services, and growing a business. To some authorities in the HRM field, the

criticality of retention is reaching alarming heights. Don Grimme (2006), co-founder of GHR

Training Solutions, and noted speaker and researcher of HRM topics for over 20 years, states a

dangerous crisis exists in America today. He refers to the alarmingly diminishing ability of

organizations to survive. He asserts:

At a time of intense global competition, most corporations, government agencies and non

profit associations alike have exhausted whatever efficiency and cost cutting

improvements there were to be extracted from reengineering and downsizing. And, many

have found that they have cut, not only the fat, but also much of their muscle (or even

lifeblood), that is — their best employees. However, as they now look to replenish,

preserve and nourish this blood and muscle, they are faced with a Generation X work

force 40% smaller (and much more demanding) than the Baby Boomers — and the

lowest unemployment rate in 24 years! (para. 2-3)

Curtis, Hefley, and Miller (2001) reiterate this fact as a preface in their People Capability

Maturity Model (P-CMM) Paper when they state:

Organizations are now competing in two markets, one for their products and services and

one for the talent required to produce or perform them. An organization’s success in its
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business markets is determined by its success in the talent market. At the very time that

business markets are expanding, talent markets seem to be shrinking. As the knowledge

required to build products and deliver services increases, the retention of experienced

employees becomes critical to improving productivity and time to market. In areas such

as software development and nursing, the shortage of talent is so great that companies are

beginning to offer incentives that were once only available to executives or professional

athletes. In every domain of business,

executives know that their ability to compete is directly related to their ability to attract,

develop, motivate, organize, and retain talented people. (para. 1)

Loyalty and its Effect on Employee Retention

Grimme (2006) cites a Sibson & Company survey that pointed to employee loyalty as an

all-time low. The survey found that 55% of employees are planning to quit or are often thinking

about quitting their present employer. Even more alarming is a recent survey by Salary.Com that

found after polling 14,000 employees and 400 HR managers, that nearly 80% of the employees

indicated that they have recently searched online job postings and updated their resume, while

HR managers believe that only 40% of their workforce does those things.

Likewise, the criticality of retention in the military, in particular the U.S. Army, cannot

be overstated. If retention suffers in corporate jobs, a company’s performance lacks and in a

worst case scenario they are bought out by competitors. However, in the case of the U.S. Army,

if retention suffers, the results can be catastrophic and implications can be long term. A 2005

Rand Study reports:

It is desirable for a hierarchical organization like the military to place the most able

personnel in the highest positions of management and leadership because their decisions
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are amplified throughout the organization and affect the productivity of workers in all

lower ranks of the hierarchy. For the military, which has no lateral entry, the most able

people must be identified, retained, and promoted from within the organization. (p. 53)

This report illustrates the criticality of retention within the Army for the purpose of

this study; but can also be easily applied to the other branches of the military. The cause and

effect of poor retention and readiness in the U.S. Army are evident and further supported by

Rand (2005) when the report suggests, “missteps at any point—poor identification, low

retention, or nonpromotion—can reduce the efficiency of the entire organization, which for the

military means less capability and lower readiness” (p.53). Therefore, an important function of

the military compensation and personnel systems must be to induce highly qualified people to

stay.

The following pages of this study include research found in various studies completed by

the RAND Corporation, Army Research Institute (ARI), Congressional Budget Office (CBO),

and Society for Human Resource Management (SHRM). Furthermore, notable authorities,

speakers, and authors in the fields of employee motivation, human capital management, and

organizational behaviors were also used for this study. These authorities deliver a stark reality of

the criticality of employee retention – both in the corporate America and in the U.S. Army

enlisted population. The study explains the commonly accepted “drivers” in these two arenas.

Lastly, this study will provide a comparison of corporate and U.S Army retention drivers and list

areas of further research opportunities.

