Beware the talent drain

Beware the talent drain

New employee satisfaction research in the franchise sector reveals threats and opportunities around compensation and retention

What’s the price tag on the loss of a valued employee? Estimates vary from tens of thousands of dollars to one and half to two times the employee’s annual salary, to up to 213% of the cost of one year’s compensation for that role.

Aside from the actual cost of recruiting and training a replacement, there are intangibles ̶  the “brain drain” of institutional knowledge, project disruptions and delays, and the psychological toll on the team. Not to mention, companies with engaged employees—those who are invested in the overall success of the organization ̶  have happier customers.

In today’s ‘employees market’, talent is more scarce than ever. Many franchisors and franchisees are struggling with recruiting and retention, trying to balance the need for competitive compensation and benefits, with rising costs in many other areas of the business.

Franchise Business Review, in partnership with the International Franchise Association (IFA), conducted the Franchising@WORK Employee Engagement and Compensation Benchmark Study in late 2018 to identify trends in employee satisfaction and engagement in the franchise sector, as well as identify best practices from brands that are leading the way when it comes to employee satisfaction.

The study was open to all corporate franchise employees ̶  both in the corporate office and front line employees in corporate-owned franchise locations. More than 1,350 employees representing over 250 franchise brands shared their opinions and feedback. Participants were asked 24 core benchmark questions related to job satisfaction, engagement, management, brand leadership, and culture, as well as detailed personal questions about their position, compensation, benefits, and demographics.

Results of the survey were also used to determine the top franchises for employees based on responses from their employees themselves in five key areas: “Best Culture”, “Best Boss” (aka Management), “Best Leadership”, “Best Compensation & Benefits”, and “Best Overall Satisfaction”.

What the survey revealed

The good news is overall employee satisfaction is high. 90% of corporate franchise employees rated their job as “rewarding & satisfying”, with 56% responding “strongly agree” and another 34% responding “agree”.

However, there is still work to be done. Lowest-rated areas of the survey were around fair compensation, long-term opportunity, communication, recognition, and support.

Key findings:
- 90% of corporate franchise employees find their jobs and the work they do rewarding and satisfying.
- 85% of respondents feel that their ideas and feedback are valued by their managers.
- Nearly a third of all franchise employees (29%) don’t feel they receive the recognition they deserve.
- Two in five franchise employees (41%) feel they are under compensated.
- Women in franchising earn less than their male counterparts, with the greatest gender pay gap at mid-level management where male managers earn a full 34% more on average than female managers.
- Gen Z employees (under the age of 25) had by far the lowest satisfaction and engagement scores in the survey, scoring 10% to 33% below benchmark.
- Customer-facing employees are least satisfied, with 59% indicating they did not see a long-term opportunity with their current company.

 

What franchisors can do to recruit and retain employees

Turnover is no longer just a cost of doing business ̶  it’s a serious threat to growth in a highly competitive market. Fortunately, there are some relatively easy ways to make an impact.

1. Benchmark your system.

The only real way to identify your biggest areas for risk ̶  and opportunity ̶  is to measure employee satisfaction within your system and benchmark it against other franchises. Michelle Kemplay, Director of Human Resources at Jason’s Deli, explains, “We partnered with Franchise Business Review in 2018 to administer our surveys two times per year. When we receive the results, the expectation is to dig in, analyze the data and then act on it. We celebrate the wins and create a plan of action for the opportunities. The expectation is improvement over the last survey. Our turnover is far less than the industry both on the hourly employee side as well as management.”

2. Consider the next generation of leaders

Sixty-seven percent of Gen Z employees said on the survey that they plan to leave their company within two years. That’s an alarming number considering the time and effort spent training them to advance within your organization ̶  not to mention the cost to replace them.

Generally speaking, Gen Zs are purpose-driven, multi-taskers, and impatient with the status quo. They have a strong desire for cross-functional opportunities and a clear path to advancement. Brands can create a significant recruitment advantage if they capitalize on adapting their training and career opportunities for Gen Z employees.

3. Examine your compensation structure

The Pew Research Center in 2018 found that, in general, women earned 85% of what men earned. Similarly, the Franchising@WORK study shows women’s franchise salaries to be lower than their male counterparts with similar experience at nearly every level of the franchise organization.

The data also shows that women are underrepresented in senior leadership roles within franchising. While they are overall more positive (3%) than men in rating the performance of their managers, they are less positive (-5%) about the long-term career prospects at their current company, which could have something to do with the perception of few opportunities for leadership.

4. Implement a system for meaningful recognition

Based on our research, employee recognition is equally, if not more important, than compensation. Saying thank you can go a long way ̶  and it doesn’t have to cost you anything. Public recognition by leadership for a job well-done, peer recognition programs, or fun awards for non-work-related contributions can all help employees feel appreciated and more satisfied.

Gordon Logan, CEO of Sport Clips, says, “We hold quarterly pep rallies where we recognize achievements by individuals and teams; certificates of accomplishment; small trophies for many milestones and larger ones for major accomplishments. We publish a weekly newsletter recognizing exceptional performance and positive client feedback via our surveys. Our national convention is heavy with recognition for individuals and teams ̶  everyone likes to be recognized among their peers.”

5. Define your culture and core values

While money is typically one of the reasons cited by employees for leaving a company, it’s usually not the only one. There are equally, if not more, important factors that contribute to employees seeking opportunities elsewhere. Now, more than ever, cultural fit is a must-have for employees.

Creating a positive culture doesn’t just mean free snacks, ping pong tables, or yoga classes at work. It’s having a defined set of core values that guides everyone in the organization, communicating them clearly, and setting the expectation for how your mission guides day-to-day work and behaviors.

Don Fox, CEO of Firehouse Subs, put it this way: “The ideals and behaviors that comprise our culture are well-defined. They are embedded in every aspect of how we work and make decisions. So it is not so much a matter of talking about culture as it is about demonstrating the aspects of our culture that we wish to reinforce.”

Dustin Hansen, CEO of InXpress Americas, added that you can’t really manage culture, but rather influence it. “It starts with me, acting the way I expect others to act and hiring the people that fit our culture. If either of those slack, we’re doomed.”

Next steps for building employee engagement

The results of the Franchising@WORK study clearly show that there are significant risks when it comes to employee engagement within franchise organizations. Fortunately, there are many programs franchisors can put in place at a nominal cost to mitigate those risks and move the needle. The organizations that make employee engagement a priority will reap the benefits of more satisfied employees, which in turn will results in happier franchisees, and ultimately, happier customers.

Research for the 2020 Franchising@WORK study will open this fall. All corporate franchise employees are invited to register to participate at https://rebrand.ly/FranAtWorkSurvey


ABOUT THE AUTHOR
Eric Stites is CEO and Managing Director of Franchise Business Review (FBR), an independent research and consulting firm specializing in franchisee and employee satisfaction and analysis. Eric leads FBR’s research and consultants with clients in the area of franchise performance. He is an active member of the International Franchise Association (IFA), serves on the IFA’s VetFran and Franchise Relations Committees, and speaks frequently on topics related to franchise relations and best practices in franchising.

 

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