Employment and Industrial Relations Law

Recruiting Talented Employees is One Thing. Keeping Them Is Another.

10 Sep 2021

4 min read

Author: Ann Bugeja

How can employers successfully retain their employees?

A major challenge for entities and businesses across the board relates to the ability of an organisation to retain its valuable and talented employees in the long run. From a human resources perspective, there is a great deal of pressure for an organisation to retain its key valuable employees and to reduce employee turnover. Employee retention has become more challenging than ever.

Challenges in the field of employee retention

There are several challenges that employers face when it comes to retaining their employees, some of which are more complex than others. One of the main challenges to employee retention is definitely salary dissatisfaction, particularly in today’s cut-throat and highly competitive market. If an employee does not feel satisfied with his/her salary and furthermore, receives a better offer from a competing organisation, this could be a reason for such employee to choose to shift from one organisation to another.

Other challenges in this regard include factors that relate to the manner in which an employee is treated by the organisation, for example, recognition and lack of opportunities.

Many employers opt for employee retention strategies, which would be specifically set up in a structured and regulated manner. These structures could be set up for both long-term or short-term retention, and can be either a one-off or can be offered regularly to a certain class of employees. Retention strategies may be set up and regulated, depending on the specific needs of an employer. The following are amongst the most popular:

  1. EMPLOYEE SHARE OPTIONS: a company would grant options to its employees to buy shares at a future date, at a specified or benchmarked value. An option is a derivative contract or instrument, the value of which is determined by the performance of an underlying asset throughout the option period. The purchaser of an option of shares has a right, but not an obligation, to purchase shares in the company at a pre-determined price and date in the future. Employee share options may be granted as part of the remuneration package and are often used to align the interests of employees with those of the company;
  2. EMPLOYEE SHARE LOANS: a company would provide loans or credit arrangements to employees to purchase shares at market value. Such loans may, or may not be, interest-bearing. Employee share loans are simple (and not costly) to implement and provide financial assistance to employees that might otherwise not have the funds to buy into the company;
  3. PERFORMANCE-LINKED SHARES: the company would grant shares to its employees once specific targets are met. Such targets generally relate to the objectives of a company over a pre-defined period, for example, 1 or 2 years. Apart from financial targets, performance shares may also be linked to the company’s strategic goals;
  4. PHANTOM SHARES: phantom shares constitute a contractual agreement between a company and the recipient of phantom shares that bestow upon the grantee (employee), the right to a cash payment at a designated time, or in association with a designated event in the future, which payment is to be in an amount tied to the market value of an equivalent number of shares of the company’s share capital. Phantom shares broadly serve to align the interests of employees and shareholders, incentivise contribution to share value, and encourage the retention or continued participation of employees;
  5. EMPLOYEE BENEFIT TRUSTS: typically, this type of trust would hold the relevant assets which constitute the benefit to be granted to a key employee. This will act as outlined by the employer in accordance with the terms established in the Trust Deed of the Employee Benefit Trust. For example, this could depend upon profits made, the results of a performance review, the duration of one’s employment, or the combination of a number of criteria. The flexibility envisaged in a Trust Deed allows employers to structure the scheme for the benefit of their employees, based on the criteria which they desire. Employee Benefit Trusts are attractive both for employers, as well as for employees, serving as a powerful tool for companies to retain their employees.

Retaining talent and valuable employees is crucial yet challenging for any company. Having an effective employee retention strategy in place can not only improve office morale by incentivising employees, but it can also ensure that an employee remains with the company, in the long run, thus helping the company to retain its talent.

When it comes to implementing an employee retention strategy in an organisation, one key element is that the strategy must be structured and tailored to the company, as well as to its employees, whilst also being in line with the company’s ethos, in order for the outcome of the strategy to be a success.