Smaller businesses are winning the staff retention battle, but it’s costing them

Small companies are beating their larger competitors on the battle to retain staff, but are paying a big price in high wages and improved training to do so, a new survey shows.

The Australian Institute of Management asked more than 700 Australian companies about their hiring and remuneration practices for its 2008 National Salary Survey.

Despite the ongoing skills squeeze, small and medium sized businesses – those with up to 75 employees – reported improved staff turnover levels, from 13.6% in 2007 to 12.7% in 2008.

That moved them ahead of larger companies, which suffered an increased 13.3% staff turnover rate in 2008, up from 12.6% in 2007.

The success of smaller businesses in holding on to their staff appears to be the result of a deliberate campaign to beef-up pay and benefits offered to employees.

According to the AIM survey, over the past year the employees of small and medium-sized businesses have had average pay increases of 5.2%, up from 5% in 2007 and well ahead of the average 4.7% pay rise won by staff of larger companies.

Smaller businesses have also put significant non-wage benefits on the table to lock-in staff, with more employers offering some form of profit-sharing or performance-based pay.

The proportion of smaller businesses offering cars to staff, either through a direct use or novated lease scheme, also increased from 2007. These businesses were also more likely to make additional superannuation contributions to employee accounts, up from 23.7% in 2007 to 25.8% in 2008.

And training also became a more important priority, with the number of small and medium sized business with a dedicated training budget lifting from 45.1% in 2007 to 53.2% in 2008.

AIM NSW/ACT chief executive Jennifer Alexander says the results suggest smaller businesses have responded to the big challenge the skills shortage has posed to them in recent years.

“I remember a couple of years ago saying small business is going to be competing with larger companies for talent and will need to look at how it competes. It looks like small businesses have taken that message onboard and are now being pretty smart about how they go about holding on to staff,” Alexander says.

The flipside of that strong approach to valued staff has also been more aggressive moves by smaller businesses to let go of staff – while voluntary turnover numbers have fallen, overall staff churn increased from 18.3% to 18.6%.

“Involuntary departures for smaller companies increased much more than for larger companies, so it does look as if small companies are being more active in moving on those who aren’t contributing,” Alexander says.

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