It is a fact that employees leave organizations. Some employees leave the organization voluntarily while others leave involuntarily due to firing, layoffs, or other organizational change.
Voluntary reasons for leaving an organization include better opportunities elsewhere, low job satisfaction, unrealistic expectations of the job or the workplace, lack of challenge or feeling of accomplishment on the job, limited growth opportunities, and poor financial performance of the organization. Individuals also leave their jobs for personal reasons such as health or caregiving.
In its 2011 Human Capital Benchmarking Report, the Society for Human Resource Management (SHRM) defined employee turnover as the rate at which employees leave a company in a defined period of time (e.g., a month or fiscal year).
The easiest way to calculate employee turnover is by counting the number of people who leave (a department or organization) in a given period and dividing that number by the average number of people working (in a department or organization) and multiplying by one hundred.
For example, if the manufacturing division of an organization has 200 employees and four employees left in February, the separation rate or turnover for that division in February would be 4/200 x 100, or an employee turnover rate of 2%.
Managers in any organization generally calculate or measure turnover to control or monitor their sphere of influence and to more accurately forecast staffing needs for budgetary purposes.
Eliza Jacobs, strategic research analyst at SHRM, notes that the average annual turnover rate of employees across industries in the United States in 2011-2012 was 15%.
Jacobs writes that industries with the highest average annual turnover rates included services such as accommodation, food and drinking places (35%); arts, entertainment and recreation (27%); and retail and wholesale trade (22%).
Industries with the lowest average annual turnover rates included high tech (11%), municipalities (9%), professional and trade associations (8%), and utilities (8%).
When looking at these statistics it is important to understand characteristics of each industry as well as seasonal patterns and overall trends; it is also important to drill down to examine the root cause(s) of employee turnover.
“A low turnover rate at an organization does not necessarily mean that all is well,” cautions Andy Porter, Vice President of Human Resources and Organizational Development with Merrimack Pharmaceuticals in Cambridge, Massachusetts.
It is important to know how your turnover rates compare with others in your industry or to others in your geographic area; if yours are consistent with others, there may be no cause to worry, even if turnover rates are high.
On the other hand, organizations with low turnover rates may have more problems than are first apparent, filled with employees who really want to leave but are unable to due to the economy, or employees who want to leave but are too lazy to look for another job. Of course, there are always employees who are satisfied with their jobs and do not want to leave, which is a good thing.
According to the Advisory, Conciliation and Arbitration Service (ACAS) based in London, employee turnover tends to be higher in larger, highly centralized organizations located in urban areas; turnover is also subject to seasonal turnover when people often take on a second job for the holidays. ACAS also notes that new hires are more likely to leave than employees with longevity, which means turnover may be higher in growing companies hiring more people.
The costs of employee turnover to an organization are high. Work piles up; those remaining burn out by doing their work plus the work of the employee who left. Budgets can be decimated by overtime payments. Deadlines are missed. Stress builds and results in increased absences. Customer service can falter, resulting in an image problem for the organization. Employee morale becomes low, productivity decreases, and employees start looking for another job. The revolving door continues to turn.
Additional costs of employee turnover include the real recruitment cost to replace those who leave – advertising, travel and time for interviews, as well as costs for background checks, drug screens, and specialty testing. There is lost productivity time as the new hire completes onboarding activities, learns their roles and responsibilities, and how to navigate within the company culture. For cases in which turnover was involuntary, public relations costs might exist to change perceptions in the community or industry. And, there is the potential for increased costs due to unemployment insurance and continuation of health benefits.
As a preventative measure to control these real costs, managers must collaborate with someone in the human resources department to monitor employee turnover. It’s important to look at not only why some employees resign, but why others stay. And, it’s important to identify patterns or trends to manage future behaviors.
Several methods of survey research can be useful in identifying root causes and looking at the relationship between employee turnover and those root causes.
Telephone or in-person exit interviews can be conducted once the employee resigns to find out why s/he is leaving. These exit interviews help identify what was working for that employee in the organization and on the job and what was not. Were there issues with the job itself or were the issues related to supervision, pay, working conditions, limited promotability or organizational culture?
Unlike questionnaires, interviews allow the employee to clarify intent and elaborate. Also, the interviewer can probe for additional information.
