There’s no better time to search for a new position than when you’re gainfully employed: Studies consistently show that employers look more favorably on applicants who already have jobs—especially if they see an opportunity to poach talent from a competitor.
It’s not surprising, then, that retention is always a major focus for HR teams and business leaders. Besides the disruption of losing a good worker and the hard costs to recruit, hire and train a replacement, when a longtime employee leaves, institutional and customer knowledge walk out the door as well.
The upshot is that even a modest investment in keeping your talent can pay off in tangible and intangible ways.
What Is Employee Turnover?
Tracking employee turnover rates is a data-driven way to gauge how many people are leaving the company and under what circumstances. Turnover refers to total separations from the company and includes both voluntary and involuntary turnover. Voluntary turnover represents people who left the company on their own accord—for a new job, for personal reasons, to pursue educational opportunities or to retire, for example. Involuntary turnover accounts for people who were terminated for performance issues or behavior as well as those who are part of a seasonal layoff or overall reduction in force.
Why Is Employee Turnover Bad?
High voluntary turnover—with “high” viewed within the context of what’s normal for your industry—is generally considered an unfavorable KPI. It means you’re losing good employees, sometimes to competitors. Causes include problems with the company’s culture, its benefits and compensation structure, its career path and training, managers and much more.
High voluntary turnover impacts profitability and, often, customer satisfaction. On the tangible side, it’s costly to recruit new people. Studies done over the past few years on the cost of new hires point to between $4,000 and $5,000, on average; for executives, that number about triples. You can use this worksheet to do a back-of-the-envelope calculation of your costs.
Worksheet: Talent Acquisition Costs
There are both internal and external expenses. Note that this doesn’t take into account intangibles like morale or the strain added to remaining workers as they pick up additional duties.
|In-house recruiting staff, prorated by number of hires|
|Cost to develop job description|
|Software for applicant tracking|
|Hiring and line-of-business manager hours to screen resumes/interview candidates|
|Advertising on job boards/sites/social networks|
|Background and reference checks|
|Other recruitment costs, such as job fairs|
Involuntary turnover, while necessary, isn’t favorable either. While layoffs may be unavoidable, bad hires are a common and expensive mistake. It’s well worth taking steps to avoid bringing on the wrong person: Bad hires affect productivity, waste recruiters’ and hiring managers’ time, and often compromise the quality of work. Spend some time on behavioral interviews and thorough background and reference checks, and involve a variety of people in the interview process, including future coworkers. Consider a formal probationary period or, if feasible, have top applicants complete a project on a contractual basis.
What Is a Good Employee Turnover Rate?
Like many benchmarks, good and poor turnover KPIs differ widely by industry, role, even geography.
A recently released study by analyst firm Mercer pegged average U.S. annual turnover at about 20%, with about two-thirds of that voluntary. If your business is in retail, hospitality or wholesale distribution, turnover is likely to trend higher than, for example, education or finance. Mercer says the job functions with the highest annual voluntary turnover are contact center/customer service (17%), manufacturing and operations (15%), and sales (14%).
Bottom line, look to industry sources and analysts for trends in your vertical. The U.S. Department of Labor also tracks job openings and labor turnover data on an ongoing basis.
What Causes High Employee Turnover?
Most voluntary turnover is caused by people seeking—in no particular order—more money, better benefits, an improved work/life balance, more opportunities to progress in their careers, time to address personal issues like health problems or relocations, increased flexibility, or to escape a toxic or ineffective manager or workplace.
HR should encourage all leavers to take part in an exit interview. In fact, a vital part of talent management is more deeply understanding the reasons for voluntary turnover —and finding ways to fix problems that are addressable. HR can encourage employees to be honest in exit interviews by assuring them that responses will be confidential and won’t affect how the company responds to requests for references or to confirm employment.
HR and Payroll
10 Main Causes of Employee Turnover & How to Reduce Them
Here’s the good news: Excessive employee turnover is preventable. Taking steps to chip away at top causes for your company can have a major impact. Here are some top contributors to people leaving.
1. Lack of employee purpose: “Workism,” the belief that work “is not only necessary to economic production, but also the centerpiece of one’s identity and life’s purpose” is a real thing, especially for college-educated professionals. Think about it—when we engage in small talk with new acquaintances, “So, what do you do?” is a top conversation starter. No wonder then that high performers consider it important to work for a company and in a role they can be proud of.
