The above term is from The Herman Group’s weekly newsletter (no link but their website is www.herman.net). I love that phrase – it is quite descriptive. Here is the excerpt that caught my attention:

Fueled by the publicity frenzy the press is enjoying, the current volatility in world financial markets is affecting many people at all levels of our societies.

From the employees’ point of view, this uncertainty engenders insecurity. What will happen to my company? Will it be in business? Will I have a job? The reaction is that they continue “corporate cocooning”, staying in the safety and sanctuary of their corporate jobs, despite their deep dissatisfaction.

A number of studies have confirmed that at least 35 percent of our workforce is unhappy. Thanks to a social network analyst Scott DeGraffenreid, we have a label for it. We call it “Warm Chair Attrition”. The shame is these employees still collect paychecks, take up space, and infect their fellow associates. It would seem to be good news for employers: their workers will not leave. However, bottom line, disaffected employees are not particularly productive.

This topic is always one for debate. I’m not a fan of the Jack Welch theory that you need to be turning over your bottom 10% annually. However, no turnover can be a sign that you have a fair amount of warm chair attrition occurring.

The long-term danger here is that mediocrity can creep in to your culture. At that point “good enough” can become the predominant approach. We’ve encountered companies with this approach and it stands out from those companies where excellence is the expectation. As painful as it is, it is best to upgrade your salesforce if you have a team settling into mediocrity.

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CNNMoney.com has an article that really tweaked me this morning – Help! I accepted a job – can I change my mind?  The article is the standard reader mail format with some good advice in the answer section.

An offer letter – which is usually a brief document describing your position, duties and compensation – is generally less binding than an employment contract – which goes into much more detail and usually states how much notice you must give if you decide to quit.

…

So just be honest and say, ‘I’m sorry, but my dream job opened up and I really feel I have to take it.’ Most often they will just let you go. One thing in your favor is that, after only two weeks on the job, it’s probably not too late for them to call their No. 2 choice and replace you.”

Here is what gets me – we had this situation play out a couple years ago when we were helping a client select a manager.  The position was here in the Twin Cities and the candidate was moving here from Denver.  She signed the offer letter and had a scheduled start date.

Unfortunately, she notified our client 7 days before her start date that she was going to pursue another opportunity.  We were stuck since we had ceased sourcing for the “filled” position.

To make matters worse, our client invoked what I like to call the “winner-takes-it-all” approach.  They had no interest in talking to the number 2 candidate even though that candidate was strong.  Our client had a tough time selecting between the two top candidates – they were that close.

For some reason, we see this mentality play out frequently in our clients’ minds.  They have 2 final candidates who are almost equal.  They select their top choice.  If they cannot reach an agreement with them, they want to start a new sourcing process.  The second candidate who made their initial decision so difficult is now considered damaged goods (or something to that end).  Frustrating to say the least.

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Turnover is trouble for any company when it is not controlled.  To use a timely analogy, it is similar to a forest fire.  A controlled burn clears out a section allowing it to be repopulated with fresh, new trees.  An out-of-control fire can destroy an entire forest in a short amount of time.

Obviously, extreme turnover is typically a sign of a “churn-and-burn” organization.  However, a small, controlled amount of turnover is valuable to an organization’s overall health.  But what about a company with no turnover?  Is it healthy?

This question is difficult to answer in a vacuum.  Number of employees, company revenue, market trends, etc. all play into the equation.  Yet, problems will arise when an employee who should be terminated is allowed to continue his or her employment.

CareerBuilder.com covers this topic in their article The Cost of Keeping a Bad Employee.

The majority of bad employees already know that they are not the best person for the job. Coming to work every day with this knowledge is frustrating and stressful. It is likely that this work related stress infiltrates the employee’s personal life. A manager who sincerely cares about the people he/she is managing must be willing to take action to help an employee move into a job where they can be a star player or good employee.

This sounds like an excellent tact to take with managers who have difficulty firing under-performers (especially sales managers).  Often under-performing salespeople have the ultimate albatross hung around their neck – “They can’t sell.”  Some can’t, but many can.  The salesperson is simply in the wrong sale.  As a manager, the best thing you can do is free them to pursue the right sale that fits their abilities.

