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What Does a High Employee Turnover Rate Say About Management?

Updated on April 14, 2014

When an employee quits... what does it say about management?

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Why should you consider high employee turnover as an indicator of a problem?

High employee turnover rate can be directly linked to management for many reasons. In some cases, factors beyond management's control can be the cause. Employee turnover rate, in any case, comes with a high cost to your business. The cost is not just about a monetary loss. If talented employees continue to leave, this would result in knowledge and skills deficiency that would negatively impact the organization's ability to compete in their market. A reputation for high employee turnover can also turn away potential job candidates. Therefore, employee turnover is an indicator of dysfunction for your department or organization.

As a manager, your goal should be to keep the employee turnover ratio as low as you possibly can. If employee turnover rate is high in your company, these are some examples of questions that you could ask... Is management recruiting, selecting, and hiring the right people? How good are your training programs? Are your career planning or advancement opportunities adequate? How good is management at creating a culture that makes the right people want to stay? Is there conflict in the workplace? Are the employee's salaries satisfactory? Is fairness present in the workplace? Do your employees feel appreciated, motivated, and engaged?

Calculate the cost of losing one employee:

Monetary Costs of Employee Turnover

  • Recruiting
  • Hiring
  • Training

How much does it cost to lose an employee?

In our economy, job applicants are plentiful. Therefore, it might seem like a good business decision to allow employees to quit, rather than make changes to retain them. However, employee turnover is quite expensive. Not to mention, it costs far LESS to retain employees than to recruit, hire, and retrain new ones. The cost of losing just ONE employee can cause your business to lose as much as tens of thousands of dollars.

In fact, turnover costs will include the productivity losses during the time that you are recruiting and training the new employee, as well as the lost work that occurred during the position being vacant. An article by CNN Moneywatch, states the results of a recent study by the Center for American Progress, "for all jobs earning less than $50,000 per year, or more than 40 percent of U.S. jobs, the average cost of replacing an employee amounts to fully 20 percent of the person's annual salary".

The video to the right includes a free employee turnover calculator which you can use to determine how much it would cost to lose just ONE employee...

There are two types of employee turnover:

  • Voluntary = Employee initiated. Organization would prefer that they stay.
  • Involuntary = Employer initiated. Employee prefers to stay with organization.

Job Satisfaction

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How is High Employee Turnover Rate Defined?

High Employee Turnover is defined as the ratio of the number of people who leave the business, to the total number of employees on staff. An employee turnover is someone who is fired, quits, or leaves voluntarily; but not necessarily because of retirement.

To clarify, there are two types of employee turnover: (voluntary) employee initiated or (involuntary) employer initiated. You can calculate this ratio over a monthly, quarterly, or yearly time period. If your business is experiencing a high employee turnover, you will want to examine a shorter time period than a business with a lower employee turnover rate. Some businesses will examine as much as a five year time frame (or more) to determine an employee turnover trend.

Calculating Employee Turnover Rate

It may be too late... if you don't pay attention.

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How is High Employee Turnover Rate Calculated?

In order to identify whether your department, or business, is experiencing a high turnover rate, review the percentage of employees that your practice turns over in a specific time period. For example, take the sum of the total number of employees, who have been fired or quit, and divide that number by the total number of employees hired. Then, multiply that number by 100 to give you the percentage.

For example, if you lose 7 employees out of 50, in one month: 7 / 50 = 0.14 X 100. Your employee turnover rate is 14%.

When is an employee turnover rate considered high?

This will be determined by your company and the industry average; however, you can also track your departments record to determine your own specific employee turnover progression or declining trends.

Don't ignore the problem!

When staff turnover is high, a manager needs to understand why people are leaving and work on correcting it. Don't wait for your employee to tell you there is a problem. As a manager, you should be aware of these things so pay attention. By the time your employee(s) hand in their resignation, it is too late. If you're not paying attention, they may leave without even telling you.

Lowering Employee Turnover

Employee Turnover Reasons...

Have you ever left a job because of any of these reasons?

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As a manager, what are the factors that you can control or improve to decrease a high employee turnover rate?

  • Micromanaging - Avoid micromanaging your employees. This is a management practice that can cause job dissatisfaction. What is micromanaging? A manager who is engaged in micromanaging is someone who needs to have constant feedback and control over their worker's tasks. Employees start to feel resentment as their manager is always checking over their shoulder to monitor their every move and criticize or downgrade any effort that they make.
  • Bad Work Environment - Do you have the right tools available to provide basic workplace comfort? A few examples include: proper lighting, noise control, ergonomically designed workstations, comfortable chairs, etc. Coworkers can also contribute to a bad work environment when they speak loudly, smack gum, invade others space, or demonstrate rude, obnoxious behavior. A manager can reduce this stressful hostile environment by communicating an office policy of appropriate behavior.
  • Unappreciating - When employees feel that their efforts have gone unnoticed, or unappreciated by management, they may feel stuck in a dead-end position. Feeling chronically underappreciated can lead to burnout. Employees in this position often feel that they are required to work too many hours, weekends, and shifts. They may be losing sleep and gaining weight, as a result. About half of workers report that they are dissatisfied with the way that their accomplishments are recognized.
  • Lack of Training - When training is inadequate it creates problems for the business. Managers who underestimate the value of investing in training their employees will ultimately lose them. Why is training so important? Employees naturally feel a need to perform well in their jobs in order to advance in the company, feel a sense of pride for a job well done, and to advance to higher positions. With lack of training, employees are left with a lack of understanding in how to do their jobs well and therefore none of these goals are possible.
  • Favoritism - The same rules should apply to everyone. Management that allows certain employees to come in late and make excuses, while holding everyone else to a different standard will result in high turnover rates. Employees who work in a family-run company may feel resentment towards family members who gain advancement or opportunities with the same or lesser skill set. Favoritism, in any case, may be seen as a conflict of interest and breeds resentment.
  • Workload Distribution - Employees often just deal with a heavy workload because they are ultimately afraid of losing their jobs; especially in a hard economy. Burnout can occur from excessive stress. An increase in level of workload does not equal an increase in productivity. In fact, it can actually reduce earnings for your company. Once conditions improve, management should hire more help and redistribute the workload to help alleviate this stress.

