How to engage retailers on key aspects of employee relations

Employee turnover not only provides an indication of employee retention, but also employee satisfaction as well as recruitment and training costs for new employees.

Some companies have started to report on the length of reporting, but the annual turnover rate remains the key measure that both companies and investors use.

What’s good practice?

Current good practice includes reporting the company’s annual employee turnover rate, outcomes over time as well as an explanation of changes in performance. It is also important that retailers explain their desired turnover rate, the rationale for that rate and link to the company’s business model, and how the company aims to achieve it. A review of industry and sector studies identified 20% as a very good global turnover rate for the retail sector, and below 30% as good. Turnover rates may however vary significantly by country. As a result, companies may want to provide a country breakdown.

Which retailers are already disclosing their turnover rates?

The German retailer Metro AG reports comprehensively on employee turnover rates, providing breakdowns both by year and region. In addition, the company reports the average job tenure as well as measures taken to develop and retain employees. Other retailers that report their annual turnover rate include the US food retailer Whole Foods, the South African apparel retailer Truworths and the Chilean department store Falabella.

What were key challenges in the engagement dialogues?

Conversations around turnover were often challenging; companies track this information, but many were hesitant to report it for competitive reasons. Reporting on the annual turnover rate decreased, and even where investors had a positive dialogue with relatively advanced companies, several companies were reluctant to report the figures. Only nine of the 27 companies (33%) included in the engagement referenced this KPI in 2015, and globally across sectors only 12% of companies report this measure. That said, as the examples above demonstrate a number of retailers across regions and sub-sectors report their employee turnover. In fact 52% of the over 2,200 GRI reporting companies report even more specific information including their total number and rate of employee turnover by age group, gender, and region. Some companies in the engagement continued to report their turnover rates despite decreases in performance. Investors should commend those companies and encourage other companies to report this information.

A number of companies pointed out the need to account for regional differences rather than having a global target, which is easily solved by breaking down turnover rates by country.

Lastly, retail business models are highly variable, and a single company may use different business models for different markets. For example, business models based on employing young people usually go together with a higher turnover rate, which companies do not necessarily perceive to be a negative. Where a global turnover rate of 30% or even 20% is not possible or desirable for a company or in a particular market, companies should nevertheless be able to demonstrate that they track employee retention, and explain what their desired turnover is and why.

How can retailers achieve desired turnover rates?

Companies used outcomes of employee surveys to determine their strategy of how to reduce or maintain their turnover rates. Companies reported on a number of different strategies, including satisfactory working hours and wages as well as benefits that are relevant to employees, such as free healthcare or access to leisure facilities like gyms. A positive company culture also came up repeatedly in investor-company dialogues. To improve corporate culture, companies have taken steps such as increasing levels of transparency and collaboration. Active talent retention, including training and offering career opportunities within a company, were also cited repeatedly as measures used to decrease turnover, as were, to a lesser extent, linking employee retention to the pay or benefits of both shop floor managers and the most senior level executives.

Employee training

Training is key to ensuring that employees are equipped with the right skills and in turn are able to improve customer satisfaction. Employees who feel that they are able to fulfil the requirements of their job also tend to be more satisfied and are more likely to stay in the job for longer. The number of companies reporting this information highlights the importance of training. This number has increased, with a particularly strong rise in reporting on training and development across the workforce (reported by 15 out of the 27 companies, up from nine).

Reporting on the total training expenditure and in particular access to training and development across the workforce increased; both are now reported by more than 50% of the companies.

What’s good practice?

Leading companies were able to demonstrate both a solid understanding of the current and future skill sets that will be required of their employees as well as how they account for this through relevant training across different parts of the workforce. This may include increasing IT skills to enable employees to deal with an increase in online sales. Total employee training may be expressed in hours of training or currency spent. Investors would further like to ensure the training is of good quality and achieves the intended purpose – however companies are still in the beginning of measuring the effectiveness of the training they provide.

Which retailers are already disclosing their training efforts?

The Portuguese food retailer Jeronimo Martins provides comprehensive reporting on training expenditure (in spend), with breakdowns both by year and region. The company has also created a Global Learning area, which aims to define a global employee training and development model. In addition, the company gives details of training programmes and partnerships with teaching establishments. Further examples of global retailers disclosing their training expenditure (in hours or currency spent) include the Mexican hypermarket Walmart Mexico, the UK apparel retailer Sports Direct and the Brazilian department store Lojas Renner.

