How to Develop an Effective Employee Retention Strategy in China

By Ellen Yin and Dorcas Wong

• An effective employee retention strategy is becoming increasingly important in China’s volatile job market where a shrinking workforce and aging demography is driving up the competition for talent.
• The best employee retention techniques include a mixture of both external benefits like salary and bonuses and internal benefits like work-life balance, training and mentorship, and career growth prospects.
• Conduct an HR audit, identify your company’s competitive edge, optimize individual roles, and recognize good work.

It is not uncommon for businesses in China to experience a high staff turnover.

From junior to senior level employees, professional technicians to back office workers, employees are no longer bound to one company for the duration of their career.

Employees can leave a company for a variety of reasons, ranging from reasons external to the workplace, such as relocation or career change or reasons related to work, such as lack of satisfaction or professional development.

According to a survey produced by the global recruiting company Hays, 35 percent of candidates in China left their employer after two to four years, while 14.5 percent decided to change jobs up to two years into their new role.

Although employers may recognize the skills of their current talent pool, they often underestimate how an effective HR strategy can impact the length of time an employee stays at the company as well as the value they will bring during the course of their employment.

Before we discuss how employers can develop effective employee retention strategies, let us elaborate on why it matters.

Why should employers care?

The job market can be a competitive landscape for employees and employers alike.

Due to China’s restrictive population policies, it is now facing an aging demography and a fast-shrinking workforce.

China’s working-age population (aged between 16 and 59 years) shrunk 2.8 percent from 2018 to 2011 and is around 897.29 million workers, according to the National Bureau of Statistics. However, it is estimated that by 2025, the total population above the age of 60 years will be over 300 million in China.

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As a result, a war for talent is emerging among China’s employers. This makes having a conscious employee retention strategy in place a matter of serious consideration for high level management.

The competition for talents isn’t restricted to businesses in China. Many first-tier cities, such as Shanghai, Nanjing, Tianjin, Hangzhou, and Shenzhen now actively compete against each other with preferential regional policies to attract first class talent.

For example, Shanghai municipal government provides talents with access to preferential policies for obtaining hukou, while the Nanjing local government allows talented individuals with incentives for both hukou applications and housing allowance.

Thus, attracting and retaining quality employees remains a priority issue for employers in China as the job market is becoming increasingly volatile.

Developing your own talent retention strategy

According to a study by the Saratoga Institute and published by the American Management Association – on average, the loss to a company of an employee leaving is around the employee’s annual salary.

Other visible costs include higher compensation and benefits for replacement, recruitment costs, and training costs. Invisible costs pertain to things like severance pay, low efficiency, and loss during the vacancy period.

Therefore, investing in employee retention strategies is not only a huge value-add for the company, but is often a financially prudent decision as well.

The total compensation model

To motivate employees to stay at the company it is often said that the best retention strategy is one that adopts a “total compensation model”.

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Total compensation is a concept whereby your enterprise culture, corporation strategy, and HR strategy are such that they are able to engage and satisfy current employees and stimulates continual business growth and excellence.

In order to apply this principle, it Is first important to understand the most common reasons for dissatisfaction among employees.

Typically, there are four overarching reasons why an employee leaves a company, these are: unmet expectations, breakdown of trust, feeling undervalued, and lack of satisfaction. Total compensation encourages the use of various external and internal benefits in order to optimize the value employees bring to a company. These include:

• External benefits, such as salary, bonuses, stock equity, allowance, insurance; and
• Internal benefits, such as work-life benefits, fulfillment of work, training and development, career advancements, and recognition by the company.

Below is a more detailed explanation of the components of external and internal benefits.

Tips for HR managers

Retaining talent can pose many challenges for firms in China. It is important to consider both the internal and external motivators for an employee in a workplace when determining any HR strategy.

Here we break it down into four principles employers should use to guide them in creating an effective HR retention strategy.

I. Conduct an internal HR audit

First, HR managers should review their existing policies, procedures, and documents to ensure that they comply with the most recent legal and regulatory developments and align with their broader HR strategy and enterprise culture.

A questionnaire can often be a useful way to gather information that is not available and can be vital in gaining insights that inform key decisions.

This can assist in finding the root causes of employee discontent, gaps in the operation of a company, and improvements that can be made within.

II. Identify your competitive edge

Next, it is important to consider where your business sits among your industry competitors. HR managers are advised to conduct a salary benchmark of similar roles in the industry and ensure that they are competitive.

In addition to this, it is important to recognize the strengths of your company in the market and utilize this in attracting talented employees – whether by offering a flexible and independent work style, competitive salary, company benefits, career advancement, and/or training.

III. Optimize individual roles

Once you have evaluated the company’s overall HR strategy, it is important to analyze individual roles and positions. Conducting a position evaluation is a good way to improve position descriptions, which can help optimize the search for quality employees and will clearly pinpoint the expectations, rewards, and benefits distribution of the role.

A thorough evaluation will consider the ways to effectively measure the position’s value, how to provide equitable internal pay to employees, and ways it can optimize an employee’s impact, communication, innovation, and knowledge in the performance of the role.

IV. Active recognition

Finally, it is important to ensure there is a system in place where there is active recognition of employees.

Given the volatility of the job market, an agile goal setting is an important variation on traditional performance criteria as it ensures that key priorities are always kept at the forefront and goals and adjustable at any given time.

Some reliable and proven methods that employers can adopt to establish practical goals, include KPI (Key Performance Indicators), OKR (Objectives and Key Results), and the SMART (Specific, Measurable, Achievable, Realistic and Timely) principle.

These should be complimented by a clear job progression ladder and salary variation for each level – which can form an important motivator for employees and is an invaluable way for management to communicate expectations. Such a system will also improve the working relationship and experience for both high and lower level staff.

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