The Cost of Employee Turnover

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With the economy and the employment situation slowing pulling out of recession in 2013, employers across the country are faced with a different kind of economic challenge, that of employee retention.

The combination of more jobs (the BLS reports an increase of 148,000 jobs for September) and a somewhat more stable economic outlook has likely contributed to the steady increase in voluntary turnover that has been seen both locally and nationally. For example, since 2010, voluntary turnover in Northeast Ohio is up to 10% (an increase of about 4%) across both manufacturing and non-manufacturing industry groups.
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Employers Retention Challenges

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As the U.S. economy continues to improve and employers begin to add employees to their payrolls, another employment metric is also increasing, i.e. voluntary turnover. For employees, a stronger economy often means they feel more confident leaving a job of their own accord. However, from an employer’s perspective an increased separation rate means they are going to need to work harder to retain existing employees as the job market improves.

As a national trend, increased voluntary turnover is moving steadily upward with a 2012 report from PriceWaterhouse Coopers documenting a 1.2% increase from 2010 to 2011, up to 8.2% (2011/2012 US Human Capital Effectiveness Report). In Northeast Ohio, the voluntary turnover rate hit double digits in 2011, with the 2012 ERC Turnover and HR Department Practices reporting an average of 12% across all industries and organizational sizes.

However, notable discrepancies in these rates are apparent when comparing manufacturers to non-manufacturers. At 9.6% manufacturers seem to have more success at retaining existing employees than their non-manufacturing counterparts who are seeing a much higher 16.7% voluntary turnover rate for 2011.

In terms of the role of HR, bringing this rate back down, may mean considering a redirection of HR funds away from Recruiting/Hiring and into areas like Training & Development or Benefits. By allocating an average of 23.1% of their total HR budget to Recruiting/Hiring, by far the highest percent allocation reported in the survey, non-manufacturers may actually be contributing to the trend towards higher turnover.

With such a strong focus on recruiting, these organizations may be missing out on opportunities to develop and incent their own existing employees.

4 Strategies to Combat Turnover

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Turnover is a reality for every business. It can be a warning sign that something is wrong with our workplace, managers, or teams that needs to be fixed. It can also signal that we might be hiring poor fits into the organization.

The problem of turnover demands that we understand why we are not able to retain some of our employees and fix it before the situation spirals and we lose many talented employees. Here are 4 strategies to combat turnover.

Step 1: Track it.

The first step to deal with turnover is to track and benchmark it. You must understand how your numbers compare to normal turnover for your industry and size and if the turnover you are experiencing is healthy or unhealthy for your business. For example, are your best employees leaving or are your new-hires leaving, and is turnover primarily voluntary or involuntary? At a minimum, track the following types of turnover:

  • Voluntary and involuntary turnover
  • All employee and top performer turnover
  • New-hire turnover at intervals (90 days, 180 days, and 1 year)

Step 2: Research the context.

The second step in combating turnover is to research the context of the termination, including the work area affected and characteristics of the employee. You'll also want to explore the former employee's reason for leaving as well as their supervisor's and coworkers' feedback on the termination. Turnover issues tend to follow a pattern so look for trends in the following:

  • Work area (location, division, department, team, and supervisor)
  • Individual characteristics (length of service, performance, type of job)
  • Reason for leaving (per exit interview/survey)
  • Supervisor and team feedback

Step 3: Identify critical incidences.

Turnover is generally not caused by a single workplace event. Research shows that turnover results from a process of progressive disengagement, which can take weeks, months, and sometimes even years to escalate to a final decision. Eventually, however, a critical incident causes an employee to decide to quit.

To understand the cause of turnover and fix it, you need to identify these critical turning points and causes of disengagement so that repeat scenarios with other employees are prevented. Examine what went wrong, what you could have done differently, and how you will approach a similar situation in the future.

Step 4: Implement interventions.

After determining the causes and context of turnover and putting together the pieces of each former employee's story, there are several major interventions that you can use to solve turnover problems. These include, but are not limited to:

  • Job design: changing a job's design, reducing workload, providing more training, or enhancing employees' skills
  • Management: training or developing a manager's skills, removing a manager from their position, improving performance management or feedback
  • Hiring and selection: making a change in the hiring or selection procedure, enhancing on-boarding
  • Communication: communicating changes and reasons for changes, being sensitive to and dealing with employee reactions, managing and mediating coworker conflict
  • Total rewards: making changes to pay and benefits, enhancing advancement opportunities, enhancing work/life benefits

Turnover is as critical to monitor and address as expenses in your organization. It is a lost investment in your business that can take significant time and money to recover, especially when you lose a high performer. While there’s no magic bullet solution to prevent it, your organization can better manage turnover by tracking it, better understanding why it happens, and implementing interventions that deal with it.

Additional Resources

2012 ERC Turnover & HR Department Practices Survey
This survey collected information from Northeast Ohio employers on voluntary and involuntary turnover of employees and new-hires as well as HR department practices including the role of HR, common HR metrics and benchmarks, and the use of technology and information systems within the HR department.