Identifying and Retaining High-Potential Employees: I-O Psychology

Introduction

The identification, development, and retention of high-potential employees is one of the most important areas of research in industrial-organizational (I-O) psychology. While the vast majority of the workforce will perform in ways that promote organizational goals, the top performers in any organization are those who provide the firm with its competitive advantage. Conversely, organizations that do not actively seek to identify, develop, and retain high-potential employees stand to lose a great deal, as top talent may seek opportunities to maximize their potential elsewhere — often at a competitor. Moreover, high-potential employees are those with the greatest capacity to lead the firm in the future, paving the way for effective succession training and management.

Research on the identification, development, and retention of high-potential employees is burgeoning, but significant gaps remain in the literature. Filling those gaps would help organizations create and implement evidence-based practices to ensure organizational success and future-proof the firm through succession planning. Organizational practices have yet to keep pace with I-O research on developing and retaining high-potential employees. Surveys show that current human resources processes "suffer from subjectivity, bias and disagreements" (Palshikar, Sahu & Srivastava, 2016, p. 208). By contrast, research has increasingly pointed to the need for transparent, formalized processes and procedures that identify high-potential employees and openly cultivate them via mentoring, special assignments, and other methods (Zhu & Manjarrez, 2017). Understanding how high-potential employees respond to specific types of incentives, mentoring methods, and formal approaches to employee training and development is therefore critical. Organizations that apply evidence-based practices to developing and retaining high-potential employees are more likely to receive meaningful returns on their investments.

Somewhere between 40 and 60 percent of global organizations have formal high-potential employee development programs — such as fast-tracking — in place (Dries & DeGieter, 2013). These programs are being increasingly adopted despite their additional costs because high-potential employees are known to be "twice as valuable to an organization" compared to the average employee, and are "75 percent more likely to succeed in a senior position" (Downs, 2015, p. 349). The return on investment in high-potential employees is clear, particularly when leadership stability and future-proofing a company are considered as strategic advantages. Some of the most important factors influencing high-potential employees to remain with an organization relate to structural and organizational culture variables, including leadership, cohesive organizational purpose, formal development opportunities, the perception of meaningful work, and collegiality in the workplace (Letchmiah & Thomas, 2017). Organizational supports play a crucial role in the decisions made by high-potential employees, whether or not they have been formally identified as such.

Review of Literature

Formal identification procedures are more common in organizations than formal employee retention procedures. To identify high-potential employees, human resources managers may use a variety of methods, including performance appraisals, performance reviews, individual development plans or career mapping, and even anecdotal data (Downs, 2015). Among organizations that do have formal high-potential employee development programs, some also maintain active succession planning with transparent methods of communicating intent. For example, PepsiCo has a formal leadership development center, and admission is based on performance on various HR metrics (Zhu & Manjarrez, 2017). Empirical research has continued to demonstrate the advantages of formal identification and employee training for high-potential personnel.

Research has also increasingly focused on organizational culture and formal practices related to high-potential employee identification, training, and retention. The most prominent theme in the literature concerns transparency and communication. Zhu & Manjarrez (2017) found that informally recognized high-potential employees are 19% more likely to actively seek employment elsewhere compared to those who have been formally identified and are being openly cultivated for leadership. Despite the potential benefits of transparency, many organizations remain committed to a policy of strategic ambiguity — whereby the company retains control of information, sometimes with the goal of reducing potential interpersonal conflicts among group members (Dries & DeGieter, 2013, p. 137). Strategic ambiguity can carry some ironic benefits, such as promoting greater flexibility in leadership decisions and occasionally increasing employees' motivation to work harder (Dries & DeGieter, 2013). However, lowered morale, stress, burnout, and suspicion may erase all potential benefits of strategic ambiguity (Dries & DeGieter, 2013; Zhu & Manjarrez, 2017). On the other hand, work engagement through formal recognition and training programs leads high-potential employees to perform to the high expectations they set for themselves — expectations that their colleagues often share as well (Van Zalk, 2016). The goal of high-potential development programs is fundamentally relational: to encourage employees to envision a career trajectory that depends on the fusion of personal and professional goals.

Strategic ambiguity remains surprisingly common despite the well-documented benefits of openly cultivating top talent. Dries & DeGieter (2013) note that only about one-third of organizations surveyed disclose information about high-potential employee development programs at all, and most organizations that do disclose do so selectively and informally. Informal disclosure can create problems for the organization — most notably, ambiguity can lead to miscommunication, frustration, and ultimately the loss of the high-potential employee. A number of theoretical frameworks can be used to examine which organizational behaviors and practices work best, including motivation theories, symbolic interactionism, and signaling theory.

The primary theoretical foundation for exploring the factors most important to high-potential employees relates to motivation. Rooted in core psychological motivation theories such as Maslow's hierarchy of needs, motivation theories speak to employee-level variables such as perceptions of organizational support, collegial support within the workplace, finding meaning in daily work and in the organization's broader mission and ethical commitments, and the perception of higher purpose in one's career trajectory. Extrinsic motivation may also be critical for retaining high-potential personnel. For instance, Miller (2016) found that opening satellite offices in geographically strategic locations helped companies retain top talent interested in maintaining a healthy work-life balance. Motivation is therefore a critical factor in retaining top talent, though it does not account for all of the organizational culture variables at stake in creating cost-effective HR programs for the identification, development, and retention of high-potential employees.

Symbolic interactionism refers to the ways individuals construct meaning from their interactions and experiences. When combined with signaling theory and social exchange theory, symbolic interactionism can illuminate key organizational culture variables implicated in best practices for retaining high-potential employees. The "norm of reciprocity" is also important in shaping the organizational culture variables that help retain top talent (Van Zalk, 2016, p. 3). This norm refers to the practice of actively demonstrating respect and appreciation for high-potential employees, which in turn leads to increased motivation and organizational engagement (Van Zalk, 2016, p. 3). Likewise, Dries & DeGieter (2013) note that employees are formally or informally engaged with the organization through "psychological contracts," which "express employees' inferred interpretations of explicit and implicit promises made by their organizations" (p. 138). Information asymmetry — the underlying principle of strategic ambiguity — essentially constitutes a breach of the psychological contract and an affront to the norm of reciprocity.

Strategic ambiguity therefore works in exactly the opposite way that organizational leaders intend. If the goal is to motivate and retain top talent, leaders must disclose their intentions, formally recognizing and training high-potential employees through mentoring and targeted support. Although individual differences exist — as do differences related to gender and ethnicity — high-potential employees are generally motivated by an organizational culture that supports them and provides clear, definite pathways for professional development. Organizations will naturally want assurance that their investment in high-potential employees will pay off; few leaders would want to fund training and mentoring programs only to find that participants have moved to a competitor. Creating an organizational culture that is responsive, adaptable, and collaborative will help future leaders feel and act fully engaged, remaining committed to the organization because the organization fulfills its mutual commitment to employees. Notwithstanding the fact that some high-potential employees may need to leave for personal reasons — illness, family emergency, or other significant life changes — the pathways for organizational success generally remain stable over time, grounded in the fundamental principles of I-O psychology.

Theoretical Foundations

Based on the review of the literature and theoretical frameworks, the following research questions guide this inquiry:

Does the process of identifying high-potential employees matter? Should these processes consist of direct interviews or anonymous surveys?

Does immediate disclosure of leadership development and other high-potential employee development programs serve the best interests of an organization, based on measurable performance outcomes over time?

Once high-potential employees have been identified, what are the main factors that prevent them from seeking employment outside the organization? Conversely, what are the main features that motivate them to stay?