Does Your Organization Have a Healthy Employee Turnover Rate

Does Your Organization Have a Healthy Employee Turnover Rate

Attracting and retaining great talent can seem like a never-ending quest. One that can be made all the more challenging if you don’t have a handle on employee turnover in your organization.

Let’s face it. Whether it’s a result of talent being sought out by competitors, employees seeking career advancement elsewhere, or simply replacing bad hires and low performers who aren’t pulling their weight — every business inevitably needs to deal with employee turnover.

The question is: how do you manage turnover so that it’s beneficial to your organization and ensure it doesn’t negatively impact the performance, engagement and morale of your hardworking employees?

Healthy vs. unhealthy employee turnover

When establishing targets and taking steps to manage employee turnover, it’s important to first identify whether your current turnover is healthy or unhealthy.

Average turnover rates vary according to things like discipline/profession, industry, region, and country, and are impacted by factors such as economic conditions, geography and politics,

Here's a look at some average U.S. employee turnover rates in 2013, for various industries.

2013 Total Employee Turnover Rate by Industry (U.S.)
All Industries 15.1%
Banking & Finance 17.2%
Healthcare 16.8%
Hospitality 29.3%
Insurance 10.4%
Manufacturing & Distribution 13.3%
Not-for-Profit 15.3%
Services 15.2%
Utilities 7.2%

Source: http://www.compensationforce.com/2014/02/2013-turnover-rates-by-industry.html

However, it turns out that 10% is the golden turnover number you should try to aim for.

But… whether or not that “number” is healthy depends more on who is leaving.

If your annual average employee turnover rate is 10%, but the people heading for the door are top performers or from top-tier positions, that’s a strong indication that your organization’s vital signs are weak.

On the other hand, the departure of low performers can in fact be healthy for the organization, and have a positive impact on everything from employee engagement to productivity and profits.

When turnover is healthy, it works to prune low performers (i.e. problem staff and/or those not willing to improve) and nurture an engaged, high-performing, world-class workforce.

The cost of employee turnover

Regardless of whether it’s healthy or not, employee turnover can be costly. Various sources estimate it can cost anywhere from 30 to 400% (the average being 150%) of an employee’s annual salary to replace them, depending on their level, experience, skill set, etc.

Replacing top-level positions requires substantially more financing, extensive training and adjustment, and a high element of risk — as new management can drastically alter the status quo.

But turnover at every level means recruiting, training, workload balancing, cultural shifts, etc. So it’s critical to your organization’s financial as well as overall health to manage turnover effectively.

Checking the “spread” of employee turnover

The amount of internal instability that occurs when there are a high number of departures, and how that instability affects the company as whole, largely depends on your organization, your industry, and the core competencies required of the incumbent position. A call center agent who leaves after a year won’t cause the seismic wave felt from the loss of a top-selling pharmaceutical rep.

It’s also important to note that departures take an emotional toll on those witnessing them. Watching people go, especially well-liked members of the team, can put a chill on morale and engagement. People may be losing more than a colleague. They may be losing a key supporter at work.

Staff may go through a period of mourning and personal instability. They may start questioning the company, their jobs, and wondering if there are better opportunities elsewhere. When any employee leaves, the remaining staff and company have to deal with things like:

  • Redistribution of workloads
  • Loss of legacy skills or knowledge
  • Instability and lack of continuity for customers, partners, suppliers, employees and other stakeholder groups
  • Problems with quality and/or productivity
  • Ruptured relationships

Dealing with all these challenges proactively and positively can ease the transition for everyone and ensure “departure fever” doesn’t spread to other valuable members of your corporate community.

Common retention tactics: where they fall short and how to make them work

According to a 2012 Allied Workforce Mobility Survey (PDF), almost 30% of companies reported that it takes a year or longer for a new employee to reach full productivity. Given this, it’s key to look at retention tactics, as well as recruiting and employee onboarding practices, and identify areas that can be improved.

When it comes to employee retention, most organizations make use of counter-offers and exit interviews to try to keep their most valuable employees. But forward thinking experts are now advocating the use of stay interviews as an effective retention tactic, as well as the variety of efforts that aim to increase employee satisfaction and engagement.

Counter-offers

Rebecca Wallace, managing director at the Sydney-based firm, Launch Recruitment, claims that counter-offers are only a “short-term solution”. In fact, many HR and recruitment experts would say that they are little more than a Band-Aid®  to try and retain valued employees.

HCI says that 70-80% of the employees who stay as a result of a counter offer leave within nine months. The problem with counter offers is they typically don’t address the underlying reasons for the person’s departure, which usually include:

  • Interpersonal relationships (with direct supervisor and/or colleagues)
  • Opportunities for growth and advancement
  • Working conditions and benefits

In order for a counter-offer to be truly effective, it must be strategically negotiated to ensure that it is really responding to the person’s employment needs, whether it’s a better wage, work conditions, or access to tools and resources they need to perform to the best of their abilities.

Exit interviews

Exit interviews can be an important way to understand what people are thinking when they wave goodbye to a company. An honest exit interview can be an invaluable learning tool if departing employees are actually providing candid feedback.

Understandably, employees frequently withhold the whole truth to avoid “burning bridges”, so taking steps to confirm confidentiality can help. But so can framing your questions in a positive light. Ask departing employees for their recommendations or suggestions for how the organization could improve rather than asking them to tell you why they are leaving.

This positive framing can yield information that is valuable and constructive for the organization, while keeping things “safe” for the employee.

Stay interviews

On the flip side, employers shouldn’t wait until people quit to find out what they are dissatisfied with. One alternative to one-time exit interviews is to hold regular “stay interviews”. The main goal of a stay interview is to discover “What could we do to make you stay?”.

Some good questions to bring up in a stay interview could include:

  • What do you find most satisfying about your role and/or working for this company?
  • What do you find least satisfying about your role and/or working for this company?
  • Do you feel supported in your career goals and what could we do to improve?
  • Do you feel sufficiently recognized/rewarded?
  • What kind of recognition/reward is most meaningful for you?

You can also include a discussion about the employee’s strengths, their career aspirations, their development goals etc.
Dick Finnegan, the author of The Power of Stay Interviews for Engagement and Retention says, “It’s important for managers to separate the stay interview from discussions about employee performance.” The employee should feel comfortable to air their concerns without the fear that it will affect their jobs.

Since the top priority of an effective retention plan is to keep your most brilliant and talented people, the stay interview should be conducted in a cascading fashion — beginning with your top talent, then gradually expanding to include all staff. In that vein, HCI recommends holding a stay interview with an employee after the first six months of their being in a new job.

Using talent management to reduce unhealthy employee turnover

Executives who look solely at the numbers may assume a low turnover rate is an indication of great management practices. But low turnover can be a warning sign too! That’s why effective talent management practices are paramount for preventing the organization from becoming a ward for bad hires and low performers as well as for driving employee performance, engagement and retention.

And organizations with superior recruiting, retention, development and succession programs will be far more adept at handling turnover because they have means and the plans in place to replace top performers when needed.

Your Turn: What do you think makes the difference between healthy and unhealthy employee turnover? What tips do you suggest for combating unhealthy employee turnover? Share your thoughts with us in the comments.

Learn more about how you can establish an effective turnover and retention strategy for your organization.

Tags:  For Managers


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