What that means varies, but LinkedIn’s Talent Trends Survey shows that companies with purposeful missions saw 49% lower attrition. Companies with “purposeful missions” are exceptional at motivating their employees, such that their people become extensions of the brand itself. These firms have strong cultures, connect the dots as to how their product or service makes the world a better place and “walk the walk” in supporting charitable causes and giving back to the community. Even companies with low employee engagement can often retain talent if its people back its mission and purpose—with employees drawing motivation from the importance of the work the business does.
2. Poor compensation: When people leave a company, compensation and benefits are a major reason, especially for younger workers: The LinkedIn survey found that compensation and benefits as the No. 1 reason they change jobs.
Higher base pay has a strong impact on retention for a few reasons. First, paying people well is a tangible way to show you value their contributions. And, it makes it less likely that a competitor looking to poach top performers can lure them away with purely financial incentives. Glassdoor found that workers earn on average 5.2% more when they change jobs. If your company pays toward the top of the scale, you make headhunting a pricey proposition.
How can you ensure compensation is in line, or above, for the market and role? First, continue to provide annual base pay increases. Monitor what other companies are paying on an annual basis, more frequently for hard-to-fill jobs. Many organizations tie bonus pay to project completion—and paying more for hot skills is a trend that continues to increase. Finally, implement talent management processes that identify top performers, and correct pay imbalances by conducting a racial and gender pay equity analysis. PayScale publishes an annual Compensation Best Practices report that can provide good guidance.
3. Being overworked: Burnout happens when employees are asked to perform tasks without being given the resources to succeed, when they feel a lack of control or when they consistently face more daily stress than is manageable. Burnout combines emotional and physical exhaustion with a sense of hopelessness and self-blame and can manifest in behavioral and physical issues.
Ask: Do we regularly ask or expect employees to work on the weekends or after hours? Is a “normal” workweek 50 hours or more, on average? Do we provide the appropriate technologies and other resources for people to succeed?
Reducing burnout involves looking at six factors, a University of California study found: Demand overload, lack of control, insufficient reward, socially toxic workplaces, lack of fairness and value conflicts. Imbalances in any of those areas will put people at more risk for experiencing burnout. HR teams and managers should ask employees for feedback on their workloads—and actually listen, make changes as needed and commit to properly resourcing their people.
4. Bad managers: Plenty has been written about toxic managers—people who take credit for others’ ideas, play favorites, even abuse their reports. And companies definitely need to weed these people out. However, less obvious are managers who are simply bad at their jobs.
Many of the top reasons for turnover—poor compensation or work-life balance, little training and scant career advancement opportunities—hinge on the manager, so HR teams need to identify supervisors who flat out lack the competence to manage people and either transition them to new roles or provide support and training.
Good managers see themselves as career developers; they know their employees well enough to uncover their skills and motivations. Harvard Business Review research by Marcus Buckingham, who surveyed 80,000 managers and devoted two years studying a few top performers, found one quality that sets managers apart: “They discover what is unique about each person and then capitalize on it. Average managers play checkers, while great managers play chess. Great managers know and value the unique abilities and even the eccentricities of their employees, and they learn how best to integrate them into a coordinated plan of attack.”
5. Little to no feedback or recognition: Many employees report not getting the right kind of manager feedback: A Gallup survey shows workers whose managers’ feedback left them with positive feelings are about four times more likely to be engaged, and only 3.6% are actively looking for new jobs.
Feedback doesn’t always need to be praise, but aim to frame comments in a positive light. Managers should start with wins, focus on specifics, pair encouragement with constructive advice on how to improve weaknesses and have frequent conversations and check-ins.
What’s more, feedback and recognition don’t need to come only from the manager to make a big impact. Peer-to-peer recognition programs are successful, particularly when they leverage technology. For instance, at Fisher Unitech, digitizing a manual kudos program gave the company the ability to automate employee recognition, making it more visible and seamless, and in the process, doubling participation rates. The company now chooses an employee of the month based on kudos.
Oh, and the only thing worse than bad feedback is no feedback, such that employees lack guidance or how to develop their skills or are blindsided by a negative review.
6. Poor work/life balance: Work/life balance sits solidly in the Top 3 reasons people leave companies, across studies. Besides avoiding the aforementioned issue of overwork, organizations should aim for scheduling flexibility that allows people to be as productive as possible. Bureau of Labor Statistics data from 2019 shows that about 25% of wage and salaried workers were able to work from home at least occasionally, and 57% had flexible schedules in which they could vary the times they started and stopped working. The WFH trend accelerated in 2020, and that’s good news for people who once had long, draining commutes.
When it’s impossible to allow flexibility in start and stop times, as with shift workers, the next best thing is issuing schedules as far in advance, and being as open to swaps, as possible. Companies with strong workforce management capabilities use technology to optimize scheduling, automate time-off requests and manage absences and often see improvements in employee work/life balance scores.
