It is incumbent upon franchisors to work with franchisees to pursue retention strategies that are right for their businesses and markets.

By Bob Funk, CFE

The nation’s economy is far from booming. It certainly hasn’t been growing at a steady rate. After all, gross domestic product in the first quarter of 2015 actually declined slightly, after increasing in 2014. The uncertain economy might lead some to believe that it is an employer’s market — that finding and retaining good talent would still be relatively easy.

In fact, the opposite is true. It is becoming a worker’s market. According to the U.S. Bureau of Labor Statistics, the unemployment rate declined to 5.3 percent in June, in part because people are finding jobs and in part because they are leaving the workforce altogether. The labor force participation rate hit a low of 62.6 percent that same month. That means the percentage of Americans in the workforce was at the lowest level since 1977.

Those who are looking for work often lack the right skills make it difficult for hiring managers. There is a mismatch between the skills employers seek and the skills workers have.

What does it mean for franchisors and franchisees? It means that worker retention strategies are more important now than at any time since immediately before the Great Recession — if not longer.

At Express Employment Professionals, we see this new reality playing out across the country. If employers need certain skills or experience that cannot be found among the unemployed worker pool, then they will have to hire that talent away from another employer. Indeed, some have described witnessing “musical chairs” in their local job markets.

There are many actions employers can take to improve retention, but generally they fall into three categories: building relationships with employees, increasing compensation, and recognizing generational differences. It is incumbent upon franchisors to work with franchisees to pursue the retention strategies that are right for their businesses and their markets.

Building Relationships

When employees join a company, managers should take the time to discuss their long-term opportunities for growth and advancement. Successful companies give employees frequent chances to voice frustrations, share concerns and receive feedback. One-on-one meetings, when possible, can make a significant difference.

The same is true for the franchisor-franchisee relationship. Not only should the franchisor build and maintain strong relationships with the franchisees for the purposes of career development, but the franchisor should help the franchisee do the same for his employees for the purpose of retaining good talent.

Janis Petrini, Express Employment Professionals franchisee in Grand Rapids, Mich., puts it this way, “Retention has to do with the company’s responsibility of providing a strong culture and high engagement for their employees — that they have an excellent talent strategy for each one of their employees. A lot of issues could be resolved by examining the culture. Money is not the only reason people leave. They’re leaving because they’re not feeling engaged.”

When employees see their jobs as relationships, they are less likely to leave without a second thought.

Competitive Compensation

As we face a tight labor market, employers need to be aware that local, state, and federal laws may soon require significant adjustments to their pay rates. According to CNN Money, Seattle, Los Angeles and San Francisco will increase their minimum wages to $15 per hour during the coming years—twice the existing federal minimum wage. Other states have enacted or are working to enact increases, and the minimum wage is likely to be a point of debate in the upcoming presidential election.

In addition, there have been recent proposed changes to overtime compensation. The rules are complex, but the thrust is this: most salaried workers will be eligible for overtime if they make less than $50,400 annually — more than twice the current threshold of $23,660.

Franchisees need to be aware of how such changes could alter their operations, and franchisors need to be aware of the various statutes winding their way through local and state lawmaking bodies so that they can work with franchisees to establish pricing models that work for their regions or locales.

Then comes the issue of keeping compensation competitive. Even small increases in wages can be enough to entice employees to change jobs if they don’t feel invested in their current companies.

In addition to preparing for changing laws, employers must also regularly evaluate their pay rates in comparison to prevailing wages in their communities. Those who aren’t re-evaluating are more likely to lose skilled employees. While it is also important to stay competitive in terms of other benefits, our experience shows that wages are more likely to motivate a worker to change jobs.

Generational Differences

Compared to older generations, millennials are more willing to change jobs frequently and to leave a job after a brief period of employment for “greener pastures.” This can be attributed in part to the rising burden of student debt as well as changing attitudes about career paths.

Employers who recognize that millennials and baby boomers, for example, may value different things in the workplace are more likely to be successful at employee retention.

Millennials are the most educated, most racially diverse and most tech-savvy generation. They see themselves as leaders. The 2014 Hartford Millennial Leadership Survey found that 34 percent identify themselves as business leaders, and 59 percent aspire to be leaders within the next five years. According to a 2015 Deloitte survey, 75 percent believe businesses are too focused on their own agendas rather than working to make a difference in society. The survey also showed that 60 percent say a sense of purpose is a major reason they chose their current employer.

Whereas previous generations were more likely to remain loyal to an employer, millennials are less likely to feel that sense of loyalty. Responding to their priorities — leadership opportunities and a sense of purpose, for example — matters. Team building, effective communication and providing a sense of direction are all key components to earning the loyalty of the younger generation.

This matters for everyone — from the franchisee working to recruit and retain employees to the franchisor looking for new franchisees. What better way for a millennials to become the business leaders they hope to be than to own and operate franchises?

How You Can Win In a Tight Labor Market

Franchisors may be tempted to think that employee retention is less of a concern for them and more of a concern for franchisees to worry about. But in this tight labor market, franchisors don’t have that luxury. They have a stake in the franchisee’s success, and that means having a stake in employee retention.

Providing the tools for franchisees to understand the compensation landscape, adapt to generational differences and build relationships is essential.

We are in a worker’s market, especially for experienced and skilled workers. Franchisors and franchisees alike must recognize this new reality and adapt accordingly.

Bob Funk, CFE, is CEO and chairman of the board of Express Employment Professionals. Find him at fransocial.franchise.org