The impact of avoidable turnover on organizations
A company’s turnover is the percentage of workers that leave and need to be replaced in a given time period. While it is normal that people will leave or move between organizations throughout their careers, high turnover rates are very costly for employers. Frequently hiring and training employees is expensive and can negatively impact productivity. In addition, if a company is known to experience high turnover, this apparent lack of consistent employee retention hurts the firm’s reputation and employer brand. This can have highly consequential long-term impacts on performance. Employees will inevitably leave their companies for reasons such as retirement, pursuing more education, parental leave, and relocation, amongst others. The area of concern is avoidable turnover which occurs due to issues internal to the organization, such as a poor employee experience, unmet employee expectations, and other factors. Turnover can damage both productivity and morale. For example, during the period in which a role is vacant, the tasks associated with that role are offloaded to other employees, who may in turn be less efficient due to having more responsibilities. This can lead to burnout. Additionally, the social impact of turnover damages interpersonal workplace relationships, which is bad for morale.
The Work Institute, an organization committed to studying and improving employee retention, conducted a survey with 34,000 respondents in order to discover the top reasons for turnover according to employees. See below for the breakdown of responses, which cite both unavoidable causes of turnover (ie relocation and retirement) as well as areas where the employer has an impact.
Crunching the numbers: the fiscal implications of turnover
Costs incurred from turnover vary among different employers and roles. However, multiple studies have linked turnover costs to employee expertise level and salary, as the loss of productivity and the cost of rehiring are generally proportional to the demands of a given job position.
- In 2015, organizations spent an average of $1,252 per new hire during training.
- According to a 2017 employee retention report by the Work Institute, the cost of replacing a worker is approximately 33% of their salary. To that end, in applying this formula to a median salary of $45,000, the cost of replacing that employee comes out to approximately $15,000.
- Replacing an employee who was in a supervisory position can cost up to 150% of their annual salary.
- When accounting for the loss of productivity on a broader scale, the cost of turnover per employee can be anywhere from 90-200% of their salary, depending on the position.
- According to Stephen King, CEO of GrowthForce, external hires demand a salary that is on average 18-20% higher than employees hired internally.
- It usually takes 8-12 weeks to train a new knowledge worker and they typically only reach their maximum level of productivity 1-2 months into their new role. If the employee who left was generating $100,000 in revenue, the company will incur a $25,000 loss in income and profits over the course of the three months that the new hire is learning the ropes.
What causes turnover?
Insufficient opportunities for upward mobility and career development
Top-performing, ambitious employees can feel trapped in a dead-end position where they feel there is no opportunity for promotion and career advancement. The right balance of engaging mentorship and strategic job design that allows for upward mobility allows companies to retain their best employees for longer. By investing in their employees’ growth and promoting internally (which, as previously stated, is less costly than hiring externally), employers decrease turnover, maintain productivity levels, and save money over the long term.
Poor communication and lack of recognition
Feedback is essential for employee success. If an employee is struggling, providing the appropriate feedback and support can get them back on track. If an employer ignores these needs, it can result in the employee becoming disengaged and leaving.
Being overworked is highly detrimental to work-life balance and wellbeing, two of the biggest reasons that workers cite for leaving their jobs. Preventing this begins at job design and onboarding. Employers should keep in mind work-life balance and employee wellbeing when designing positions so as to not create a role that is overwhelming. Additionally, clearly laying out expectations in the job description clarifies the demands of the job from the outset and helps employers find the most appropriate fit for their needs.
Putting your best foot forward: onboarding practices that increase employee retention
Before promoting the position, the role needs to be clearly defined. Clearly identifying the required skills and experience that a qualified candidate must possess saves time and money in the long run, as there will be less unqualified applicants. Targeting the right people is easier when a role is clearly defined. The recruitment process should be set up in a way that accurately assesses whether or not the candidate possesses the employer’s desired skills and knowledge. Scenario-type questions, practical tests, and other engaging evaluations are a great way to test competency and get an idea for what the candidate’s thought process is like. Culture-related factors are among the top driving forces of turnover (management behaviour, work-life balance, work environment, job characteristics, etc). Being as transparent as possible about these factors early in the process helps employers establish whether or not the applicant would be a good culture fit for their organization. Open-ended questions for the candidate can also help the employer understand the candidate’s expectations regarding organizational culture. Developing a mutual understanding of these expectations early on helps both employers and candidates make informed decisions, which has positive impacts on long-term employee retention.
Asking the right questions at onboarding
Here are a few examples of open-ended questions that employers can integrate into their interviewing process to better understand candidates’ expectations of workplace culture.
- “What type of company culture do you feel you’d thrive in?” This question reveals how much research the candidate has done on the company and is a good determinant of whether the company culture fits with an applicant’s values. A successful applicant would say why they’d thrive in the employer’s company culture and would provide examples of their achievements in similar environments.
- “Can you give me an example of when you worked well as part of a team?” If teamwork is a core value of the employer and an applicant struggles to provide a strong example, are they the best fit for the role?
- “How do you like to be managed?” Does the candidate’s answer coincide with the employer’s management style?
There are many reasons for which someone would leave a job and not all of them are within the employer’s control. However, the most damaging forms of turnover are ones that are within employers’ control and can be avoided through the implementation of best practices. Some such practices include consistent feedback both during onboarding and on the job, smart job design that allows for upward mobility, and hiring internally. All of these factors mitigate turnover, which saves money, maintains productivity, and protects the firm’s reputation.