Turnover occurs when an employee leaves an employer, usually voluntarily, and will need a replacement. When turnover is high, it’s a signal to an employer to look at their organization to see if they can identify factors contributing to the turnover rate. Turnover costs can add up quickly, in more ways than one. It also brings loss of skill, experience, and customer relationships associated with a valuable employee.
Why Should an Employer Care?
An employer’s turnover rate is almost always a clue to organizational health—and the news may not be all bad. Depending on when, where, and why employees are leaving, employers may want to make adjustments. These adjustments may be in management strategies, benefits, or compensation. Tracking turnover is critical to the early discovery of trends, both positive and negative, that impact an organization’s productivity and vitality.
Of course, some degree of turnover is to be expected and is, in fact, necessary because it opens the way for new workers, deserved promotions, and losing poor performers. On the other hand, high turnover with many satisfactory but dissatisfied employees generally means specific or general unhappiness with the job. While pay is one driving force, there are many other vital issues: benefits, scheduling practices, poor job fit, inadequate training, management philosophy, destructive supervisory behavior, lack of recognition, or better career opportunities.
Depending on the employee’s level, turnover costs can run anywhere from 50 percent to 200 percent of an employee’s annual pay. Therefore, an employer needs to seek more information about why employees leave via exit interviews, focus groups, and employee attitude surveys.
It Costs You
Direct costs:
- Separation costs – Any severance payment increases unemployment insurance premiums and expenses incurred for administrative functions related to the termination.
- Vacancy costs – The net cost related to increased overtime or use of temporary employees.
- Exit interview – The cost in time of an exit interview with each employee who is leaving, including the time spent by Human Resources personnel and the employee’s manager who will also need time to review the departing employee’s workload and manage the distribution of the work until a replacement is found.
- Replacement costs – The costs of advertising or otherwise attracting applicants, time spent by the HR department and the hiring manager in reviewing resumes, making decisions regarding whom to interview, interviewing applicants, testing applicants, drug screenings, moving expenses if applicable, and administrative costs of new employees.
- Training costs – These include expenses invested in the departing employee during his or her tenure. It also includes costs required to bring the new worker up to speed. These costs may have needed time for management, coworkers, and HR staff to help the new employee. They may need orientation, classroom time, or on-the-job time for training.
Indirect Costs:
- Loss of experience and skill – When experienced employees leave, they take their training, skill, inventiveness, and productivity gained through years on the job. Moreover, there is almost always some negative impact on other employees and their productivity. When a good worker leaves, it makes other good workers wonder what might be out there for them as well.
- Special attention – New employees, even exceptional ones, need special attention; they have many questions and need lots of help. Onboarding the average new employee can take hours from HR, supervisors, and other employees. Also, suppose a new employee arrives from another city or state. In that case, it often takes time for the employee and his or her family members to acclimate to the new location. Usually, the worker is distracted until the family is comfortably settled.
- Customer or client loss – In some cases, customer loyalty is to the person they dealt with (the salesperson, trainer, accountant, attorney, etc.). Often, when that person leaves, so does the customer.
- Moving costs – These costs include any relocation expenses paid for the previous employee’s move to the employer’s location and any new worker’s expenses to move.
How to Utilize turnover statistics
An important principle to recognize is that not all turnover is necessarily bad. The reality for many organizations is that a certain number of employee separations are healthy. However, an employer may become legitimately concerned when industry turnover data reveal a correspondingly high turnover rate or a significant amount of “flight” to competing employers. In this case, the employer should seek more information as to why employees are leaving via exit interviews, focus groups, and employee attitude surveys. In this way, the employer may begin to piece together the turnover puzzle and respond accordingly. Please see the HR Metrics section.
Why are Employees Leaving?
When a high turnover rate exists in an organization, the employer must be concerned with the underlying reasons. Compensation is rarely the sole motivating factor. There are several ways to discover some of the issues involved in turnover.
Conduct thorough exit interviews covering:
- Reason for leaving
- Attitudes toward the company
- Attitudes toward an immediate supervisor
- Satisfaction with a career path
When are Employees leaving?
The timing of an employee’s departure may give an employer insight into which processes or practices are working well and which ones it needs to change. For example, suppose many newly hired employees are leaving voluntarily within the first year of employment. In that case, there’s likely a disconnect in one of the hiring processes. Perhaps job descriptions need to be reviewed to ensure that they accurately reflect job duties. It may be that applicants are not adequately tested for the required skills.
On the other hand, if employees leave later in their careers, an employer’s retention strategies may need review. Employees may leave because they see no opportunity for advancement, even though such opportunities may exist. Or employees may feel that their contributions are being taken for granted or otherwise unappreciated or undervalued. Examining retention practices and encouraging ongoing feedback from employees may help an employer avoid losing valuable employees. Using employee surveys and exit interviews to gauge employee satisfaction helps employers identify strengths and weaknesses in their hiring and retention practices. The results of surveys or exit interviews should be reviewed, considered, and used as a platform for change.
