As a small-business owner you know how hard it is to recruit good people in today’s tight labor market. And after you actually have people on board , you face the equally, if not more, difficult task of keeping them happy. At companies across the country, especially entrepreneurial concerns, turnover is rampant.

Two years ago, at Erapmus, the computer-services company I founded, turnover was out of control–even by today’s disheartening standards. We were losing nearly one out of every two skilled technical professionals. Those are the people who comprise the bulk of our work force: They are our direct link to clients. Our turnover rate had reached 45 percent, a grim 10 percentage points higher than the 35 percent at our industry’s leading company.

To say that we were concerned would be an understatement. So we brought in a group of consultants to help us figure out why people were leaving. And we did some of our own thinking. It wasn’t too difficult to see that we had done our fair share of screwing up. Sending new hires to clients without any training wasn’t a good idea, for example, nor was reviewing each employee’s performance only once a year.

Having conducted our assessment, we established a formal plan to retain the people we had worked so hard to recruit and hire. At its core is a philosophy: Retention is a matter of the chief executive’s ability to communicate the vision of the organization to all employees. It is, to use the words, if not the tone, of former President Bush’s famous fit of pique, “a vision thing.”

Creating a Vision

What’s more, we believe that vision is like orange juice. People must drink it every day in order for it to have the desired effects. It isn’t enough for a CEO to communicate on an annual, monthly, or even weekly basis. Only when vision is served up daily–backed with both recognition and a level of compensation that is fair (if not overly generous)–does it become an entrepreneur’s best ally for convincing people to stick around.

At Erapmus, after we defined our philosophy, we set to work laying out specific steps for communicating our vision to our staff. Our 80 employees include 50 highly skilled technical professionals, a dozen salespeople, and about five each of accountants, support personnel, and managers. Thesteps we took, might prove useful to other entrepreneurs.

Every year… This past February, for the first time, we closed down the company and invited our entire staff to an off-site meeting, which we held at a hotel in downtown Dallas. Our invitation included spouses because we believe that families are units based on two people. If we were to address only one of those people, we would be missing 50 percent of the market we needed to reach. At the meeting, we talked shop, starting with the vision we have for Erapmus, working through our goals for each department and for each employee. It was our hope that spouses would begin to understand how our goals mesh with their personal objectives, such as paying mortgage and tuition bills.

Every quarter… To reinforce the groundwork laid at the first annual off-site meeting, I’ve been sending follow-up e-mail messages every three months to employees and spouses. The purpose of my messages, is to describe and explain any changes we make to our goals.

Every week… As the process of communicating vision took hold, we noted that managers felt that even quarterly updates weren’t adequate. As a result, I now introduce the issue of vision at weekly meetings with the people who report to me, in hopes, of course, that they, in turn, will do the same with their staffs.

Every day… The efforts I’ve made to communicate the vision of our organization on an annual, quarterly, and weekly basis are now part of the fabric of the company. While it is admittedly difficult to incorporate talk of vision, amid the often chaotic day-to-day undertakings of a fast-growing company, the subject does eventually become a part of a CEO’s typical interactions. For example, when an employee mentions that he or she has just closed an important sale, I don’t merely say, “That’s great!” Instead, I relate my response to the vision I have for Erapmus: “That’s great! What you have done brings us one step closer to meeting our goal of…”

Providing Recognition

Retaining employees also requires small-company owners to back lofty discussions of corporate vision with tangible recognition for the people designated to translate vision into the reality of revenue and profit. After our soul-searching two years ago, we determined that many of the employees who left Erapmus did so because their contributions had passed by unrecognized.

To remedy that problem, we hired a manager to oversee the enormous undertaking of conducting quarterly reviews with all 50 technical professionals. Having set up such a structure, we use the meetings to provide feedback and to discuss grievances and goals. (For our more free-wheeling sales force, we take a less structured approach. Our salespeople have quarterly lunch meetings with their direct supervisors.)

In addition, we’ve instituted a formal two-week training program for new hires. In the course of that training program each new employee listens to tapes from our goal-setting meeting and spends time with a formal “mentor,” a member of our accounting staff, and other Erapmus people.

A Place for Compensation

Quarterly reviews, don’t focus on compensation, although some employees do get raises at those meetings. When it comes to keeping people, we feel that money is less than half of what it takes. That tired adage, they’ll shut up and work if you pay them, just doesn’t ring true in today’s tight job market.

Having said that, however, Erapmus offers salaries that, for the most part, just about match or are slightly below market rates. What we don’t offer in salary we compensate for in equity. Except for high-level management, the compensation packages of new employees don’t include stock options. Within the first year of employment, though, we do provide stock as one aspect of compensation adjustment. Our goal is for all employees to be receiving stock options.

. . . . .

Since we instituted our employee-retention program two years ago, people from other companies have been asking us the same two questions. The first is: Are your programs expensive? To that, we reply that the programs are both expensive and enormously time-consuming–until you do the math and ask, What does attrition cost? Those numbers are incredible.

The second question is: Do your programs work? At Erapmus, the numbers again provide the answer. In two years, our turnover rate fell to 35 percent (from that unacceptable 45 percent), and we expect that number to drop as low as 30 percent this year.

As a result, you won’t be surprised to learn that we’re moving our company into the next phase of growth. As our company expands, we need to express the urgency of communicating vision, providing recognition, and considering compensation to the managers who will be interacting with employees. We’re pushing retention efforts further down in the organization.