Here is the greatest risk in retaining a bad employee (my emphasis):

When cancer enters the body, it spreads grows and spreads throughout if gone untreated. A bad employee can be like cancer within a company. Strong negativism, a poor attitude, backbiting, and incompetence can spread quickly within any organization. Co-workers of a bad employee notice the issues and typically try to fight off resist catching the negative traits. However, such traits are contagious and can severely hurt or even kill a company. A bad employee will eventually affect your employees, customers, and product/service’s quality.

Many people can relate to this truth.  I suspect most have experienced a “cancerous coworker.”  No team is worth putting at risk over a hesitancy to fire a bad employee.  That statement sounds harsh, but there really is no option in that situation.  Moving that employee to another department does not ensure the end of their effect.  The best move is to clear the forest of the dead trees an allow new ones to grow in that place.

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We often speak of the costs of making a bad hire especially in sales. One bad sales hire can send prospects to your competition and sully your company’s reputation in the market all while you pay this salesperson. But what if it goes even further than that? In our litigious society, what if an employee decides to make a run at a discrimination lawsuit?

BusinessWeek online offers up some incredible examples in Fear of Firing:

-Many of the lawsuits may seem ridiculous. IBM is currently defending a case filed by James C. Pacenza, a plant worker it dismissed for visiting an adult Internet chat room while on the job. In his lawsuit, Pacenza claims that his propensity to such behavior stems from post-traumatic stress disorder, which he suffers as a result of military service in Vietnam, and that IBM violated the Americans with Disabilities Act.

-In October, 2002, Southview Hospital in Dayton fired Karen Stephens, a nurse who worked in a unit for premature babies and other at-risk newborns. Six other nurses had reported that Stephens was abusive to infants, according to court filings, spanking them when they were fussy, wagging their noses until they screamed in pain, pinching their noses shut to force-feed them, and calling them “son of a bitch.” Stephens, who was 60 at the time, sued Kettering Adventist Healthcare Network, which operates Southview, denying “inappropriate” conduct and alleging that the real reason she was let go was age discrimination.

-Even in the face of theft, Revolution Partners, a small investment banking advisory firm in Boston, balked before showing one of its employees the door. The woman had used her company credit card for a personal shopping spree and plane ticket, but Revolution retained an employment attorney, got the woman to sign a form waiving her right to sue for wrongful dismissal, and after she was fired took no legal action to recover the amounts improperly charged. “We’re a little firm, and the last thing I need is to spend a lot of time on a lawsuit, whether it’s warranted or not,” says Peter Falvey, one of Revolution’s co-founders.

Pathetic examples of malfeasance, don’t you think? It is difficult to predict which employees will choose this path if terminated. However, it is possible to do as much as possible to hire the best person for the job. Each hire leaves the company with some exposure for a potential lawsuit no matter how frivolous the accusation by the former employee. Invest in finding the best candidate and you provide some insurance to these headaches.

In our candidate assessing business, I have always believed that our prices should be double for identifying candidates that look good on paper to the hiring company but are not a match for the position based on the objective assessment. One parting thought about a bad hire who resides on your payroll for any extended period of time:

This set of divergent incentives puts line managers in a tough position. When they finally decide to get rid of the underperforming slob who plays PC solitaire all day in her cubicle, it can be surprisingly tough to do. And that, in turn, affects productive workers. “Few things demotivate an organization faster than tolerating and retaining low performers,” says Grant Freeland, a regional leader in Boston Consulting Group’s organization practice.

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We at The Hire Sense have been focused on employee retention this year. Pretty smart of us, I know (especially when the national unemployment rate is 4.4%). Michael at Hidden Business Treasures pointed us towards the Herman Group’s Trend Alert e-newsletter and I received my first one this week. The topic – wellness programs and their impact on benefits.

This shocked me:

The financial impact of healthcare spending is indisputable. Starbucks spends more money in one year on health insurance for its employees than it spends on coffee for its customers. The US automakers will spend more money this year on health insurance than they will on the steel that goes into their automobiles.

