What Does a High Employee Turnover Rate Say About Management?
When an employee quits... what does it say about management?
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?
Managing Employee Turnover
Calculate the cost of losing one employee:
Monetary Costs of Employee Turnover
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...
Reasons Employees Leave
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.
Have you ever left a job?
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.
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?
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.
Retaining Employees (Pocket Mentor)
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
- 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/