Most companies consider their employer turnover rate a measure of how satisfied and happy their workforce is. Typically, it looks at how many people leave voluntarily over a period compared with the average number of staff employed by the organisation during that time. Common sense tells us, the lower the rate, the better the company is felt to be performing.
But, just looking at the headline employee turnover rate can be misleading. Indeed, I’d argue that some turnover of your employees is a good thing. Often it represents the start of an exciting new chapter for the individual leaving – be that landing their next freelance gig, relaxing into a sabbatical or taking to the skies to travel the world.
The glass half empty
That said, for an organization, here’s some of the most the unwanted side-effects of a high or rising employee turnover.
Replacing people impacts business productivity: When your valuable, productive employees leave, it takes time and money for new recruits to fill their boots. For example, the cost of replacing an employee can be as much as 213% of their annual salary. And, it takes time for new joiners to contribute to the bottom line – new hires are just 50% productive after 3 months.
Contagion: There’s a risk that a never-ending exodus of employees will impact the general mood and productivity of your workforce. It can be disruptive and demotivating if people in a team or department continually leave. Existing workers need to take up the slack each time someone leaves, putting them under greater pressure. And, if customer facing staff are leaving it could impact sales, customer satisfaction levels or the customer experience.
Reputational damage: Another negative consequence is the damage to your company’s reputation among potential new recruits (not to mention customers and investors). The more people to leave your company, the greater the risk that ex-employees will speak in unfavourable terms – openly and online in communities such as Glassdoor.
The glass half full
Today, changing attitudes to employment and shifting work patterns, including the rise in the gig economy, mean people are less wedded to the idea of a job for life. So, while for any business the priority is generally to retain a happy, productive workforce, there are reasons why some level of employee turnover can be a positive for them.
Opportunity for fresh talent: When workers decide to leave your business voluntarily, it creates opportunities to bring in fresh talent with different or more up to date skills and new ideas and perspectives or, better still, to promote from within.
Opportunity to improve processes and employee experience: People who leave provide a golden opportunity for feedback, not only from the leavers themselves, but from the new recruits who fill their boots and the existing staff who work hard to fill in the gaps. By acting on that feedback, you can improve the processes at key steps in the employee journey, from entry to exit, and become a well-organised machine that embraces change, rather than fears it.
Opportunity to focus on your culture and future: Trying in vain to retain and win over people who have switched off or no longer aligned to your culture can be all consuming and soul destroying for you and your employees. There are significant administrative and financial costs involved in having to manage employees who are disengaged.
Trouble in Paradise? What are the warning signs?
Ok, so we know employees come and go. That’s just life. But, when should you be overly concerned?
1. Your turnover rate is higher than the industry average: If employees are leaving your business in greater numbers than they are leaving your competitors, it’s definitely cause for concern. Those competitors have you at a disadvantage. Ask yourself, what are you not doing right?
2. You’re seeing a high turnover in particular demographics or teams: If particular groups, such as women, ethnic minorities, young people, or older experienced workers, are showing higher turnover rates, it’s time to investigate and take action. Not only are you potentially losing talented workers in those groups, but there could be reputational damage to your organisation or even legal repercussions if certain groups feel that they are being discriminated against in your organisation. Equally, what if specific teams or departments are seeing higher turnover than the rest of the business? Are all your senior developers leaving? Have all your experienced support staff gone? Is the San Francisco office a ghost ship? These could point to issues with the culture in those locations, or even issues with individual managers, that can sometimes be addressed quite easily and quickly.
3. Your turnover is high among high achievers: An (obvious) big red flag is increasing turnover among your high performing employees or those with sought after or hard to replace skills or knowledge. To protect your competitive position, make sure you unpick what’s happening to top talent as soon as you discover it.
How to prevent a warning sign from turning into a full-blown crisis
To understand scale, you need an intimate understanding of the employee experience in all parts of the organisation along all points in the employee journey from recruitment and onboarding through to promotion and exit. A continuous listening program is just one of the ways you can automatically collect employee insights and sentiment – especially at important employee lifecycle milestones. Employee sentiment can help you identify warning signs of small issues that could escalate and lead to staff turnover while more detailed employee feedback will pinpoint any underlying problems such as faltering employee engagement that might be causing people to leave.
Similarly, exit interviews can help you to discover why people are deciding to move on so you can identify any patterns and fix any issues if required. In fact, allowing leavers to express their views directly with the company on exit is doubly important because it may mean they are less intent on posting negative comments on the likes of Glassdoor.
Importantly, don’t just focus on one side of the story! Employees can leave because they have problems working with their immediate line managers. Which is why it’s important that during employee review processes both a manager’s direct senior managers, as well as their co-workers and reports are allowed to express their views. This 360 degree evaluation provides a more comprehensive picture of how managers are performing so that they themselves – as well as their bosses – have an opportunity to address potential weaknesses or problem areas.
Collecting feedback during the recruitment process can also be extremely powerful. Insights can help to ensure that your organisation is identifying and recruiting people that are a good fit for the culture, work style and goals of the company. If you are setting the wrong expectations during recruitment – or hiring people that aren’t a good match, then the inevitable result will be a higher turnover rate that costs money, wastes everyone’s time and can quickly snowball out of control.
While some turnover of employees is normal and, as I’ve discussed, might even be a good thing, it’s important to keep an eye on your company’s overall employee turnover rate and to drill down to understand how it varies for different demographics and different parts of the organisation as well as how it compares to other organisations in your sector. It’s vital to look at how it relates to your business, whether that is hitting productivity, staff morale, company reputation or customer experience, and to listen to your people to understand, then fix the underlying causes. Only then will you be able to get the best out of your employees and drive the business forward.
- By Luke Talbot