Amazing, but then I read this nugget:

Also, employees who are in the middle of a weight-loss or smoking-cessation program are much less likely to leave. Reducing employee turnover also decreases benefit costs, mostly because there is lower utilization of the healthcare system. When you bring on new people, they have often avoided visiting doctors, because they had no coverage. Once on your system, it€™s time to visit the doctors. This increased system usage produces higher insurance premiums.

Yet another reason to put an increased effort into your retention programs. Turnover is expensive unless you have underperforming salespeople (then it is needed).

We have seen benefits enter the interview process earlier in the discussions. This approach used to be a flag for us back around 2001. Now we consider it a standard aspect of qualifying opportunities. If your company offers a strong benefits package, introduce the package early in your hiring process.

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If you think you are experiencing hiring difficulties, be happy you are not on Wall Street:

Fresh off some of the richest bonuses ever handed out, investment bankers and traders, especially those who deal with leveraged debt, are in high demand. In some cases, bidding has driven newly hired employees into the arms of a rival in mere weeks.

That statement seemed like hyperbole until later in the article:

Securities-industry employment rose to 804,000 at the end of 2006 after a third consecutive year of increases. The employment figure is just 4% shy of the all-time high set in 2000, according to the Securities Industry and Financial Markets Association.

The market is tight everywhere and especially in sales.  Old hiring strategies are being left in the dust.  If you are sticking to a newspaper ad, good luck.  If you are posting a job description as an employment ad, be prepared to wait.  The changing market requires a process for effective sourcing and selection.

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There is something about industry experience that is seductive to many hiring managers. The allure of a salesperson who has been “in the industry” for some time is almost irresistible.

The same infatuation seems to exist with salespeople once they are on the payroll. The salesperson’s ability to understand the company’s product and service offering is important to the position. But why are many new salespeople judged by their level of product/service understanding? Is this really the best determinant of sales success?

In a word, no.

At the risk of being overly simplistic, salespeople are hired to . . . sell. Their sales skills trump all other skills. These skills and abilities should be the measure of their growth in starting a new position. It is remarkable how many hiring managers take the short-term view of a new salesperson’s product knowledge.

Invariably some managers will think of salespeople who were never able to learn the product/service in enough detail to sell it on their own. I am reminded of a salesperson who went to work for a customer of ours who sells wireless scanners. This salesperson did not know the first thing about computers and although she was strong at selling, she was not able to have a qualifying discussion with a technical prospect. In those misalignments, product/service knowledge can nuke strong sales skills.

In most instances, salespeople may not have the fine knowledge needed to devise a proper wiring scheme, write a specific program or read a complex blueprint. But if they have the skills to get the deal to quote/presentation stage and can then close it, how valuable is that? If technical expertise closed deals, the right approach would be to move the most technical people in your company into sales. If you have been in sales more than a day, you know this approach rarely works.

Here is the crux of the issue – your company is probably filled with product/service experts of some sort. I suspect that top-level sales abilities are far less common within the company. If you hired well, this new salesperson brings these scarce sales skills to your company. This is the area in which to focus.

In response to this need, we are expanding our sales development plan and offering a new sales manager track as a new service. This focus will provide sales managers with a specific path to grow new salespeople into revenue quickly while developing a stronger long-term salesperson.

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We are asked from time to time about the best way to conduct an employee compensation review. I have to relay a story to you regarding a friend’s annual review. Here’s how it played out.

She sat down with her manager and recieved a very positive review. She was told she was one of their better employees – recieving 3′s and 4′s out of 5 in all performance areas. In fact, my friend is the top person in her territory and the territory is ranked 2nd out of 8 in a large corporation.

Everything was going well and she received a lot of verbal praise about her performance. Then the manager told her that she would be receiving a 1.5% increase in salary and it would be this amount. My friend interrupted her manager and told him, “That is my current salary.”

The manager asked, “Are you sure?”

He then looked it up on his computer. After about 5 minutes he said, “You’re right, but you are really going to like this then. You are actually going to be getting a 2% raise this year.”

