Use Your Turnover to Know If You Have a Problem

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Jun 2, 2016

High employee turnover hurts the business bottom line. It’s estimated that the average cost of a lost employee is 38% of the employee’s annual salary. Considering the average income in the U.S. is $50 000 a year, that’s a $19,000 per person.

When employees leave, the ripple effect can be felt throughout the company. Lost knowledge, training costs, interviewing costs, and recruitment costs all add up, and companies cannot afford to ignore the long term implications high employee turnover has on the success of the business. As soon as an organization takes the time to consider high churn rates, it starts to focus on compensation, benefits, training, development, engagement, and morale boosting activities. This leads to a highly motivated, and engaged workforce.

Companies cannot prevent their employees leaving, however there are ways of reducing turnover. Factors such as lack of training, ineffective leadership, and employee communication can all pave the way to the exit door.

Before we look at turnover rates, let’s first detail some of the most common reasons why good employees quit.

Lack of training

Employee retention strategies begin right from when the new employee steps through the door. Onboarding is an important process as it ensures employees have the necessary knowledge, skills and behaviors needed to become successful in the long term. By introducing them to the mission and the values of the company, new arrivals can adopt companywide practices quicker. When a company implements a successful onboarding program, they experience 54% greater productivity and 50% greater retention.

But onboarding is only one part of the employee training cake. Once employees have been through the onboarding, and familiarize themselves with the company and their role, they may become disengaged due to lack of training.

Employees today want to develop themselves to be the best they can be. They want to expand and polish their skills, abilities, and experiences. Go2HR, a British Columbia tourism and hospitality advisory group, says 40% of employees who receive poor job training left their position within the first year. Employees who feel restrained or get bored will eventually start looking elsewhere to fulfill their career advancement goals. Well trained employees help increase productivity and profitability because training helps solve the potential performance problems of the job. Employees who are trained, develop more rounded skills to help them contribute more to the company.

Ineffective leadership

There is a long standing belief that employees don’t leave their jobs, but rather their managers. Leaders who do not create the right opportunities for their employees, don’t communicate with them, and don’t appreciate them often leads to a high turnover rate.

Bad leadership can also be felt throughout the entire organization – only not in a good way. Corporate culture becomes a meaningless term where leaders claim it exists while employees shake their heads in frustration. There is a lack of clear, consistent communication from leadership to the employees. As a result, the office is run by rumor mill, politics and gamesmanship. Employees are uncertain of the company’s goals and objectives for success and they have no idea how they fit into that picture, or what their level of importance is toward making it happen.

Employees who feel comfortable with their leaders, often feel more engaged and inspired. The right leader is someone who is able to inspire, motivate and coach their workforce. They often seek opportunities for their delegates and support them in their ongoing development in the workplace. When a company has good leaders, communication is daily and open. Every employee clearly understands the vision and the goals of the organization, and everyone has input into how they can be improved. Employees also feel that they are important and that their job matters within the company.

Lack of communication

Communicating with employees, empowering them and creating a culture for them to thrive are all fundamental parts to retention. When important decisions are made by the C-suite, but uncommunicated clearly, employees and management are left in the dark. Creating a structured communication process that informs, emphasizes and affirms the employee’s actions in the workplace contributes to low churn.

Communicating is a skill that should come naturally, however it can be the hardest skill to learn. When managing employees, it’s important to keep all communication channels open. Being aware of the questions, concerns and fears that employees might have, and, proactively communicating answers, will build transparency and trust, and lead to a keeping retention low.

As seen from the above, business leaders have certain responsibilities; it is up to the leaders and managers to address and overcome challenges in a way that encourages employees to remain within an organization.

Turnover is an indicator of problems

How do they know if there is a problem that must be addressed? One way is to examine a company’s turnover and compare it to other, similar firms.

Calculating turnover, however, can be tricky. The Society for Human Resource Management uses this method: To calculate annual turnover, you take the number of employees on the payroll on January 1 and the number still there at the end of the year and divide by two to get the average number of employees. Then add up all the separations during the year — voluntary or otherwise – and divide that number into the average worker count to get a turnover%age.

2015 turnover ratesAnother, and more precise method, is to add up all the workers on the payroll each workday during the year and average that number. Then do your division. Both methods can be used to calculate monthly turnover.

For example: 7 people left last month, and you averaged 100 people on the payroll. Your turnover rate is 7%.

The averages are in the accompanying chart from Compensation Force.

But who is it that’s quitting?

According to a Gallup report, a good number a company should aim to achieve is 10%. However, this is based on Jack Welch’s performance management system of stack ranking, which today is seen as old and outdated (even GE is throwing it out). In reality, if 10% of the high performers are leaving, the business ends up having a serious problem.

One of the first things a company can do to understand their turnover rates in more detail is to track it by a performance quartile. To do this, clearly track turnover by each quarter. Set clear and objective measures of productivity. And determine which employees are performing the best in each department.

Regularly check people’s engagement to understand how each individual is feeling towards their goals. Do this by implementing a bi-weekly check in, where managers schedule a time to meet with each one of their reports. By doing this, employees will feel more comfortable about expressing the way they feel in the workplace. When managers do this, they are able to understand the flaws in the team and act on them in a timely manner. This allows a company to become more agile and quicker to respond to business threats. What’s more, from the bi-weekly check in, business leaders can understand their weaknesses, and determine what drives disengagement.

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