EXECUTIVE SUMMARY From: Barbara Chaney, Xin Gao, Cornell University QUESTION What are some innovative ways

to retain top talent in Mainland China, where turnover is high, titles are inflated, and companies pay big bucks to incentivize people to move? You can focus your research within financial and/or professional services, but best practices from other industries are also very welcome. TALENT RETENTION IN CHINA Strategies and Best Practices Research suggests that companies have to understand what the root causes are that employees are leaving the company in order to create retention programs accordingly (see Appendix 1 for a list of reasons). Outsourcing exit interviews to neutral third parties can help uncover actual reasons for leaving and help create the right retention programs. 1 Companies have to understand what key employees are looking for, which will change depending on factors like industry, function, age, gender, family and years of service. 2 A) MONETARY retention programs play a significant role in talent retention, although its not the most critical reason for employees to leave. 3 Appendix 2 shows the most popular programs used in China. 4 1) Salary: salary is still the biggest concern in the overall compensation. MNCs should consider the local economies, consumption characteristics as well as government policies when deciding base pay. 5 2) Variable Pay: Pay for performance has become an inevitable trend in China. It is important for MNCs to educate employees about the rationale behind variable pay to ensure their buy-in. 6 3) Stock Options: Stock options were once only applied to senior management teams. 7 But now they are used to motivate a broader range of employees. XXXXX, an internet service company announced a plan to reward 25% of its employees with stocks. 8 Although Chinese laws restrict Chinese citizens ownership of overseas stock, some MNCs have devised ways to ensure employees have access to companies stock. 9 Additionally, stock options seem effective for employees to avoid paying high income taxes; however, companies need to consider that risk-averse Chinese employees might still welcome a bird in hand (read: higher salaries and signing bonuses) rather than two in the bush (read: stock options) unless they are in fast growing companies. 10 4) Iron handcuffs: punitive fines levied on employees if they leave before their contracts expire. 11 5) Golden handcuffs: financial incentives given to employees if they stay with the company for a contractually specified length of time. This can also be combined with earning advanced degrees. 12 Despite the fact that Chinese government has recently issued a labor contract law to force companies to increase benefits of employees, MNCs would use non-cash benefits which tend to have excellent retention value. 13 Appendix 3 shows types of benefits programs offered in China. 14 6) Health and medical benefits and life & accidental death and dismemberment (AD&D) insurance are the top two benefits programs offered by multinational companies, according to a best practices survey of 72 multinationals in China released by New York-based Mercer Consulting Group in 2007. 15 7) Other benefits, such as housing, childrens education are offered only to employees in key roles such as top management. 16 Chinese employees have to spend most of their income on housing, thus some companies may provide housing benefits to managerial level staff as a means of attracting and retaining them. Those benefits include monthly subsidies or low-interest loans to buy houses, and grants of houses to reward organizational tenure. 17 It is common in China to provide meal and transportation allowances to influence employees perception towards their employers. 18 Appendix 4 shows eligibility of employees to these benefits programs. 8) Flexible benefit plans is an attractive ways to enable employees to choose benefit options that best suit their lifestyle. Flexible benefits are diverse and include retirement and savings plans as well as lifestyle benefits such as child care, education, housing, and leave benefits. 19 B) There are several INTANGIBLE ASPECTS that affect retention. 1) Work itself can help employees gain self-fulfillment and satisfaction. The most common incentives include: temporarily empower employees to take leadership positions in projects, increase challenge works, and timely