This raise was less than $600 a year. Her manager told her that she really needed to bust her butt because he wanted to win a corporate contest and was not going to settle for second place. My friend is motivated by money so his statement was launched at the wrong time. He never told her what was in it for her: extra cash, a trip, recognition, nothing. The only thing that mattered to the manager was that he would not settle for coming in second place.

Suffice to say my friend was completely de-motivated.

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In a recent article from Workforce Management on new employee retention, 7 months seems to be the magic number when it comes to retaining newly hired employees. Office Angels interviewed 1,400 new recruits on this subject. Here are some of their findings.

In the first seven months the workplace is viewed as a trial period for:

1. The boss – is he or she ‘lackluster?’
2. Are there mentoring opportunities available for them?
3. Does the new job accommodate their lifestyle?

Another important opportunity new employees look for is the camaraderie between the team.

77% of the respondents find it essential for the team to make a trip to the local pub.

No, I’m not suggesting you make an emergency field trip to the local pub as part of your orientation/training program (not an unappealing thought though). But how much time are you spending with your new recruit during the all-important first 7 months?

We’ll be adjusting our hiring process to address this need in the near future.

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From Dick Costolo’s Ask the Wizard blog:

Briefly, the “No False Positives” school of hiring says that bad hires are worse than no hire because bad employees infect the company with all sorts of issues. Better to march on with nobody filling an important slot than to bring in a sub-par performer.

The hire fast, fire fast approach basically can be boiled down to “it’s really almost impossible to understand whether a person is going to be a killer A+ match before they start working with you day to day, so best to find somebody that seems close enough, and then remove them quickly if they don’t work out.”

This topic resonates with us and becomes amplified when you read further into the post:

You can hire fast, fire fast with sales people. It’s very very hard to comprehend a priori who will be able to best sell your service/product in a particular region to a particular customer base. Since this is an area of the company where people generally are responsible for very straightforward, measurable and explicit individual goals (ie, sales targets), it’s much easier to communicate and implement a hire fast, fire fast kind of policy with this group. You have to ensure you really stick to it however, and understand when company processes and products are causing the sales ramp challenge(s).

That’s my emphasis above and I have to disagree, in part, with his conclusion. First off, yes, you can have a priori knowledge of a salesperson’s ability to sell your service/product – that is what we do for a living. We work with a wide range of companies in a wide range of markets, but we see distinct patterns in hiring salespeople.

Here are 3 of the most common pitfalls we encounter:

Entrepreneurs
The sales manager would prefer to have a team of entrepreneurs. Successful sales does require some independence, but often sales managers abdicate their responsibility to coach, train, debrief, motivate and hold their salespeople accountable. In effect, they hire a strong salesperson, provide minimal training and then expect them to perform with no management. This is the most significant pitfall we see in sales departments and one that is exasperated by a hire fast, fire fast mentality.

Savior
The sales manager knows the revenue stream is drying up fast so the solution is to hire a savior to double revenue in half the time. In this instance, every facet of a new hire is turbo-charged. The revenue quota, if attained, should lead to the salesperson owning the company since it hasn’t been attained in years (if ever). A typical approach here is to attempt to hire a salesperson from a competitor who will bring their own book of business. This approach rarely works and is the forerunner to a churn-and-burn sales department.

Clones
The sales manager would prefer to have a salesforce comprised of clones. Typically, they would like to clone themselves. Any salesperson who varies in style, motivations or rewards is viewed marginal. The subtle truth here is that a sales department comprised of clones contains salespeople with the same strengths and the same weaknesses. One market change can render this team impotent.

The Wizard makes an important point at the end of his post – you have to understand what obstacles are affecting the sales ramp process. The first place I would look – the sales manager. Is he or she falling into any of the pitfalls above? What went wrong in the hiring process? What led he or she to believe this salesperson was the best candidate at the time and what changed (or was discovered after hiring)?

We do see companies hanging on to mediocre or worse salespeople when they should be upgrading the team. The belief that a warm body is better than no body rules the day in these organizations. But there has to be a happy medium – somewhere in between hire fast, fire fast and no false positive approach.

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