Attention! Profitability is Linked to Your Company’s Staff Retention

Regardless of how happy you make your workers and how enjoyable your company may be to work for, from time to time employees will leave - be it to retire or relocate, or just in response to changing circumstances in their lives. There is, however, such a thing as excessive employee turnover (Schreiner, 20414). In this week’s blog post we explore why employers and managers need to understand their rates of staff turnover and how they affect an organisation’s performance (CIPD, 2015).

What is Employee Turnover?

Employee turnover refers to the proportion of employees who leave an organisation over a set period (often on a year-on-year basis), expressed as a percentage of total workforce numbers. At its broadest, the term is used to encompass all leavers, both voluntary and involuntary, including those who resign, retire or are made redundant, in which case it may be described as ‘overall’ or ‘crude’ employee turnover (CIPD, 2015).

When it comes to turning over employees, the fewer you lose the better, as each new hire presents associated challenges for the company. As Forbes Magazine (2014) notes, any rate below 15 percent annually is considered healthy and no cause for alarm. This means that a company of 200 workers can lose 30 individuals within a calendar year without it becoming a problem (Schreiner, 2014).

To come up with a level that is reasonable, companies often look to industry averages. A goal might be to keep turnover to a level no higher than the average for the industry (Woods, 2015).

The ultimate answer is that every firm should establish its own ideal rate (Monster, 2014) –

Look at what percentage of past turnover among this population is related to a life event (a family move for example) that made continued employment by your firm difficult.
Subtract from that percentage the number of turnovers that could have been avoided by making simple accommodations (a flexible schedule for example).
The result should be your ideal turnover rate among average performers.
Employee departure costs companies time, money and other resources. Research suggests that replacement costs can be as high as 50%-60% of an employee’s annual salary with total costs associated with turnover ranging from 90%-200% of annual salary (SHRM, 2008).
Replacing top-level positions also requires substantially more financing, extensive training and adjustment, and a high element of risk — as new management can drastically alter the status quo (Halogen, 2013).
When retention is higher than normal, customer satisfaction, productivity, and profitability also tend to be higher than normal (Bernthal & Wellins, 2001).
Turnover costs can be both direct and indirect. Direct turnover costs would include the costs to locate, hire and train a new employee to fill the position that was vacated. Indirect costs can be harder to quantify and include things like lost sales or customers due to inexperienced staff or being short-staffed, lost knowledge of company operations that has to be re-created later and the impact on morale of people leaving the company (Tribe HR, 2013).

The cost of turnover

According to CIPD (2015), companies can reduce turnover by focusing on push factors:

Push: Individual’s perception of limited opportunities; lack of senior leader role models; excessive workload, especially attributed to bureaucratic and management inefficiencies; non-competitive rewards and recognition; lack of respect of personal life/desires

What is retention?

Retention relates to the extent to which an employer retains its employees and may be measured as the proportion of employees with a specified length of service (typically one year or more) expressed as a percentage of overall workforce numbers (CIPD, 2015) . Employees need to feel valued and appreciated, be given feedback, provided with growth opportunities, be given work-life balance options, and have trust and confidence in their leaders (Yazinski, 2009).

Here are some Ideas to retain your valuable employees:

Make a counter-offer – In order for a counter-offer to be truly effective, it must be strategically negotiated to ensure that it is really responding to the person’s employment needs, whether it’s a better wage, work conditions, or access to tools and resources they need to perform to the best of their abilities (Wallace, 2013).
Conduct exit interviews – Even though departing employees are often reluctant to tell you the reasons why they're leaving, it's still worth asking them. It can also be helpful to ask the employee for their suggestions about ways the organisation can improve and better retain staff like them, rather than directly ask them why they are leaving (CIPD, 2015).
Evaluate your company’s culture - Frequent employee complaints center on a lack of clarity about job performance expectations, earning potential, advancement and career opportunities, specific feedback regarding performance, failure to hold regularly scheduled meetings, and failure to provide a overall structure where the employee feels they can succeed (Chron, 2013). Interview candidates carefully, not just to ensure they have the right skills but also that they fit well with the company culture, managers and co-workers (May, 2014).