give positive feedback on their achievements or improvements, flexible working styles, stable jobs. 20 A company should give employees a sense of internal equity, including fair and transparent performance evaluation. Taking up leadership positions through competition can give employees equal opportunities to try leaders roles and also build a competitive internal environment to motivate current managers to perform better. It is now widely promoted in both the government and state-owned companies. 21 2) In China, loyalty to specific persons is said to be more important than commitment to companies. 22 According to a DDI/SHRM study, employees would be more likely to stay in companies with good managers. 23 Thus, companies should consider improving managers leadership skills to retain employees.24 For example, as Chinese people feel reluctant to admit when they dont understand something, managers should be able to identify this problem. Managers should also communicate companies strategies and goals to improve engagement within the work group. 25 Moreover, Chinese employees expect their bosses to care for them both professionally and personally. 26 Some Chinese state-owned companies will irregularly set up meetings between top managers and talent who might leave, to let employees gain the emotional feelings that they are important to the companies. 27 3) Employee engagement can help as well. XXXX one of the most successful and famous companies in China, shows respect to employees suggestions and advices. It has clear policies to carry out employees proposals and nominates employees with the XXXXX Rationalization Prize. 28 4) Providing educational opportunities to employees is another important method to retain talent. 29 These opportunities are of particular value for employees with regard to Chinas educational system and the fastgrowing economy which makes it important for them to keep job skills current. 30 Banks such as XXXX have started to dedicate more resources to training programs and workshops in areas such as sales, investment, management, and leadership. 31 XXX, has 6-12 month program where the "most talented Asian employees" are sent to business school, head up a business project, and participate in an overseas work placement assignment, which is meant to introduce employees to the meaning of working for a global company. 32 5) A companys culture is important for retention. For example, employees must be rewarded for reasons of merit and the culture has to be talent-centric, so that people know theyre critical to the companys success. The companys culture has to send the message that employees are only limited by their dedication, effort, and ability to produce results. 33 A truly merit-based company will stand out, particularly in hierarchical societies where getting ahead has often relied on family connections and other relationships, social status, age, or length of tenure. 34 This way, companies should try to create a culture that focuses on building loyalty and commitment between employees and the organization. 35 Employer branding will help and companies have to ensure they have a good employer brand in China where factors such as community involvement, Chinese national general managers or opportunities for assignments outside of China contribute positively to the brand. 36 6) Finally, research indicates that opportunities for leadership and career development and professional growth are probably the most important factors for retaining employees. 37 Offering unparalleled development and career opportunities, and providing seamless support for talent on the move creates stickiness in the employment relationship. 38 Thus, formal development programs are important elements. 39 Especially in emerging markets, opportunity must imply an accelerated career track to senior positions. 40 Companies have to ensure that employees see that more experience will lead to more responsibilities in order to avoid the widespread perception that employees need to change jobs every two years to get more exposure. 41 It is important that companies offer Chinese local employees the opportunity to rise up the corporate hierarchy more quickly and more transparently. 42 If Chinese employees have the perception of being bound to a glass ceiling, the turnover rate is likely to be high. 43 Companies should offer career planning also to junior staff 44 which emphasizes the companys commitment on development. 45 Other Considerations Selecting the right people will make it easier to retain them, reduce dissatisfaction and lower turnover. 46 Lastly, keeping promises of development opportunities and everything offered in retention programs is particularly important in emerging markets where employees can quickly and easily move to global competitors or local companies. 47

ENDNOTES

Howard et al., Employee Retention in China 2007 - The Flight of Human Talent. Speth and Doeringer, Key Talent Retention in China. 3 Howard et al., Employee Retention in China 2007 - The Flight of Human Talent. 4 Speth & Doeringer, n.d. 5 Fan, How can multinational corporations retain their employees in China?. 6 Ibid. 7 Ibid. 8 http://forum.ceconlinebbs.com/FORUM_POST_900001_900133_915451_0.HTM 9 Fan, How can multinational corporations retain their employees in China?. 10 Xu, Retention options. 11 Melvin, Retaining Chinese Employees. 12 Ibid. 13 Chan, Ten major HR trends to watch in 2010. 14 What type of benefit plans are being offered by U.S. or European multinational companies that operate businesses in China?. 15 Ibid. 16 Ibid. 17 Braun and Warner, Strategic human resource management in western multinationals in China.. 18 Melvin, Retaining Chinese Employees. 19 What type of benefit plans are being offered by U.S. or European multinational companies that operate businesses in China?. 20 http://www.studa.net/2005/12-22/20051222413.html 21 http://www.studa.net/2005/12-22/20051222413.html 22 Gamble and Huang, Organizational commitment of Chinese employees in foreign-invested firms.. 23 Howard et al., Employee Retention in China 2007 - The Flight of Human Talent. 24 Ibid. 25 Fox, China. 26 Fan, 2006 27 http://www.bokee.net/company/weblog_viewEntry/1214068.html 28 http://www.studa.net/2005/12-22/20051222413.html 29 Playing for keeps in China. 30 Howard et al., Employee Retention in China 2007 - The Flight of Human Talent. 31 What type of benefit plans are being offered by U.S. or European multinational companies that operate businesses in China?. 32 Kerri Walsh, Managing Specialties. (cover story). 33 Ready, Hill, and Conger, Winning the Race for Talent in Emerging Markets. (cover story). 34 Ibid. 35 Hartmann, Feisel, and Schober, Talent management of western MNCs in China. 36 Tips for Attracting and Retaining Talent.. 37 Howard et al., Employee Retention in China 2007 - The Flight of Human Talent; Speth and Doeringer, Key Talent Retention in China; Tips for Attracting and Retaining Talent.; Ketter, Chinese Employers Fight Retention Battle.. 38 Gandossy, Greenslade, and Kao, Managing Leadership in Turbulent TimesWhy and How the Global Top Companies for Leaders Optimize Leadership Talent in Emerging Markets. 39 Tips for Attracting and Retaining Talent.. 40 Ready, Hill, and Conger, Winning the Race for Talent in Emerging Markets. (cover story). 41 Playing for keeps in China.
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Xu, Retention options. Melvin, Retaining Chinese Employees.; Lenis Lai-Wan Cheung, Let the other speak for itself: Understanding Chinese employees from their own perspectives. 44 Playing for keeps in China. 45 Ready, Hill, and Conger, Winning the Race for Talent in Emerging Markets. (cover story). 46 Howard et al., Employee Retention in China 2007 - The Flight of Human Talent; Melvin, Retaining Chinese Employees. 47 Ready, Hill, and Conger, Winning the Race for Talent in Emerging Markets. (cover story).
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42