7. Boredom: It’s a classic scene in “Office Space:” Ron Livingstone, in answering a consultant’s question on how he spends his workday, says, “Yeah, I just stare at my desk, but it looks like I’m working. I do that for probably another hour after lunch, too. I’d say in a given week I probably only do about fifteen minutes of real, actual, work.”
Of all generations, the LinkedIn Talent Trends survey found that Generation X is most likely to leave an organization because of a lack of challenging work that keeps them engaged and, well, awake. Again, the manager plays a huge role here. Managers should encourage their teams to meet existing goals but also assign challenging projects. Push employees out of their comfort zones, and foster a “growth mindset” in team members that values skills development and encourages taking calculated risks. A culture that can accept failure is a key part of this process.
8. No opportunity for growth or development: Another factor solidly in the Top 3 reasons people leave jobs is that they don’t see a future for themselves in the company. In fact, consultancy PWC’s Future of Recruiting report found that U.S. job seekers are willing to forgo up to 12% of their salaries for development opportunities, including more training.
A culture of employee development is a key part of talent management. Go beyond skills-based training to offer continuing education and tuition reimbursement, career development services and coaching, mentoring and leadership development programs. Think outside the box on what training looks like as well.
To evaluate your company’s program, ask yourself:
- Is there a clear path for career growth and advancement? Does senior leadership fully buy in to our employee development strategy?
- Do we have formal learning and development programs in place? If not internally, are we able to provide access to third-party opportunities that will help employees gain new skills?
- Do we have defined programs to mentor employees, and is there flexibility for employees to explore different departments and functions?
- Do we align our business goals with employee career goals?
9. Bad hiring procedures: When short-term retention rates are low, look for problems in your hiring and onboarding processes.
You have a short-term retention problem when people leave within the first six months, especially to take on lateral roles at other companies. A high termination rate also signals problems with the hiring process.
LinkedIn recommends being honest in the hiring process about the company’s culture. Don’t tell people what you think they want to hear—present reality as it is.
10. Toxic or negative culture: Here’s a staggering stat from SHRM: About 25% of U.S. employees actually dread going to work. They don’t feel safe expressing their opinions, and they don’t feel valued for their efforts. That costs companies billions in avoidable turnover.
No organization sets out to create a toxic work culture. Often, it’s a combination of many of the factors we’ve just discussed.
Leadership consultancy The Clemmer Group defines culture as “the sum total of the common attitudes and beliefs held by people based on their experiences. These experiences then influence the behavior and willingness of everyone to work with or against the systems and processes.”
If you suspect that your culture is contributing to high turnover, take a look at how openly and frequently executives communicate with employees. Do people feel respected, empowered to do their jobs without being micromanaged and free to take the PTO they’ve earned? Do managers trust employees enough to delegate? Do we have a culture of inclusion?
Efforts to change culture often start with good intentions: Teams define the company’s mission and values and how they want people to talk about the organization and put in place processes to make that happen. But improving culture is a tough nut to crack without buy-in from leadership.
Monitoring Employee Turnover with HR Software
The formula for calculating employee turnover is straightforward, but getting the numbers behind it—and ensuring they’re accurate, timely and can be understood by various stakeholders—is challenging. Human capital management (HCM) software automates collection of data, reporting around it and provides tools to analyze and act on it.
Turnover Rate for Given Period = Number of Separations / Avg. Number of Employees x 100
For instance, HCM software can break down turnover trends by year, quarter, voluntary and involuntary, business unit, department, geography, and demographics. The latter can determine turnover by age, ethnicity, gender and more.
There is best-of-breed software that focuses only on retention. But the best strategies to reduce turnover view the employee experience as holistic—from recruiting to onboarding to performance management and development through succession planning. For instance, when it comes to performance management, software can help facilitate the types of manager/employee interactions that will encourage career development and retention.
When considering software to minimize turnover, look for out-of-the-box KPIs to tie goals to business performance metrics, such as percent of sales wins or billable hours. That way, managers and employees are no longer passing around a spreadsheet and tracking goals through email. Performance reviews become dynamic and help employees progress in their careers.
When it comes time to review annual compensation and bonuses, software makes it easier for performance review committees to track individual progress and how people map to others in their departments or the company as a whole.
Lowering turnover isn’t an insurmountable task. There are small changes that can make a big difference in retention—once the business has data-driven insights into turnover trends and can develop solutions aimed at the particular problems driving good employees out the door.