Yes, it is still important in a down economy!
- Do you monitor employee turnover?
- Do you carry out exit interviews?
- Is turnover cyclical, seasonal, or departmentalized at your organization?
Labor turnover fluctuates with the economic cycle and often falls during a recession. One advantage of this, a reduction in recruitment costs, can obscure underlying problems such as the retention of dissatisfied staff who would like to move on or the inability of the company to bring in new agents. In a time of low turnover, it is important to manage these symptoms—even if they do not result in the actual turnover of staff.
Some labor and employee turnover is inevitable and may even be desirable—particularly in today’s flatter organizations. For example, because there are few promotion opportunities, or because the company prefers to have regular injection of new talent with fresh minds, enthusiasm, knowledge, and experience of up-to-date developments. Unnecessary employee turnover, however, is expensive in terms of recruitment costs, production, and service inefficiencies and lowers employee morale.
“You cannot renew a company without revitalizing its people”~ Christopher Bartlett
The Definition of Employee Turnover
Staff and employee turnover can be classified in three ways:
- Employer controlled – dismissal, layoff, and early retirement
- Employee led – dissatisfaction for varying reasons
- Employer and employee uncontrolled – long-term sickness, normal retirement, maternity leave, and death in service
The advantages of managing employee turnover and retention include:
- More effective employee recruitment
- Reduced costs
- Better employee morale
- Improved knowledge of the labor market as a whole
- More constructive development of the organization’s knowledge base
1. Determine the extent of the problem
Consider using a measurement technique commonly used by employers. The global turnover rate—otherwise known as the crude wastage index—is the most frequently used measure. It is calculated as follows:
(# of ‘leavers’ in a year / the average # employed in a year) x 100 = [the percent of turnover]
Since this measurement is widely used, easy comparisons can be drawn between companies. It has severe limitations, however, in that it includes all ‘leavers’—ignoring factors such as their reasons for leaving, department age, and length of service. This technique may leave you with an imbalanced workforce with all employees under 30 or over 50.
The stability index is another frequently used measurement, usually calculated as follows:
(# of employees with one year of service or more / # of employees one year ago) x 100 = [the percent of stability]
Other measurement techniques include:
- Cohort analysis – cohort analysis takes a homogeneous group of employees who joined at the same time and tracks the way the group behaves over a period. The rate of leaving of the cohort can be plotted as a wastage curve.
- Census analysis – the census analysis method takes a snapshot of the total situation, rather than examining one group over a period. ‘Leavers’ are studied in groups according to length of service and then plotted as a proportion of the total staff in that group
2. Benchmark your organization’s performance against others
One way of judging whether your turnover rates are reasonable is to compare them against national, regional, or industry figures and averages. The best regular sources of statistics are the surveys conducted by IFF Research Ltd, the Confederation of British Industry, and the Chartered Institute of Personnel and Development.
Employers can also turn to periodic studies of turnover in a particular sector. Some companies belong to informal employer networks where information on various personnel topics is exchanged. If you trade turnover statistics, make sure that you are clear on other firms’ definitions so the comparison is equal.
Monitor the labor market and job trends to assess how these will affect your organization. These include demographic factors such as age or location; the number of women, ethnic minorities, and graduates in the workforce; and labor mobility.
3. Work out why employee turnover happens at your workplace
External forces influencing turnover may include short supplies of some occupational groups, but internal factors are usually more significant. The work of motivation theorists is worth consideration. Expectancy Theory, for example, calculates motivation in terms of the effects of individual employees’ expectations and preferred outcomes, with expectancy (as defined by Vroom) meaning momentary beliefs concerning the likelihood of particular acts being followed by particular outcomes.
Maslow’s Hierarchy of Needs Theory argues that people’s needs range from physical needs to self-actualization. Herzberg distinguished between hygiene and motivation factors. McGregor proposed that bosses tend to treat subordinates according to their own prejudices—that employees need to be directed and controlled (Theory X), or that, given the opportunity, all employees can make a significant contribution if encouraged (Theory Y).
It is important to study physical or hygiene factors such as pay and working conditions, but other issues are just as important (some would argue more important) in determining workers’ attitudes towards their employment.
Motivation factors vary with individuals, but may include:
- Working for an efficient boss
- Thinking for yourself/voluntary work programs
- Seeing the end result of work and gaining a sense of achievement
- Being assigned interesting and challenging work
- Being informed, listened to, and respected
- Being recognized for efforts
- Having opportunities for annual development
- Working with good and supportive colleagues
- Feeling valued
- Having an impact on culture
- A position of trust and a support team
It is worth bearing in mind that organizations may appear to be following two apparently opposing directions, requiring more commitment and involvement of workers while being simultaneously bent on cost reduction—which may include terminating employees.
In such conditions, it could be argued that, though motivation factors may have come to the fore, there is a danger that the more fundamental hygiene factors or safety needs of employees are neglected.
“Very few people in the world can be relied upon to work without praise or recognition.”~ Varindra Tarzie Vittachi
4. Ask employees why they leave
Consider conducting an exit interview with employees or giving them a questionnaire to complete. Whichever approach is taken, structure it carefully, and do not rely on it as the only way of collecting data. The trends behind involuntary turnover should not be ignored. For example, a rise in health-related departures may give rise to concerns about health and safety at work.
Inquiring about why employees are voluntarily leaving may provide some qualitative insights. Some reasons why employees quit are due to salary. Exit interviews will help provide data to improve management decisions.
5. Assess the effects of employee turnover
The most obvious impact of turnover is increased costs. These fall into four tangible categories:
- Separation costs
- Temporary replacement costs
- Recruitment and selection costs
- Induction and training costs
Employee turnover can be self-perpetuating in its effects on the morale of those who stay. Gauge employees’ reactions through employee attitude surveys. Turnover also causes inefficiencies, not least because of the disruption caused by resignations.
There is a further, more intangible, category—the skills and knowledge which are lost to the organization when an employee leaves. Difficult to quantify and assess, this again has implications for information-sharing as well as an effective motivation.
6. Implement retention strategies
Take steps to:
- Ensure employee pay rates are competitive
- Offer a wider choice of employee benefits such as sabbaticals, career breaks, childcare, and eldercare arrangements
- Review recruitment literature to ensure it gives an accurate picture of the organization, and look at the quality of induction and training offered
- Improve job design, and introduce flexible working practices such as job sharing, flextime, and remote work
- Implement equal-opportunity policies
- Promote career-progression opportunities, such as dual-career ladders for technical and managerial staff
- Improve the quality of supervision and management
- Develop and offer onboarding and training
- Develop a process for advancement
- failing to monitor labor turnover rate
- being misled by global turnover rates
- spending money on retention without first exploring possible reasons for turnover
- neglecting to consider more flexible hours, and other work-life balance considerations which may encourage more staff to remain with the organization
In all, the Dos and Don’ts to managing turnover
- Distinguish between different types of turnover (i.e. voluntary turnover vs involuntary turnover)
- Understand the difference between hygiene and motivation factors, but make sure that you take account of both
- Monitor the external labor market
- Measure and benchmark without knowing what you want to achieve
- Throw money at the problem without knowing what the problem really is.
Properly understanding this information will lead to a stronger plan-of-attack for improving the employee turnover and retention problems at your organization. For additional information, check out the links below!
- Whitepaper – The Dirty Truth: Employee Turnover Cost
- Whitepaper – The Impact of Staff Turnover on a Hotel’s Income Statement
- Website – American Productivity and Quality Center
- Book – The Talent Code, Daniel Coyle
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