How Do You Keep Your Best Employees From Quitting?

CEOs and senior management too often forget that talented people have choices

I worked at two public companies in the same industry that had very different views on how to treat their employees.

The average time employees spent at the first company, Maxim Integrated Products, was over 10 years. The average time employees spent at the second company, Micrel, was around four years.

These were two companies that were direct competitors but had very different employee retention rates. What caused the difference? I believe there were three key reasons Maxim employees stuck around longer than Micrel employees:

1. Great talent wants to be compensated properly

Maxim had a policy of refreshing its employees’ stock options. Every year, Maxim would add another year of options onto your existing set of options so you always had four or five years of unvested options in front of you. And the new grants weren’t a token amount of stock options. These grants were like the company was hiring you again, so they were worth a lot of money.

The result of having a large chunk of unvested options was that employee retention was high at Maxim. People rarely left.

Micrel also had a policy of refreshing its employee stock options. However, the new grants were not generous at all. They were about 10% of the yearly value of the initial option grants. The result was the average time a typical employee spent at Micrel was around four years; the exact same time their initial stock options took to vest.

It’s not a coincidence that employee retention is directly related to the expiration of stock options. CEOs and investors sometimes forget that talented people have choices. Why should someone stay if there is no ongoing financial incentive?

2. Great talent wants to work at a great company

When I joined Micrel, the company was riding high. The company looked like it was poised for the same sort of run to $1 billion in revenue that Maxim had. As I started assessing the team I inherited and the way they did things, I began asking myself, “What do they (Micrel) know about business that I don’t?”

The answer, as I came to realize, was there were no business tricks up their sleeve. Micrel had ridden a growth wave in the industry, and once the wave had slowed, the company’s flaws started appearing.

Micrel’s management team lacked the introspection that Maxim’s management team had. At Maxim, there was a constant worry about how to make the company better and fix weaknesses.

Micrel’s management team, I found, drank the Kool-Aid. They truly believed they could do no wrong, so the company’s flaws became worse over time. Predictably, the good people started moving on to greener horizons.

3. Great talent wants to work with great talent

Everywhere you went inside Maxim, there were A players. The engineering team was stacked with guru-level talent. The marketing organization was top-notch. Sales, even though I used to fight with them, were stacked with great talent too.

In my estimation, 80% of Maxim’s employees were A players. That’s as good as it gets. Micrel was the reverse of Maxim with about 20% A players.

For me, it was a culture shock joining Micrel. When you work with mediocre people, you end up with mediocre results. Within 30 days of taking over the division I was running, I realized I would likely have to replace just about everyone I was working with. With the group I inherited, progress was slow to nonexistent. That’s how bad it was.

You truly get an appreciation for what it’s like to work with great talent when that great talent no longer exists. Try recruiting great talent into an organization that doesn’t have great talent. It’s much more difficult. Trust me.

In short: Your great talent expects the best

The formula to keep your great talent from leaving isn’t complicated. All you need to do is compensate them well, give them a great environment and company to work in, and surround them with great people.

The only difficult part of that equation is recruiting great people; everything else is in your control.

That’s why, when I started my company, you’d better believe I learned from my experiences at Maxim and Micrel. And you’d better believe that I took the Maxim route, not the Micrel route, when it came to the employee retention formula I followed.

I work with startup CEOs to help them grow their businesses . I built several businesses from $0 to >$100M. Learn more at www.brettjfox.com

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