BIBLIOGRAPHY Braun, Werner H., and Malcolm Warner. Strategic human resource management in western multinationals in China.. Personnel Review 31, no. 5/6 (April 2002): 553. Chan, S. Ten major HR trends to watch in 2010: as signs of economic recovery come into view, HR will be looking forward to making an even stronger contribution to business success in the coming year. We outline below ten points of focus for 2010 that no HR practitioner in Hong Kong and mainland China can afford to miss. China Staff. Pg. 2(4) Vol. 16 No. 1 ISSN: 1012-7887. December 1, 2009. Cheung, L. Let the other speak for itself: Understanding Chinese employees from their own perspectives, critical perspectives on international business 4, no. 2/3 (2008): 277 - 306. Fan, Ke (Michael). How can multinational corporations retain their employees in China?. CAHRS Working Paper Series, Cornell University ILR School (2006). http://digitalcommons.ilr.cornell.edu/cahrswp/407. Fox, Adrienne. China Land of Opportunity and Challenge.. HRMagazine 52, no. 9 (2007): 38-44. Gamble, Jos, and Qihai Huang. Organizational commitment of Chinese employees in foreign-invested firms.. International Journal of Human Resource Management 19, no. 5 (May 2008): 896-915. Gandossy, Bob, Shelli Greenslade, and Tina Kao. Managing Leadership in Turbulent TimesWhy and How the Global Top Companies for Leaders Optimize Leadership Talent in Emerging Markets. Hewitt Associates, 2009. Hartmann, Evi, Edda Feisel, and Holger Schober. Talent management of western MNCs in China: Balancing global integration and local responsiveness.. Journal of World Business 45, no. 2 (April 2010): 169-178. Howard, Ann, Louis Liu, Richard S. Wellins, and Steve Williams. Employee Retention in China 2007 - The Flight of Human Talent (2007). http://www.ddiworld.com/thoughtleadership/employeeretentioninchina.asp. Ketter, Paula. Chinese Employers Fight Retention Battle.. T+D Training and Development 62, no. 1 (January 2008): 16-17. Melvin, Sheila. Retaining Chinese Employees. China Business Review 28, no. 6 (November 2001): 30.

Playing for keeps in China. Country Monitor 7, no. 28 (July 14, 1999): 5. Ready, Douglas A., Linda A. Hill, and Jay A. Conger. Winning the Race for Talent in Emerging Markets. (cover story). Harvard Business Review 86, no. 11 (November 2008): 62-70. Speth, M., and C. M Doeringer. Key Talent Retention in China. Tips for Attracting and Retaining Talent. China Business Review 33, no. 2 (March 2006): 28-29. Walsh, K. Managing Specialties. (cover story), Chemical Week 168, no. 34 (October 11, 2006): 19-21. What type of benefit plans are being offered by U.S. or European multinational companies that operate businesses in China?. The Bureau of National Affairs, Inc., 2008. Xu, Steven Sitao. Retention options. Business China 33, no. 4 (February 12, 2007): 12.

APPENDIX

Appendix 1

Perspectives on Why Employees Leave and Stay

Source: Howard et al., Employee Retention in China 2007 - The Flight of Human Talent.

Ibid.

Appendix 2

The Most Effective Retention Tools for Top Talent in China Based on Employees Years of Service and Age

Source: Speth and Doeringer, Key Talent Retention in China. Appendix 3 The Most Successful Financial Retention Programs in China

Source: Ibid.

Appendix 4

Prevalence of Employee Benefit Programs Offered by Multinational Companies in China

Source: What type of benefit plans are being offered by U.S. or European multinational companies that operate businesses in China?.Ibid.

Appendix 5

Eligibility of Benefits Programs

Source: Ibid.