What matters most to organizations, employee performance or retention?

What matters most to organizations, employee performance or retention?

When human resources professionals and business leaders say “quality of hire,” they implicitly mean two different things: 1) Are they top performers, both in terms of task performance and contextual performance? and 2) Are they a good fit for the role, the team, and the organizational culture, and thus will stick around? Naturally, the ideal employee exhibits both characteristics, but in practice, this is rarely the case. A great many high performers have one foot out the door, as they are often hot commodities in the job market. Similarly, culture fit and retention don’t imply performance, as everyone has met long-standing employees who are simply mediocre at what they do.

In this article, I will outline the importance of performance and retention in the workplace, and what matters most to organizations in the real world.

Why performance matters

Performance is the main priority of most HR management initiatives, and the whole talent cycle is typically geared towards managing performance. Ultimately, organizational performance is a function of individual performance across the organization and thus is key to the success of the business. Moreover, low performance doesn’t just result in lower return on investment for the business; it can be actively harmful. This is particularly true in smaller organizations, where mishires are an existential threat to the functioning of the business itself, making performance a critical consideration.

Performance in the workplace typically takes two forms: task performance and contextual performance. Task performance refers to performance in line with the formal job description and the role's core responsibilities. Typically, when people say “job performance,” they are tacitly referring to task performance. Naturally, being able to effectively perform the key duties of the role is of paramount importance, and underperformance in this area has serious negative implications for the organization itself.

Contextual performance refers to the peripheral aspects of the role that fall outside the scope of the job description. Going the extra mile, raising morale, supporting colleagues, and organizing social events are great examples of contextual performance. People who display contextual performance indirectly boost the task performance of other employees, resulting in a significant improvement in organizational performance. As a result, contextual performance is key to workplace success, and organizations are keen to hire and retain such employees.

Why retention matters

Performance undeniably matters, but if employees don’t actually stay, then their performance is simply wasted. This is the challenge that organizations face in high-turnover roles, such as sales, customer service, and business development. Almost nothing is more frustrating to managers than losing high performers, especially after a relatively short tenure. Indeed, all employees need a certain level of tenure before being actually profitable for the employing organization, irrespective of their level of performance. If an employee leaves before this threshold, this represents a net loss for the employing organization.

Employee attrition is frustrating enough, but the real headache comes from turnover, as leaving employees need to be replaced. Sourcing, attracting, screening, hiring, and onboarding staff is a time-consuming and expensive process, one that organizations are loath to repeat unnecessarily. High turnover means repeated leaving and hiring, costing the organization a considerable amount of time, money, and effort.

Although less of a threat, but still a concern, is the risk of losing staff to competitors. Some organizations employ a predatory headhunting practice, whereby they wait for other organizations to train their staff, and then attempt to poach them thereafter. This saves the organization from paying for training themselves while putting the original organization at a disadvantage. Not only does this cause organizations to suffer from high attrition, but it also gives competitors a distinct advantage in the market, which can be a serious concern.

Conclusion and recommendations

Although both performance and retention matter, I believe that performance is the greater concern on average. When it comes to retention, the worst-case scenario is that an employee leaves shortly after joining, wasting the effort and cost associated with hiring. The worst-case scenario for performance, however, is a mistake so catastrophic that it poses an existential threat to the organization. As a result, the risks of underperformance are simply higher than low retention, making it a greater concern.

In both cases, however, organizations need to carefully structure their talent management processes to attract, hire, develop, and retain their staff. This includes using effective talent tools in selection, onboarding staff effectively, providing targeted and effective training, and paying careful attention to employee engagement. If organizations optimize these initiatives, they can maximize the quality of hire in the general sense, helping both performance and retention.