Adverse selection: 6 ways employers repel top talent


Is your company inadvertently pushing good people away? Are some of your best performers leaving? If so, “adverse selection” may be at work in your organization. If you are not familiar with this risk management term, here’s an example from the health insurance industry:

If healthy people start exiting a health insurance plan, the insurer quickly faces red ink. Premiums from the remaining less-healthy population aren’t enough to cover claim expenses. The insurer must raise premiums to stay in the black. As premiums increase, more and more people drop out. Insurers call this destructive cycle a “death spiral” and it eventually leads to the financial demise of the health plan.

Similar adverse selection is occurring in many workplaces to the detriment of employee engagement. Here are six examples:

Adverse selection from holding on to “sacred cow” processes

Suppose your organization has a “cowboy” approach to project management. People use their own tools, do things their own way, and there’s a wide variation in how work gets accomplished—even within a single department. You know it’s not effective, because folks are consistently missing deadlines, blowing through budgets, and disappointing customers.

So you hire Joe, who has a track record of on-time, on-budget project delivery, and you expect him to do the same for you. He signs on, eager to introduce the tools and processes that enabled his past success. But once on board, he finds he cannot deliver on your expectations, because everyone in your department prefers to remain a cowboy.

Frustrated, Joe and others like him leave. You cement your cowboy project culture even further. By getting rid of the “Joes,” you stay in chronic fire-fighting mode, where every task is an emergency that needs attention yesterday.

Additional resource for exploring this:

Adverse selection from “just like me” hiring

If you come from a sales background, you probably value proven rainmakers with huge networks of c-suite contacts. You may not fully appreciate the soft-spoken bookkeeper with 19 LinkedIn connections or software developer who waxes poetic about JavaScript.

Many organizations have “talent holes” because they undervalue (or overvalue) certain traits. For example, you want a detail-oriented, precise person in accounting. If you also insist on a charismatic personality, you’ve dramatically limited the candidate pool and may not end up with the best person for the job.

Additional resource for exploring this:

Adverse selection via management style

If you hire “just-like-me” managers, your whole organization may be deficient in one or more key management skills. For example, one company had an entrenched belief that confronting poor performance is mean. They selected managers who perpetuated this mindset, and they regularly failed to talk with employees about tardiness, problems with work quality, etc. Think about the implications: people want to work on a winning team. If you don’t deal with poor performers, your good performers may leave for greener pastures.

(Additional resource for exploring this:

Adverse selection against creativity and innovation

Red tape and command-and-control cultures can frustrate creative types who see a million ways to improve things. They want to be able to voice and implement ideas. If they face chronic barriers, they leave. If this trend is pervasive, you end up with a creative void in your enterprise. Who will envision and implement your next great products and services (the ones you need for long-term organizational health)?

Additional resources for exploring this: and

Adverse selection against introverts

If you ask introverts for opinions on-the-fly or in a large group, you may not get their best thinking and it may be stressful for them. They need privacy and time to think through your proposal and deliver a well-thought-out response. Over-emphasis on big meetings and open office layouts may drive away this demographic (between 30 and 50 percent of the workforce).

(Additional resource for exploring this:

Adverse selection related to family status

If a parent has a childcare emergency or needs flexibility to pick up children from school at a certain time, does your organization work hard to accommodate the employee? Or do your managers schedule last-minute meetings at 5 p.m. and expect everyone to be there? Despite advances in work-life benefits at many companies, a large number of parents feel unsupported at work. The message they hear (whether you intend it or not) is “Deal with it. Having a kid was your choice. If you want to succeed here, you need to act as if you are childless.” If your organization is sending signals like these, recruiting and retention will become exponentially harder for you.

(Additional resource for exploring this:

These are only a few examples. Unwittingly, companies are disenfranchising whole employee groups.

Just as diversity in a health insurance plan protects against the death spiral, you need diversity in your workforce for a strong bottom line. If your organization is experiencing an employee engagement death spiral, have you pinpointed all the ways you are driving diversity out of your enterprise? And have you acknowledged these to employees? Publicly naming the elephant in the room is the first step toward a solution.
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