Surveys, or questionnaires, may be used to assess overall employee satisfaction and morale. Attitude surveys can be administered to find out what employees think about their workplace. Such surveys gather information on multiple employment variables including pay, benefits, working conditions, professional development, communication throughout the organization, foodservice, parking, opportunities to voice ideas, supervision, and relationships with managers.
Surveys can gather information about what is meaningful to employees, what they need to support their work. Surveys can also gather data that, once analyzed, are used to establish benchmarks to which future behaviors and feedback can be compared. Of course, research companies often gather survey data from multiple organizations to establish benchmarks that are used within and/or across industries.
Surveys that gather information about salary, for example, can help establish industry standards for salary expectations and productivity in a specific geographic region or across the globe.
Once feedback has been gathered, whatever the format, those who participated expect that something will be done based on their feedback. When companies take the time to create surveys and employees take the time to respond, the very least that can be done is to disseminate results to the appropriate stakeholders.
Involving employees from relevant parts of the organization on committees or task forces is also important to generate buy-in for change, based on survey feedback. As employees see process and organizational change in response to their feedback, employees trust that those in charge are listening and responsive to employee needs. This trust can go far in promoting employee retention.
If, however, the organization has no intention of addressing issues raised on questionnaires or during interviews, that organization is well advised to not even ask the questions!
Let’s take a look at how two companies used surveys in examining employee turnover. Lichia Yiu, Ed.D. and Raymond Saner Ph.D. conducted a 2007 study at the Centre for Socio-Eco-Nomic Development in partnership with the Confederation of Indian Industry to get a sense of turnover across industries in India. They achieved a 72% response rate (i.e., 108/150) to an online survey of executives from organizations across industries of various sizes and years of operation.
They found that the highest employee turnover occurred in industries related to manufacturing (34%), engineering/infrastructure (19%); and professional, scientific, technical, information technology services (19%). The lowest employee turnover occurred in industries related to retail (8%), education services (3%), and healthcare (2%). Interestingly, this counters data found by SHRM in the United States, underscoring the importance of looking at employee turnover not only from the point of view of organizational culture but of personal and world cultures as well.
The survey, conducted by Yiu and Saner, identified the major causes of employee turnover as salary (85%), career advancement (71%), and relationships with supervisors (50%). Job content (43%) and employee recognition (33%) were also top contenders.
When the survey asked respondents to identify areas in which their company had taken action to counter employee turnover, actions were identified in the following areas: salary increases (80%), opportunities for career advancement (73%), for recognition (63%), for training and development (57%), and for human resource policy and rules (45%).
Their final conclusion was to caution organizations not to put all efforts into financial incentives, training and career development to improve retention, since doing this could foster employee complacency. Better to ensure a correlation between individual development, employee responsibilities, productivity, and outcomes.
Another example of survey research to identify issues related to employee turnover comes from an independent survey research firm in Australia that released their Retention Review in 2012.
“An average staff turnover rate of 18% costs organizations with 100 employees around $1 million every year,” notes Nicholas Barnett, CEO of the independent survey research firm. “Employers can save around $280,000 per year for every 100 staff they employ by reducing their turnover by just 5%. This should be achievable for many Australian companies, as our research shows that 80% of turnover is within the control of the organization.”
The research is based on exit survey responses from over 11,000 employees and 40 Australian-based companies over a four and one half year period. Organizations who responded to the 2012 survey ranged in size from 50-30,000 employees and included industries such as state government, manufacturing, financial, wholesale, professional services, and private entities.
Their findings? People leave organizations due to the job itself; if the job is unsatisfying, people will leave, regardless of incentives. The survey found that men and women left jobs for reasons related to their home lives at comparable rates – 40% for men and 47% for women.
“Based on our research, we believe there are five steps organizations can take to reduce staff turnover. The first step is to measure turnover to develop a clear retention roadmap, then continue making jobs more meaningful, foster a positive workplace culture, enable and recognize performance, and accommodate home life circumstances. Reducing staff turnover requires the focus and attention of the whole executive team, supported by managers at all levels,” said Bennett.
To learn more about how NBRI can help your organization monitor and manage employee turnover, contact us at 1-800-756-6168.
Terrie Nolinske, Ph.D.
Research Associate National Business Research Institute