The Attrition Equation

  • Jeff Gibbard
  • 7 min read

Companies all over the country are facing worker shortages in what has been dubbed “the great resignation.

“People just don’t want to work” or so the narrative goes.

Today, we’re going to answer the question of why people are leaving, and what we can definitively do to fix it.

Read the post for full context or just jump to the solution here.

Motivation

In 1979, Daniel Kahneman and Amos Tversky, published their behavioral economics theory known as Prospect Theory which showed that people’s perception of gains and losses are processed illogically. The research showed that, on average, we process the pain from the perception of loss between 2-3x greater than the perception of joy from an equivalent gain. Losing $50 is perceived to feel 2-3x worse than gaining $50 feels good. This is why Prospect Theory is often referred to as “loss aversion theory” and has had a significant influence on modern marketing, sales, and communication.

The second chapter in Jonah Berger’s book Catalyst is called Endowment. This chapter explores the idea that people tend to resist change, and tries to identify solutions. The book cites research that shows it takes an average of 2.6x the upside versus downside for someone to make a decision. This is right in line with the research from Daniel Kahneman who, by the way, won a Nobel Prize for his work on Prospect Theory.

This means that, on average…

  • someone would need to have a potential upside of $260 to risk losing $100 (example straight from the book)
  • someone would need roughly 2.6x more features and benefits, with no perceived losses, to change internet service providers, cell phone model, or other products and services
  • someone would need a job offer that, on the whole, seems 2.6x better than the perceived downsides of leaving their current job

Did you catch the key word?

“Perception”

In all of these cases, the gains and losses are subjectively perceived, rather than objectively defined.

For example, a $260 upside versus $100 downside will feel very differently to someone living in abject poverty than it would to a billionaire. The subject changes the equation.

People make decisions based upon their perception of the situation and that perception is shaped by their situation in life.

All of the above information shows what it would take for someone to change from their current state. If a benefit fails to be perceived as being substantially better than the staying the same, or the potential loss, people will be reluctant to take action.

Understanding all of what I just wrote is critical if you want to reduce employee attrition in the midst of “the great resignation.”

Let’s dig into it.

“No one wants to work”

…or, you know, maybe you could pay your workers a living wage?

You’ve probably seen one of these signs, either in real life or on social media. It is beyond frustrating how thoroughly this passive aggressive BS misses the point. WOOSH!

It’s not that “no one wants to work” because of “government handouts” (funny how it’s only called a “handout” when it’s for the working class and poor). No, the truth is that “no one wants to work” if it barely provides for the means of survival and yields little more than barely getting by. “No one wants to work” once they realize that they are burned out, or tired of being placed in harm’s way just to make someone else a profit. No one wants to work when they feel their work is meaningless or they are treated as replaceable.

Remember, it’s about perception, and that perception is shaped by people’s realities. Many of the people who are quitting have been operating from a mindset of scarcity. Many have started to notice the gross inequities. Many are tired of just getting by.

Everyone recognizes that work is a necessary part of life that affords one to have food, clothing, water, shelter…and if they’re lucky, healthcare. Most people don’t mind work provided that it is relatively painless and adequately provides for their needs.

And that’s the problem, these companies aren’t adequately providing for people’s needs, and quite frankly, neither is the government.

So, it might not be that “no one wants to work,” it might just be that “no one wants to work FOR YOU.”

“Corporate wants you to find the difference between the two pictures”

At the corporate level, it’s the same picture.

“😭 we can’t find anyone to work”

Many of the companies pulling in record profits and handsomely rewarding the C-suite and shareholders are simultaneously complaining that they can’t hire anyone. Conveniently, existing employees are asked to do more for the same salary. When they burn out and leave, the companies blame laziness. At the same time, the company posts job opportunities online without salary requirements, then makes applicants submit a resume and re-enter the data in their online form. That data is then filtered through a keyword scanner where applicants are either swiftly sent a rejection letter or put through 30 hours of interviews only to find out that the job requires a PhD but pays $19/hour.

Everyone wants to pretend they are a capitalist who believes in the free market and rational actors until that narrative no longer suits their needs. The truth is that the only part of capitalism that many of these companies seem to believe in is labor exploitation.

How to stop employees from leaving

Let’s think like a behavioral economist for a moment. If we want people to stay in their roles, or join your team…what would we have to do?

That’s right! We’d have to create an upside that is 2-3x greater than their alternatives.

Even if we were to grant the idea that “the great attrition” is due to government benefits, as an economist, the only real option is to see those benefits as competition. So, we’d have to compete with those benefits and offer 2-3x more. But it doesn’t end there. The perception of benefits in work extend beyond just compensation. It also includes how people feel at work versus how they feel not working. It includes their perceived safety of working on the front lines during an ongoing battle against the COVID-19 pandemic versus staying at home out of harm’s way.

Therefore the days of treating employees like some cog in the machine are limited.

When figuring out how to get people to stay, the entire package must be 2-3x greater than their alternatives, whether that is not working and collecting unemployment benefits, working for a competitor, starting their own business, or coming in and doing the bare minimum.

Every employee will occasionally perform the following calculation subconsciously:

Therefore, if you want them to stay, you have the attrition equation right in front of you.

While salary and benefits is one place to start, I would argue that your leadership and culture are going to be increasingly more important as time goes on. How your company shows up and makes a positive difference in the world is going to be increasingly more important as time goes on. How you connect your corporate values with the values of your team members is going to be increasingly more important as time goes on.

You have to focus on the entirety of what it means to go to work.

Do Better

If you want to win in the world following “the great resignation” then do better.

I can’t tell you exactly what that means at your company, but here are a few great places to start.

  • Treat your team members like human beings and respect them.
  • Treat them like adults, rather than children who need constant oversight and supervision.
  • Compensate them enough to live a good life outside of work.

The formula is simple. If people are leaving your company, it means the alternative is perceived to be 2-3x better than staying with you.

If that’s the case, you’ve got some serious work to do.


This is my first post after one month away for packing and moving. Posts from this blog along with other content about becoming the best versions of ourselves at work and at home can be sent directly to your inbox by entering your email in the form below. I’ll see you again on Monday.

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