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RETENTION DRIVERS OF THE U.S. ARMY

Army Retention

What is Army retention? To understand “drivers” of retention it is first important to have

a working knowledge of the Army retention process. A definition found in a 2005 Congressional

Budget Office (CBO) report explains retention this way:

Retention refers to the number of personnel who remain in the military after their

contractual term of service expires; retention rates are often measured separately by

military occupation and by seniority. Generally, retention rates are computed on a

base of only those soldiers whose term of service will expire within a given fiscal

year. By contrast, continuation rates are computed on the larger base of all personnel

in the inventory at the start of the fiscal year, including those whose term of service

will not expire until some future fiscal year. (p. 11)

Military Compensation

Next, it is important to understand military compensation. The CBO report provides an

acceptable description of RMC:

Current military pay is often measured by Regular Military Compensation (RMC),

a construct that includes basic pay, allowances for food and housing, and the tax

advantage that arises because those allowances are not taxable. Between 2001 and

2005, average RMC for the entire enlisted force showed a cumulative increase of

almost 14 percent, adjusted for inflation. However, some of that increase took the

form of targeted pay raises for senior enlisted members (noncommissioned

officers). For soldiers facing their first reenlistment decision, military pay and

allowances rose by a smaller amount—about 10 percent, adjusted for inflation.

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This rate represents a faster growth in earnings than that for comparable civilians;

military pay for those in their first-term relative to comparable civilians increased

by about 13.5 percent. The CBO report estimates that, in the absence of any other

changes, this increase in relative military pay should have increased first-term retention

by about 25 percent and added more than 1 percentage point to overall continuation rates.

The observed decline in continuation rates represents the combined effects of other

factors that overwhelmed the increase in military pay. (p. 13)

Army Retention Results

A 2005 CBO report states, “Although the Army did not achieve its recruiting goals in

2005, it did meet or exceed its retention goals for enlisted personnel. The Army states its goals

in terms of the number, not the percentage, of soldiers retained. The CBO report examined

retention separately among soldiers serving in their initial enlistment, those in mid-career, and

careerists. The Army met its retention goals in all three seniority ranges for each year between

2000 and 2005” (p. 11).

Compensation as a Driver

Soldiers reenlist for a wide array of reasons. The decision-making process to reenlist can

run the gamut of learning a new skill, serving in a favorite location, staying at the same location

or being provided adventure training. Another commonly accepted factor of retention is the

condition of the overall economy external to the Army. If a particularly robust economy is

perceived, the Army may see an effect in its retention statistics. Generally, compensation and

professional development are known “drivers” of retention in the Army. In order to understand

the relevance between compensation and retention, it is essential to gain a historical perspective.

A Rand (2005) study explains:

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In 1999, the nation faced a defense manpower crisis, characterized by a decline in

recruit quality and unmet recruiting targets. Additionally, there were issues of fairness in

military compensation. Congress' response was the FY00 National Defense

Authorization Act, which raised military pay; increased bonus ceilings; reformed military

retirement benefit options; and increased special pays. (p. 47)

The Army, along with the other armed services pointed to three problems that led to

retention failures during the latter portion of the 1990s. “The first was the robust civilian

economy that provided attractive opportunities to military personnel, especially to well-educated

individuals and individuals in highly technical areas” (Rand, 2002, p. 67). This has always been

a known “negative” retention driver – in essence there is little the Army can to preclude some

soldiers from leaving when the perception of a robust economy exists. “The second was the

large post–cold war increase in peacetime deployments that required personnel to separate from

their families and perform hostile duty” (Rand, p. 67). This was performed without the massive

increase in SRB expenditures seen in 2000 and later. The final reason offered by the services was

the management of the defense drawdown of the early 1990s.

This exemplifies the response of military and political leaders when faced with a

recruiting and retention shortfall. However, is compensation enough? A 2005 CBO report

revealed the Army spent more Selective Reenlistment Bonus (SRB) (including Critical Skills

Bonus) dollars in FY 2005 than in the previous four fiscal years combined (p. 10). “Among the

active components, the Army has had the largest increases in SRB expenditures (including the

Critical Skills Retention Bonus) since 2000” (p. 14). The Army spent less than an average of

120 million dollars per year from 2000-2004, however, in 2005 SRB expenditures grew to over

500 million dollars. The question remains can the Army maintain that level of SRB spending?
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The CBO report continues to describe the Army as the service that “has also sustained the

highest deployment tempo of any of the services. A large number of active and reserve soldiers

have deployed to the Iraqi theater, many of whom have deployed more than once since the onset

of Operation Iraqi Freedom” (p. 14). The report finds asserts, “without the substantial increase

in SRBs during 2005, retention rates would have been still lower” (CBO, 2005, p. 14).

