Employees, like customers, can be value drivers or loss generators. Keeping "A" employees is a key to success, just as retaining the best customers is.

Let's say that at one major thrift, a single employee sells 11% of the company's annuities. Losing that employee is a high-risk proposition, and one you should do everything to avoid.

Protecting your "A" employees also affects customer retention.

Long-term employees make fewer mistakes, develop customer relationships, and produce more value to customers, thereby increasing customer satisfaction and retention.

This in turn increases the employees' job satisfaction and contributes to their retention.

The ecomomic model for employee retention is similar to Baine & Co.'s customer-retention economic model. It comprises the following:

*Recruiting investment. It costs money to bring employees in the door - money for recruiting, advertising, interviewing, relocation, and so on. But not all hired employees are successful. Many are not retained, so the true cost of hiring is even higher.

*Training. Giving new hires a foundation for productive work often involves formal training as well as on-the-job training. The wages paid during that period do not yield much to the employer. It takes time before training ceases to be a cost and becomes a net benefit, as reflected in the model.

*Efficiency. Employees learn to work more efficiently as they gain experience on the job. This also means they will require less supervision, which brings additional efficiencies. Furthermore, longer-term employees are proud of the value they create for customers and pleased with the value they create for themselves and the company.

*Customer selection. Experienced salespeople and marketers are much better at recruiting the best customers. In the life insurance business, for example, new business is much better served by experienced agents rather than by trainees. In many cases, policies written by new agents represent a net loss for the company.

*Customer retention. As mentioned, long-term employees create higher customer loyalty. We see that in banking, brokerage, and many other businesses.

*Customer referrals. Loyal employees are sometimes a major source of customer referrals.

*Employer referrals. Long-term employees often generate the best flow of high-caliber job applicants. This not only raises the average quality of new hires, it also cuts recruiting costs.

Companies with the highest levels of employee retention consistently hire the vast majority of recruits through employee referrals.

Of the major national brokerage houses, the most profitable firm, A.G. Edwards, also has the highest retention rate of customers - and employees.

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