Turnover is costly, turnover is expensive. We hear it over and over. We look for solutions: hire smarter, not faster. Onboard new hires to ensure they stay with the company. Some of these strategies work, others do not. To reduce employee turnover, you need executive-level buy-in to mitigate the human losses that translate into losses in production, morale, and financial resources. Human resources needs to initiate new strategies to deal with turnover; getting management on board is easy, once they understand the numbers.
Turnover control, like everything within your organization, should be a trackable goal. Companies set revenue and production targets – why don’t most set retention targets as well? The fact is while few do, all should.
Of course, not all employee turnover is negative. There’s a big difference between losing a highly valued, highly skilled employee to voluntary turnover and cutting loose an employee who’s chronically unproductive or apathetic. And turnover varies widely by industry. Hospitality is known for its high employee turnover, with more than 27 percent turnover. Turnover in the banking and healthcare industries exceeds 17 percent. The utilities industry has less than 9 percent turnover, and the insurance industry experiences average turnover at right around 12 percent turnover. Across all industries, the turnover rate is just under 16 percent.
The Cost of Employee Turnover
So let’s say you use 16 percent as the turnover rate to shoot for. That means at a company of 100, you lose 16 employees in a year. If you’re in banking or healthcare, it would mean you’re outperforming your industry counterparts. However, if you factor in the actual cost of replacing those 16 staffers, you might not think 16 percent is a great goal. As a percentage of their annual salaries, here’s what the cost of turnover looks like at different earning levels:
- 16 percent for employees earning up to $30,000
- 20 percent for employees earning between $30,000-$50,000
- 213 percent for highly paid executives (that’d be $213,000 to replace an employee earning $100,000)
Even at the lowest rates of pay, 16 percent turnover for a company of 100 can cost in excess of $50,000 in replacement expenses alone. Needless to say, that’s not how most organizations would prefer to spend their money.
Again, not all employee turnover is negative: Getting rid of problem employees is certainly well worth the investment in replacing them. And some “turnover” really isn’t turnover at all, like when an employee is promoted or transfers within the company. For those departments that hire entry-level staff with an eye to transfer or promote, annual turnover statistics shouldn’t apply. But zero voluntary turnover – making sure you do everything you can to hold on to those highly valued, highly skilled employees who make up the core of your company – is certainly something to strive for.
The Need to Manage Management
It’s easy for HR and management to blame each other for a high employee turnover rate. Management may side-eye HR for failing to properly check references, or having inadequate onboarding practices. In turn, HR may say that turnover lies at the feet of managers who don’t know how to develop or retain staff. While the direct cause of some turnover may be ineffective management, ultimately it’s the responsibility of HR to recognize these problem areas, and address them for the overall benefit of the company.
Some managers are promoted “up the ladder.” They were good at their job, and it seemed a logical progression to move them up. In many companies that move involves zero management training. It’s dangerous to assume that the qualities that make someone an effective individual contributor are the same qualities that make them an effective manager. Just because someone is a brilliant web developer doesn’t mean they’re ready to lead a team of developers.
In my experience, few people are born great managers. The good news is, the skills it takes to build and maintain a team are skills that can be taught – but organizations have to devote sufficient resources. While managers wear many hats, developing and retaining staff should be the largest in their haberdashery. But few managers are ever evaluated on their ability to minimize turnover. For such a large function of the job, turnover is woefully ignored.
If a department experiences a high turnover rate but there’s no intervention, what will change? How many managers would willingly go to HR to seek help determining the underlying cause of attrition in their group? It would be tantamount to an admission of failure. Most managers hope to fly under the radar – they know how costly and disruptive turnover is. They may want help, but are afraid to ask. But, if turnover continues to go “unnoticed” and unaccounted for, it will not self-correct.
Intervention, without an overall attrition policy, can be dicey. How do you approach the manager to assist? Will they feel singled-out? Will they wonder if they’re the next turnover statistic? If the discussion begins with them in a defensive posture, you won’t get very far. But if they know they’re being approached to achieve a lower turnover goal cooperatively, they’re more likely to work with you to affect change. They can be honest about what they believe are problem areas, and you can offer guidance and help.
Putting a Non-Punitive Policy in Place
So what if you could approach management with a policy that benefits the company by reducing costs, developing staff, and lowering attrition – all in one fell swoop? Who could say no? We’re using the best tools we have today to hire smarter and onboard new employees; the next phase in turnover reduction is to tie turnover to management development.
Every organization should create a policy that, on a departmental basis, defines a targeted goal for attrition and outlines action steps if the goal is not achieved. The purpose of such a policy isn’t punitive; it’s meant to help managers who are experiencing high turnover find out why and work with them to correct the problem and improve employee engagement.
With a policy in place that covers all staff and all departments targeting a numerical employee retention goal, the approach is easy. The numbers don’t lie. If a group underperforms, it’s time to examine and assist. And the policy should outline that analysis will result in coaching, training and development, or whatever is needed, to help the manager succeed. If they know that help, not punishment, is available, they may be more likely to seek assistance – even before their numbers soar. Have plans ready to help managers use anonymous surveys, interviews and other tools to determine job satisfaction; then offer coaching, training, and even coursework to turn the problem around.
For the floundering manager, it could be a lifeline. In my experience most bad managers know they’re failing, but their terrified of making that admission. If their turnover numbers trigger intervention, rather than punishment, they’ll be more amenable to assistance. For the new manager, intervention could be the way to transition from “one of the gang” to one who is respected.
For that truly awful manager you’ve had difficulty getting rid of, a turnover policy could be the key to either developing their people skills, moving them away from daily supervisory duties, or showing them the door. If coaching and training just don’t work, you have a clear path to make a change.
When management makes the commitment to reduce employee turnover, the ripple effect is great. Correcting poor management should be looked at as an endeavour in development, not punishment. In the process of targeting and reducing turnover to reduce avoidable expenses, you could end up improving the skill set of your management team and resolving problems that have plagued your company for years. In the end, everybody wins.