Professional Development as a Driver

Lastly, the Army Research Institute (ARI) (2003) conducted a meta-analysis of nine

separate studies reviewing the effects of professional development on retention. The various

parts of Army professional development that were studied under the Army Continuing Education

System (ACES) included Tuition Assistance (TA), Functional Academic Skills Training (FAST),

Military Occupational Specialty Improvement Training (MOSIT), Noncommissioned Officer

(NCO) Leader Skill Enhancement Courses, and the Armed Forces Classification Test (AFCT).

The ARI (2003) findings spoke strongly to the relationship between ACES programs and

soldier reenlistment. Specifically the study found (ARI, 2003, p. viii):

• Participation in TA was associated with a 7-percentage point increase in the likelihood that

soldiers would reenlist at the end of their term of service.

• Participation in TA increased the likelihood that a soldier would complete the first year of

service and second year of service by 5 percentage points.

• NCOs who participated in TA tended to have more promotion points, exclusive of those

received directly for their civilian education.

• NCOs (SGT and SSG) with greater number of semester hours supported by TA received

higher performance ratings.

• Participation in TA was also associated with earlier promotion to the rank of SSG.
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The survey also revealed qualitative data that supports the quantitative data. The study

asserts that 65 percent of soldiers interviewed rated “strongly agree” or “agree” that a major

reason they stay in the military is because of educational opportunities (ARI, 2003, p. 14). They

continue “In terms of job satisfaction, which some argue is connected to retention, that

respondents felt that TA improved the job satisfaction of enlisted personnel” (p. 14). The most

dramatic statistic reveled that soldiers, who never used TA, decided against reenlisting at almost

a two to one ratio (35.8 percent vice 18.6 percent) when compared to those soldiers who used

TA.

Without the Army providing fair compensation, professional development, and in-service

educational opportunities, it is logical to presume soldiers would exhibit a desire to obtain these

life enhancements and thus could separate from the Army to find them. Similar “drivers” are

found in corporate America and will be reviewed later

RETENTION DRIVERS OF CORPORATE AMERICA

Organizational Commitment

Meyer and Allen (1997) describe committed employees as people who stay with the

organization through thick and thin. They attend work regularly and put in a full day.

Committed people protect company assets, share company goals, vision, and ethics. Meyer and

Allen point out that “consistent negative correlations between organizational commitment and

both employee intention to leave the organization and actual turnover” (1997, p. 26).

Catherine Fyock (2002) concludes in a SHRM report that “never before has it been so

critical to focus on strategies for keeping good employees” (para. 2). She asserts that employers

who are keeping good employees “keep money in their pockets.” Employee turnover is
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characterized as a “direct drain on the bottom line.” Conversely, the second impetus of retaining

good employees is the cost of recruiting and replacing valued employees.

Communication, Balance, and Meaning as Drivers

Citing a 1997 SHRM survey, Fyock revealed data in exit interviews that claimed the

most popular reason employees left an employer was to advance to a better job. What is a better

job? Another survey conducted by the National Study of the Changing Workplace asked 3,400

what they considered to be “very important” in deciding to take their current job. The following

three responses were indicated: 1) Open communications (65 percent), 2) Opportunities to

balance life (60 percent), and 3) meaningful work (59 percent) (Fyock, 2002, para 6.).

Open communications translates to employees feeling valued, balance translates to a

relatively new view towards work intensity, and meaningful work translates to the notion of

making a difference where people work and not just making a living.

Fyock (2002) offers strategies for employers to reduce employee turnover. She

emphasizes that the impetus is on the employers more so than the employees. She states that

being listened to is a sign of being valued and respected. She sites survey data that respect is

considered the number one need for “balancing work and life issues.” Employers can host 50/50

meetings where management speaks 50 percent of the time stating their goals, vision, and

mission; and 50 percent of the time is used by employees, sharing their own questions and issues.

