Managing employee turnover and Retention
Managing employee turnover and Retention. Not all employees’ careers plans will coincide with the company’s needs. Turnover— the rate at which employees leave the firm—varies markedly among industries. For
example, turnover in the accommodation and food services industry is very high, with over half the industry’s employees voluntarily leaving each year.
In contrast, voluntary turnover in educational services is about 12%. Furthermore, such figures only reflect employees who leave voluntarily, such as for better jobs. They don’t include involuntary separations, such as for poor performance.
Combining voluntary and involuntary turnover produces some astounding statistics. For example, the turnover in many food service firms is around 100% per year. In other words, many restaurants need to replace just about all their employees every year! Turnover is expensive, as the HR as a Profit Center feature shows.
Turnover and performance
What is the link between turnover and organizational performance? Perhaps surprisingly, the issue isn’t clear (although it would seem obvious that firing an incompetent employee would be a positive). The problem is that what might be a positive in individual cases becomes a negative when the employer repeatedly loses employees.
One study concludes that all turnover, voluntary or involuntary, is associated with reduced organizational performance. The researchers say, “Organizations must recognize that when turnover rates rise, their workforce and financial performances are at risk. They should search for strategies to mitigate and eliminate turnover, recognizing that lower turnover [of all types] is always better.”
One study analyzed the tangible and intangible costs of turnover in a call center with 31 agents and 4 supervisors. Tangible costs associated with an agent’s leaving included the costs of recruiting, screening, interviewing, and testing applicants, as well as the cost of wages while the new agent was oriented and trained. Intangible costs included the cost of lost productivity for the new agent (who is less productive at first), the cost of rework for the new agent’s errors, and the supervisory cost for coaching the new agent.
The researchers’ calculations estimated the cost of an agent leaving at about $21,551. This call center averaged
18.6 vacancies per year (about a 60% turnover rate). Therefore, the researchers estimated the total annual cost of agent turnover at $400,853. Taking steps to cut this turnover rate in, say, half could save this firm about $200,000 per year.
How to cut turnover? Another study focused on turnover intentions among government technology workers. It concluded that human resource managers could influence turnover through practices such as promotion opportunities, training and development, pay and reward satisfaction, and family-friendly policies. The bottom line is that HR practices can have a big influence on employee turnover, and thereby on the company’s profitability.
Reducing turnover requires identifying and managing the reasons for both voluntary and involuntary turnover. We address managing voluntary turnover today, and managing involuntary turnover tomorrow.
Managing Voluntary Turnover
In reducing turnover, the logical place to start is by measuring the number of employees (particularly top performers and high potentials) who leave the company.
SHRM recommends computing turnover as follows: “First calculate turnover for each month by dividing the number of [voluntary] separations during the month by the average number of employees during that month and multiplying by 100. Then calculate the annual turnover rate by adding the 12 months of turnover percentages together.”
However, identifying why employees voluntarily leave is not so easy. People who are dissatisfied with their jobs are more likely to leave, but the sources of dissatisfaction are many and varied.
In one survey, the consultants collected data from 262 U.S. organizations having a minimum of 1,000 employees. In this survey, the five top reasons that high-commitment/top-performing employees gave for leaving (ranked from high to low) were pay, promotional opportunities, work–life balance, career development, and health-care benefits. (In contrast, employers ranked the top five reasons employees left as promotion, career development, pay, relationship with supervisor, and work–life balance).
Other reasons employees voluntarily leave include unfairness, not having their voices heard, and a lack of recognition.41 Sometimes simply asking, “All things considered, how satisfied are you with your job?” can be as
effective as soliciting employees’ attitudes toward various facets of the job (such as supervision and pay). Practical considerations also affect turnover. For example, high unemployment reduces voluntary turnover, and some locales have fewer job opportunities (and thus turnover) than do others.
Of course, losing low-performing employees isn’t as problematic as losing high performing ones. The restaurant chain Applebee’s gives managers higher incentives for reducing turnover among top-performing employees.
In any case, given the variety of things prompting employees to leave voluntarily, what can one do to manage voluntary turnover? We’ll list some tactics next, but there is no silver bullet. The manager should understand that retaining employees is a talent management issue, and that the best retention strategies are therefore multifunctional.
For example, employees who aren’t interested in their jobs, sense that they’re not suited for their jobs, or feel under-compensated are more likely to leave. Employers can address such issues only by instituting effective and coordinated talent management (recruitment, selection, training, appraisal, and compensation) practices.
Put another way, turnovers (both voluntary and involuntary) often start with poor selection decisions, compounded by inadequate training, insensitive appraisals, and inequitable pay. Trying to formulate a “retention strategy” without considering all of one’s HR practices is futile.
A Comprehensive Approach to Retaining Employees
However identifying the problems is an important first step. Effectively conducted exit interviews provide useful insights into turnover problem areas. Many employers routinely administer attitude surveys to monitor employees about matters such as supervision and pay.
Open-door policies and anonymous “hotlines” help management identify and remedy morale problems. Usually conducted by the employee’s manager, the aim of a stay interview is to head off retention problems by finding out “how the employee is doing.” Typical questions include “When you travel to work each day, what are you looking forward to?” and “How can I best support you?” Unlike anonymous group surveys, stay interviews are one on one, and reportedly provide useful information for reducing turnover and improving engagement.
Sometimes, analyzing the situation leads to simple solutions. Walmart discovered it could significantly reduce voluntary turnover by providing aggressively realistic previews about the job’s demands and work hours. Then, having identified potential problems, the employer can take steps like the following to boost employee retention.
Raise Pay :
The most obvious explanation for why employees quit is often also the correct one: low pay. Particularly for high performers and key employees, enhanced pay has recently been the retention tool of choice for many employers
“Retention starts up front, with the selection and hiring of the right employees.” This refers not just to the worker but also to hiring the right supervisors. For example, FedEx conducts periodic employee attitude surveys. The supervisor then meets to review the results with his or her employees to address any leadership problems the surveys raise.
One expert says, “Professionals who feel their company cares about their development and progress are much more likely to stay.” Periodically discuss with employees their career preferences and prospects, and help them lay out
People can’t do their jobs if they don’t know what to do or what their goals are. Therefore, retaining employees requires making it clear what your expectations are regarding their performance and what their responsibilities are.
In one survey, workers identified “flexible work arrangements” and “telecommuting” as the two top benefits that would encourage them to choose one job over another.
Use High-Performance Hr Practices
In one study, call centers that made more use of high involvement work practices (for instance, employee empowerment, problem-solving groups, and self-directed teams) had lower rates of quits, dismissals, and total
turnover. So did those that “invested” more in employees (for instance, in terms of promotion opportunities, high relative pay, pensions, and full-time jobs).