Employee turnover happens for a myriad of reasons, both personal and professional. Some change in staff can be a good thing – new people, new ideas. But when turnover is high, problems can arise and costs can mount.
A high turnover rate is a warning sign you shouldn’t ignore. By investigating the underlying causes of employee departure, you can lower your employee turnover rate and focus on your most important objectives – profitability and organisational success!
What is a Turnover Rate?
Turnover rate is the percentage of employees that leave an organisation during a certain period of time, most commonly by calendar or fiscal year. It’s calculated by the number of exits divided by the average monthly total employment. For example, a company that averages about 600 employees each month had 100 employees leave during the year. Their turnover rate would therefore be 16.7%.
Many companies separate turnover rate into two categories: voluntary or non-voluntary turnovers. Voluntary employee turnovers include resignations, retirement and employees who choose to return to school while non-voluntary reasons include dismissal with cause, layoffs, and death. Many organisations focus exclusively on voluntary exits, as those separations require action to rectify.
What Happens When Turnover Happens?
When turnover is high, productivity is at stake. And when productivity is low, so are profits. If turnover is not addressed, not only will revenue decrease, serious organisational issues will arise:
- Decreased organisational performance. Each position plays an important role and vacancies reduce overall productivity.
- Lower knowledge base. When an employee leaves, so does their knowledge.
- Increased cost of training and recruitment. Recruitment costs are expensive, as is training new employees.
- Important tasks go undone: Without employees, work doesn’t get done and a backlog occurs.
The Ideal Employee Turnover Rate
An organisation must determine what’s ‘bad’ turnover and what’s not. Most companies try to find their competitors’ rate to determine a baseline for their industry.
It’s also important to look at not just how many people are leaving but which people are leaving. If it’s the top performers, that’s exponentially more troubling. Ideally, an organisation focuses on a low turnover of top performers (less than 5%) and a higher turnover of lower performers (20-25% employee turnover rate). Lower performers could include temporary positions or roles typically filled by students, which historically have high turnover.
Why Does Turnover Happen?
Turnover is often a sign of a disgruntled workforce. This could include struggles with management, lack of opportunities within the organisation, unhealthy/negative work environments, dissatisfaction with salary, or one of a hundred different issues.
High turnover can also start during the recruitment process. Misalignment between a new hire and the position requirements often causes high employee dissatisfaction. It’s important to hire employees who are not only qualified for the position but also fit in within the organisation’s culture. Once hired, it’s also necessary to properly train and support new hires so they are as effective and productive as they can be.
The perceived stability of an organisation also affects employee turnover. Management changes, restructuring, and threats of economic hardships often influence an employee’s decision to resign. Shifting organisational priorities results in frustration and confusion, and ultimately burnout.
Steps to Lower Turnover Rate
If the goal is to lower your high performer’s voluntary turnover rate, there are actions you can take to improve retention.
The first step is to understand why your top performers want to leave.
Exit Interviews are an ideal source for this information, preferably provided by an impartial third party or secure on-line provider so that the employee can speak freely. Some organisations are hesitant to develop an exit interview program since it’s a relatively new initiative and some consider the feedback to be subjective, but it can really provide an opportunity to gain a richer vehicle for feedback than from just doing regular employee engagement-type surveys. Exit interviews, if done properly, can provide some valuable information such as why an employee is leaving, what could have been done to prevent resignation, and potential issues with the work environment/organisational culture. Exit interviews can also pinpoint potential legal red flags. Online exit interviews from third party consultants can be an ideal approach, as they:
- provide an easy and private method for employees to give feedback;
- encourage honest responses;
- less time-consuming for management to maintain/deliver than in-person or telephone interviews;
- data can be more easily aggregated than in other methods, improving future analysis of results;
- have a larger participation rate than other methods.
Once data is gathered, the next step is to do a thorough analysis of the information collected. Based on that information, you’ll likely need to review:
- Compensation and benefits packages. If you’re not competitive within your industry, you’ll continue to lose employees to higher paying companies.
- The current recruitment process. Reviewing how and who you recruit can help identify methods to improve the process to ensure you hire the best person for the job.
- Orientation practices and training/development opportunities. Employees who feel invested in will often stay longer. Investigate options such as mentoring programs, training classes, and leadership opportunities that benefit your staff.
- Performance reviews. Providing ongoing feedback and praise keeps communication strong within the organisation.
- Overall workplace culture. By reviewing organisation’s culture, it may become obvious that some things may need to be modernised. Initiatives that may positively affect the turnover rate include:
- Flexible work arrangements and other methods of improving work/life balance, which could include opportunities to work remotely, flexible start/end times or compressed work weeks.
- Employee engagement strategies that target areas of concern including improved organisational communication, inclusivity, outreach activities aimed at improving staff morale, etc.
- Recognition initiatives that demonstrate organisational appreciation.
Once you have reviewed the different data sets, it’s time to determine WHY your employees are leaving and what can be done to keep them. Once you’ve identified areas of concern, it’s time to take action. An action plan will determine what needs to be done and by whom.
Your plan must include measurable achievements, timelines, and clear accountability in its deliverables in order to be successful.
Lastly, like in any project management cycle, an evaluation must also be completed. Assessments should occur regularly to ensure that your action plan stays on track and achieves its intended objectives. Commitment, communication, and follow-through are crucial to lowering your employee turnover rate.
What’s the Takeaway?
Ultimately, as each person is unique, so is each organisation. The factors that influence an employee’s decision to leave vary from one company to the next but making an effort to retain your top performers is an essential part of being the most effective organisation possible. By committing to lowering employee turnover rate, you’ll build a culture within your business that demonstrates the value placed on their most important resource: the people.