Some other ways to open communication and make employees feel valued are:

Practice management by walking around, work side by side with employees, conduct exit

interviews, and use other methods to listen to employees. In reviewing work-life balance, Fyock

(2002) claims that balance may become the “most sought after” benefit for the twenty-first

century. “More people are redefining success, not in financial terms, but in quality of life” (para.
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18). Some other ways employers can address balance as a retention tool are: Acknowledge non-

work priorities, offer work scheduling options, make it OK to use work/family options, and

create a pool of contingent workers. Lastly, “having work with meaning is of paramount

importance to employees today” (Fyock, 2002, para. 23). An employer can meet this desire by

developing mission and value statements that connect the employee and employer to a “greater

good” or something bigger and better than themselves. Some other ways for employers to

connect employees to a sense of meaning are: show how employee’s work contributes to the

whole, provide pride and ownership, and give back to the community.

Compensation as a Driver

Grimme (2006) uncovers interesting details about money and employee retention. He

provides a top ten list to attract, retain, and motivate employees:

1. Pay employees fairly and well, then get them to forget about money.

2. Treat each and every employee with respect. Show them that you care about them as

persons, not just as workers.

3. Praise accomplishments and attempts:

Both large and small; verbally and in writing, at least 4 times more than you criticize

promptly (as soon as observed) and publicly … and in private, and sincerely

4. Clearly communicate goals, responsibilities and expectations. NEVER criticize in

public — redirect in private.

5. Recognize performance appropriately and consistently: Reward outstanding

performance (e.g., with promotions and opportunities) and do not tolerate sustained poor

performance — coach and train or remove!

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6. Involve employees in plans and decisions, especially those that affect them. Solicit

their ideas and opinions. Encourage initiative.

7. Create opportunities for employees to learn and grow. Link the goals of the

organization with the goals of each individual in it.

8. Actively listen to employees concerns — both work related and personal.

9. Share information promptly, openly and clearly. Tell the truth … with compassion.

10. Celebrate successes and milestones reached — organizational and personal. Create an

organizational culture that is open, trusting, and fun.

Concerning money and compensation, Grimme (2006) asserts, “money is a necessary, but

not sufficient condition to attract, retain and motivate good employees.” He states that people

will go to work for a paycheck and benefits plan. But they will not really do work (at least their

best work), unless something else is present. He explains, and as supported earlier by Fyock

(2002), “it is the quality of the work itself and of our relationships with others at work — that

draws us to the best organizations and keeps us there, performing at peak effectiveness.” He cites

a recent study by the Families and Work Institute who published the National Study of the

Changing Work force — the most comprehensive research ever conducted in this area. The study

found that, while earnings and benefits have only a two percent impact on job satisfaction; job

quality and workplace support have a combined 70 percent impact: That equates to 35 times

greater.

Similarly, Salary.Com in its 2005 survey on compensation and employee retention

reveals:

Employers rank poor relationships with managers in the top three reasons why they think

their employees leave, but only 10 percent of employees want to leave for this reason. In
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reality, dissatisfied employees cite inadequate compensation, no opportunities for

advancement, and no recognition for their work as the top three reasons (in order) for

leaving.

Consistently, the data indicates if people are paid fairly, treated with respect, and given

meaningful work, the likelihood of them leaving their current company decreases. Conversely, if

the opposite of these retention drivers are present then the likelihood of employees leaving their

current company increases rapidly.

COMPARISON BETWEEN THE TWO GROUPS

Identifying Incongruence

An interesting dynamic that is often overlooked is the format upon which an enlisted

soldier serves. The typical soldier agrees to employment on a contractual basis and serves tours

from two to six year enlistment in length. Psychologically, this is different than most corporate

employment measures. Army officers agree to an initial period of contractual time and after that

contractual period of service is completed, officers transition into career status and have to resign

or be involuntarily removed (e.g. medical deficiency, non-selection for promotion) in order to

leave the Army. In 1998, career status was approved for enlisted members of the Army who

attain the rank of Staff Sergeant and have 10 years of active federal service. A chief dynamic of

retention, both psychologically and emotionally, is the difference between an employee or

soldier having a predetermined exit date as opposed to the employee or soldier having to request

to leave the Army or resign from the job.