There are many many more reasons why employees leave a job. I would like to grow this list with your ideas! What have been your experiences? What reasons have led you to leave a job, both voluntarily & involuntarily? What do you think management could improve to create greater employee job satisfaction to retain their employees? Please leave your comments below...

Help people get what they want... to prevent employee turnover.

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Behavior that gets rewarded, gets repeated.

"You can have everything in life that you want, if you will just help people get what they want"- Zig Zigler. Good managers can act as informal mentors for promising workers to guide them toward advancement to better-paid positions within the company. Some easy things to do to improve employee morale:

  • Say Thank You
  • Pay a fair wage
  • Give recognition
  • Fairly distribute work
  • Mentor your workers
  • Supply Better Training
  • Solicit worker's feedback
  • Help develop workers skills
  • Provide Challenging Work
  • Don't hover over employees
  • Dispense new responsibilities
  • Promote employees from within
  • Encourage employees ambitions
  • Create a work environment that is comfortable
  • Implement office policy for appropriate behavior
  • Become more involved & engaging in a positive way
  • Avoid favoritism & nepotism & deal fairly with all workers

Resources

  • Blank, Chris. (2014) What Does a High Turnover Rate Say About Management? Small Business by Demand Media. Retrieved on April 10, 2014 from http://smallbusiness.chron.com/high-turnover-rate-say-management-26043.html
  • Heathfield, Susan. (2013). What Makes a Work Environment Hostile? About.com. Retrieved on April 10, 2014 from http://humanresources.about.com/od/workplace-discrimination/g/hostile-work-environment.htm
  • Lucas, Suzanne. (2012) How much does it cost companies to lose employees? CNN MoneyWatch. Retrieved on April 10, 2014 from http://www.cbsnews.com/news/how-much-does-it-cost-companies-to-lose-employees/

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    • bravewarrior profile image

      Shauna L Bowling 2 years ago from Central Florida

      Melinda, I flat out left the corporate world in 2012 for too many of the reasons you state in this article. Managers and principals would do themselves justice by reading this. Great information!

    • Melinda Longoria profile image
      Author

      Melinda Longoria, MSM 2 years ago from Garland, Texas

      Bravewarrior,

      Thank you for your comments. In doing my research on this subject, I found that, unfortunately, managers are often promoted (for whatever reason) without a lack of management training or knowledge. Managers can be promoted for many reasons, like job performance, merit, seniority, personal appearance, favoritism, office politics, etc. Often, the key area that is overlooked is interpersonal, management, or leadership knowledge or skills. This is a whole other subject!

      Example, with merit-based promotion programs employees may attempt to present themselves in the most favorable way possible, which is sometimes by attempting to make coworkers look incompetent. This can also cause employees to leave.

      In my article above, if I missed a reason why employees leave a job, please let me know so I can add it and include research on the subject to help others. ;-) Sincerely, Melinda

    • bravewarrior profile image

      Shauna L Bowling 2 years ago from Central Florida

      One of the reasons I quit my job is because we were told there was no money for raises. In fact a freeze had been in place for 3 years. Yet, new equipment was bought for certain employees. The officers were purchasing summer homes and sent on very expensive training sessions. I was the accounting manager and did the monthly bank reqs in addition to my other duties. I had access to the P & L statements. Who were they trying to kid? When I got turned down for a well-deserved raise - twice - that was the straw that broke the camel's back.

      Loyalty is NOT a one way street!

    • Melinda Longoria profile image
      Author

      Melinda Longoria, MSM 2 years ago from Garland, Texas

      You are exactly right! :) Thank you for the input. I will definitely add a section with your suggestion to my list.

    • billybuc profile image

      Bill Holland 2 years ago from Olympia, WA

      Now if we can get about a millions employers to read this, everything will be all right in the workplace. :) Sound economic thinking!

    • Express10 profile image

      H C Palting 2 years ago from East Coast

      High turnover was a huge problem at one company I worked for. Only after I began working there did I find out that at least 75% of the people working there had been there a year or less. Since I've quit, most of those I worked with there have also. In a small company of roughly 60 - 65 people this percentage of turnover is absolutely ridiculous, extremely costly in a variety of ways and shows the employer has serious issues to resolve. Those looking for a position should definitely ask about turnover for clues!

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