What were key challenges in the engagement dialogues?

Different types of training, such as online and classroombased, independently and locally organised training, and in particular ‘soft’ and on-the-job training are very important, but difficult and costly to track. Some companies are experimenting with tracking this information and are encouraged to do so to demonstrate leadership and help advance the sector. In the meantime, companies are encouraged to provide qualitative reporting around their training efforts to demonstrate the rationale and extent of the informal training that they have in place. Where training expenditure is regarded as being too sensitive, companies may wish to report on the number of training hours.

Very few companies track the return on investment in training, denoting an area that should be improved further.

Dialogues about year-on-year training expenditure and future training spend were challenging, with very few companies reporting on those aspects. Dialogue on employee training should therefore focus on training expenditure and training across the workforce, both of which are reported by more than half of the companies and provide a good indication on how extensive and systematic a company’s training efforts are.

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An investor guide to engaging retailers on employee relations

December 2015

How can retailers deliver effective training?

A number of companies highlighted the importance and effectiveness of peer-to-peer training. Particularly in markets where companies struggle to find the right employees, wider employee development activities like apprenticeships offered a valuable means of training and recruitment.

Employee engagement

Companies with engaged employees tend to have lower levels of employee absenteeism and turnover, and higher levels of safety, customer satisfaction, productivity and profitability. Examples of companies where employee satisfaction strongly contributes to profitability include the privately owned US supermarket chain Wegman’s22 and the UK department store Marks & Spencer, which identified a direct link between employee engagement and store sales. Retailers are increasingly aware of this link; employee engagement was one of the most improved areas of reporting, with 17 out of the 27 companies reporting in this area, up from 10 in 2013.

In 2015 over half of the retailers in the engagement reported on employee training and engagement compared to only just over a third in 2013.

What is good practice?

Leading companies were able to explain how they identify the needs and engagement levels of their employees on a regular basis. They report on the findings, and how these are used and feed into the company’s strategy. Those companies also have a clear strategy in place to ensure that their workforce is motivated and enabled to contribute to the success of the business.

Which retailers are already disclosing their employee engagement efforts?

In its integrated report, the Brazilian retailer Pao Acuca- Pref provides comprehensive qualitative and quantitative reporting on employee engagement. Quantitatively, employee engagement levels are reported year-on-year as a percentage figure. The company also reports on the participation rate in its annual engagement survey and focuses on particular areas of engagement, including diversity and inclusion. Qualitatively, the company gives details of how it seeks to increase engagement levels, such as through new starter training and integration sessions. Further examples of global retailers reporting a specific figure on their employee engagement include the Dutch food retailer Ahold, the UK department store Marks & Spencer and the North American hypermarket Walmart.

What were key challenges in the engagement dialogue?

Overall companies that engaged in dialogue had a clear idea of the relevance of employee engagement. Some companies preferred local rather than global surveys to account for local differences. Some companies voiced concerns that employee survey rates may be compared between different companies. It is therefore important to point out that investors are looking for evidence that a company’s employee engagement is measured and reported regularly, which allows for trends to be tracked in its performance over time.

How can retailers improve employee engagements?

Employee engagement can take different forms, from local activities or forums to the more commonly found online forums. To measure employee engagement, companies typically undertook an annual survey, which should be available in all relevant local languages and include free text questions.

Once a survey is in place, it is important that the company demonstrates that it measures and acts upon the survey’s results. In engagement dialogues companies cited examples of improvements made, such as introducing flexible working hours or decreasing management hierarchy. The leadership style and corporate culture are key factors regarding employee engagement. As one company put it, the right leaders lead to the right strategy, which in turn leads to the right culture. Further examples that companies cited as means of enhancing employee engagement included being clear about what is expected from employees and providing training as well as job rotation.

Some companies looked at themselves as a ‘brand’ for current and prospective employees and measured this with questions such as “are you proud of working for the company?” or “how likely would you be to recommend working at the company to a friend?”. External sources such as Glassdoor, a website fed with ratings from current and former employees, can further help companies identify how they rate in the eyes of their employees.