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Similarities

Some similarities in the two groups do exist. Soldiers and serving in the Army are often

referred to as a microcosm of the American society; therefore it is not a stretch to apply some of

the findings to both groups.

People in corporate jobs and U.S. Army soldiers demand a fair level of compensation to

remain in their current jobs. As indicated in this study, (1990) there were issues of fairness

regarding military compensation. Congress's response was the FY00 National Defense

Authorization Act, which raised military pay; increased bonus ceilings; reformed military

retirement benefit options; and increased special pays. This correction, coupled with the

increased SRB expenditures, reversed a negative retention trend in the late 1990s to five

continuous years of the Army meeting or exceeding its retention rates.

The drivers Fyock (2002) provided also apply to both groups. She referred to survey

work conducted by the National Study of the Changing Workplace. This survey asked 3,400

employees what they considered to be “very important” in deciding to take their current job. The

following three responses were indicated: 1) Open communications (65 percent), 2)

Opportunities to balance life (60 percent), and 3) meaningful work (59 percent) (para. 6).

Differences

A clear difference between the two groups appears to be the opportunity for professional

development that was found in the research work of the Army retention drivers. The Army

makes a commitment to its soldiers of both and personal and professional development over the

course of a career. Corporate jobs do not appear to in the same position. There is some

professional development, particularly if the return on the investment can be directly applied to

the company.
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LIMITATIONS OF THIS STUDY AND OPPORTUNITIES FOR FUTURE RESEARCH

This study was limited to retention drivers that affect the Active Army enlisted

population only. Further research is required to gain insight to the potentially different retention

drivers for Active Army Officers and Reserve Component Enlisted and Officer population. This

study was to retention drivers the affect the Active Army enlisted population as one whole

population. Further research may uncover different retention drivers for male and female

soldiers, older and younger soldiers, soldiers in different racial categories, soldiers from different

socio-economic groups etc.

This study was limited to retention drivers that affect the Active Army enlisted

population only. Further research is required to gain insight to the potentially different retention

drivers for U.S Navy, U.S. Air Force, U.S. Marine Corps, and U.S. Coast Guard populations.

Lastly, the corporate jobs considered in this study was from a very small sample size

considering the totality of American jobs. Further research could find different drivers in certain

sectors of American employment, e.g. airline industry, automakers, service industries.

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References

ARI. (2003). Impact of the army continuing education system (aces) on soldier retention

and performance: data analyses. Army Research Institute. Washington, DC

CBO Report. (2005). The impact of recruiting and retention on future army end strength:

an interim report. Congressional Budget Office. Washington, DC

Curtis, B., Hefley, W., Miller, S., (2001). People capability maturity model report (P-CMM).

Carnegie Mellon University: Pittsburgh, PA

Fyock, C., (2002). Retention tactics that work. Society for Human Resource Management.

Alexandria, VA

Grimme, D., (2006) Grimme’s top ten tips to attract, retain, and motivate employees.

Retrieved from internet 5 July 2006 at

www.speaking.com/articles_html/DonGrimme_889

Grimme, D., (2006) An American crisis: attracting, retaining & motivating employees.

Retrieved from internet 5 July 2006 at

www.speaking.com/articles_html/DonGrimme_893

Myer, J. & Allen, N., (1997). Commitment in the workplace: theory, research, and

application. Sage Publications: Thousand Oaks, CA

RAND. (2002). Military recruiting and retention after the fiscal year 2000 military pay

legislation. RAND Publications: Santa Monica, CA

RAND. (2005). The quality of personnel in the enlisted ranks.

RAND Publications: Santa Monica, CA

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Salary.com. (2006). Employer perceptions about job satisfaction factors are not employee

reality. Retrieved from internet 6 July 2006 at

http://www.salary.com/sitesearch/layoutscripts/sisl_display.asp?filename=&path=/destin

ationsearch/aboutcompany/part_par593_body.html