Retention Strategies
One of the most challenging issues facing today’s employers is how to retain good employees. Because turnover can cut into a company’s profits, it is far more cost-effective to keep valued employees on the payroll than continually seek new employees. The following steps are suggested to avoid costly turnover problems:
Describe the Job Correctly
Present the good, the bad, and the ugly. Probably the best way to improve retention and reduce turnover is to make good hiring decisions. To do so, describe the job accurately to applicants and hire candidates who can and will meet these requirements.
Before interviewing the first applicant, even before placing an employment ad or hiring a search firm, employers should:
- Identify the critical characteristics of the job.
- Put these elements in writing.
- Draft an accurate job description.
- Define the employer’s expectations so that they are clear to job applicants.
Challenge the Employee
Most employees want to find their job rigorous enough to be exciting but not so complicated that it can’t be mastered. To a great extent, this depends on realism in describing the job to an applicant. Applicants or employees seeking a promotion need truthful information, both favorable and unfavorable, about an open position to have clear expectations about the job in store for them. At the same time, the employer must have a very accurate sense of the employee’s ability to do the job as described.
Training
Keep employees motivated and stimulated through quality training and development programs. Stress the importance of personal development. Ensure the availability and importance of stable, ongoing training for employees.
Early intervention
Start with an effective onboarding program. Employees should receive help to adjust and get up to speed in the new environment. During the orientation process, employees should have a contact person or mentor who can answer their questions and help them find the tools and resources they need to work effectively.
Enrichment
Allow employees more autonomy and decision making in their everyday work. Add responsibilities to the employee’s job, and increase the variety of their tasks. Many employers offer employees the opportunity to cross-train in another position. Cross-training broadens an employee’s skills and makes it easier for employers to find temporary replacements for employees on leave or vacation.
Mentoring
Develop a mentor program teaming veteran and new employees, and stress its importance. Reward mentoring employees for doing that particular task well.
Recognize Employee Success
To help prevent turnover caused by employees feeling unappreciated or undervalued, many employers have set up employee recognition programs to recognize exceptional employee performance. One way of accomplishing this might be an employee reward or bonus program, accompanied by a special note of thanks from the supervisor. Expressing appreciation is appropriate any time an employee accomplishes a task well or expends extra effort. Choose an employee of the month and present a small award at an all-employee meeting. Send employees to represent the company at social functions, trade shows, or other arrangements, conveying the employee’s worth to the employer.
Create a Career Path
Room to grow is probably the most critical issue for talented and ambitious employees—the kind an employer doesn’t want to lose. Good employees need to know that an organization has room for them to improve their careers. Indeed, a leading reason for high turnover in an organization is that there is no career path made clear to employees.
Promote from within
Is there an internal posting system for openings, and does it work? Employees are quick to understand a sham posting system. It can be a major reason for cynicism and resentment in the workplace. Retention depends on an employee’s ability to grow and advance in the job. Internal posting is a critical element of providing an opportunity for advancement.
Provide Excellent Supervision
Employers must be sure that their supervisors know what they are doing because incompetent, harassing, or unfair supervisors are a major cause of employee flight. Supervisors need training, too, in job skills, leadership, feedback, attention, and fairness. Also, supervisors need the same challenges, job satisfaction, and promotional opportunities as their subordinates.
Open communication
Employer and employee must communicate. Some methods are to open forums where employees can talk with, listen to decision-makers, and provide employee newsletters or e-mail to share important information. If at all possible, employers should know their employees and spend time just chatting with them, taking an interest in them personally.
Benefits
Employees may expect the more traditional benefits—health insurance, employer-contribution savings plans, paid vacation. But often the more innovative benefits that make the difference in retaining employees. Some examples include flexible hours, telecommuting, casual dress codes, education subsidies, daycare in the workplace, stress reduction programs, and many more. An employer’s benefits depend on the nature and culture of the workplace and on the kind of employees an employer is seeking to attract and retain.
Pay
Pay is far from the least important factor, but it isn’t necessarily first, either. Employees, of course, want fair pay and good raises for doing their jobs well. They want bonuses for exceptional performance on essential projects. But if employees receive a competitive salary, it’s typically the other factors, such as workload, recognition, or a working relationship. Employees will often continue to build a career with an employer they trust, despite being offered better pay elsewhere.
Training to Reduce Turnover
Ensure that supervisors and managers are trained about the causes of turnover. As well as how to reduce turnover and how to increase retention of good employees. Training materials such as presentations, handouts, and trainer’s guides, are available through My HR Professionals HR Services.