The Most Effective Retention Tool… Is An Employment Contract (Eliminate turnover among your targeted employees)

Few know that the sports and entertainment industries have essentially ended key talent turnover. And because corporate retention is currently at a record low, it makes sense for corporate talent managers to more closely consider their approach, which reduces voluntary turnover to near zero. This “most effective” retention tool that these industries utilize is called an employment contract. It is a simple, inexpensive, and startlingly effective retention tool. It is based on a mutually agreed-upon contract that legally ties the person to the organization (and vice versa) for a predetermined number of years. 

However, before you begin any negative thinking about how difficult a shift to this approach might be, realize that you and almost every large organization already extensively use employment contracts, specifically for all of your temp and contract employees (called contractors because they work under an employment contract). So adding employment contracts to your key employee retention toolkit isn’t really much of a stretch. Especially given the fact that it literally produces the highest numerical retention rate among all retention tools!

The Many Benefits Of Using Employment Contracts For Guaranteeing Retention

If you are not familiar with the value that can be added by utilizing employment contracts, here are highlights of their many benefits.

  • They essentially eliminate turnover – the data reveals that there is an extremely low probability that a targeted person will attempt to leave voluntarily. I would also note that in most cases, individuals that are under contract are protected from poaching by other firms.
  • They provide managers with talent certainty – individual managers can confidently plan ahead during this time of record turnover. Knowing they will have the key talent they will need throughout a long project. And obviously, having this talent over many years will boost the team’s overall results and innovation.
  • Many will accept them – during this time of layoffs and employment uncertainty. You will likely find that many of your key employees and candidates will welcome the job security and many other benefits that they receive under an employment contract. In fact, for some candidates with multiple offers, a guaranteed period of employment may be a powerful differentiator. Of course, it still makes sense to prepare for any resistance you might encounter by creating pretested answers for any likely preidentified negative arguments that could impact an employee’s contract acceptance decision. 
  • It will help to retain other employees – when other employees see that they will be working alongside top talent for many years. That alone may increase their individual commitment to staying with the organization. They may also look forward to having guaranteed employment for themselves someday.
  • Employment contracts can also be an attraction tool – simply knowing that the organization wants you as a new hire to stay for 3 to 5 years. It can by itself be a powerful selling tool for candidates that are interested in completing long-term projects. And using it when other companies are not will provide your organization with a competitive advantage in talent management. Also, realize that this approach will likely cause potential candidates not offered a contract to realize that this organization is seriously committed to retaining and developing all of its talent. 
  • Employment contracts are inexpensive, easy, and fast – after any legal fees that might be associated with drafting the contract. The only expenses related to them are the fact that you’re guaranteeing an individual’s salary over the life of the contract. Although having the opportunity to pay the person over many years may be a benefit. In addition, the retention impact will begin almost immediately because the signed contract can be fully in force in less than two weeks.
  • It will save their manager’s time – knowing that each of your key employees will not ever become retention risk. This will allow their manager to spend almost no time on their retention. And relieving this retention burden will likely have the side benefit of increasing the retention rate of managers because it will free up their time to work on other higher ROI activities.

A Few Potential Downsides That You Should Prepare For

When you are selling this approach to managers and targeted employees and finalists. Be prepared for some initial resistance because most employees are used to the standard two-way “employment at will” form of employment. 

  • Undue pressure on the target person can be a problem – it is essential that you ensure that the individual does not feel pressured or coerced into agreeing to the contract. And especially for current employees, the contract must include some specified actions that will make working under contract clearly more desirable and beneficial to the employee than working under the non–contract approach. 
  • Employee motivation and excitement must be maintained – the employment contract only starts your journey with the employee. In addition, you must take actions to ensure that the employee will be continually motivated during every year of the contract. This reduction in motivation can become a problem. Because once their manager fully realizes that the employee is tied to the company. They can get lazy and put less effort into motivating and exciting this employee. Unfortunately, this can result in a frustrated long-term employee, which is never a good thing when you continually expect leadership and innovation from them. So it makes sense for HR to periodically monitor the productivity and the excitement of each contract employee.
  • Proactively minimize legal issues – and finally, try to ensure that the duration of the contract doesn’t extend too long (usually beyond five years). And that the liquidated damages penalty that the employee must pay if they break the contract meets the local legal requirements. You should also be aware that, just like in sports, companies can also terminate those under contract if they can agree with the employee on a fair settlement.

Final Thoughts

Smart leaders in recruiting and retention should always be on the lookout for the most effective retention tools. And although this data is not widely available to everyone. One only need to look at filmmaking to find the amazingly low percentage of individuals that voluntarily don’t fulfill their contract. So to smart corporate leaders, I recommend that you start off slowly by providing employment contracts to a few of your new hires in critical positions. And then expand your contract effort to some of your key current employees. And finally, for the record, you should know that other highly effective retention tools that also produce top retention numbers include “why do you stay interviews,” CEO meetings with at-risk key employees, walking employees downstream to reveal purpose and making sure that the employee is doing “what they do best.”

Author’s Note 

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About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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