How to measure employee turnover rates to ensure you retain your organization’s most valuable talent
November 1, 2018
When it comes to employee turnover, there is no magic number. This leaves many organizations begging the question: How high is too high? But, equally important, for organizations with low turnover is the question: how low is too low?
While calculating employee turnover is a critical task, it’s the tip of the iceberg. High employee turnover can be caused by low morale and ineffective talent management strategies. But it could also be the result of an effective HR strategy targeting low performing individuals with poor productivity rates.
Rather than focus just on how many people are leaving annually, the better question for HR
managers to ask is: who is leaving the organization? Are they top producers or low performers? It isn’t just a matter of how many people are leaving your organization, it’s who is choosing to leave. High employee turnover is one side of a two-faced coin. Equally detrimental is low employee turnover in a workforce populated by hangers-on.
In a nutshell, turnover can be functional—when low-performing employees leave an organization—or dysfunctional—when top performers or other highly skilled employees leave.
Technology is helping organizations to leverage their turnover metrics and calculations to go beyond the basic numbers. HR platforms can weed out low performing individuals from the top performers. Furthermore, they can provide metrics to evaluate employee retention strategies, even predict employee attrition.
Simply put, dysfunctional turnover can be avoided by making sure that your top performers are happy with their jobs and feel satisfied.
But there is an incredible potential benefit for those organizations who choose to take a hard look at why their low performers are low performers, before simply writing them off.
Is an individual performing badly because your organization’s HR processes have failed to identify an upward growth trajectory for that person? Are your recognition efforts failing? Are salary packages out of balance? Is their skillset and expertise best suited to the position they are in or would they be better suited to another position?
Asking questions like these will help you to pinpoint where HR initiatives may be contributing to dysfunctional turnover. A careful evaluation of the population of low performers could identify potential top performers already within the organization.
Causes of employee turnover
According to a Gallup study, there are four main reasons why an individual will choose to leave a company:
The first reason is the lack of balance between salary and group accountability. Employees who consider themselves more qualified, effective and accountable than others expect their salaries to reflect their greater contribution to the company.
Another reason is employee recognition (or lack thereof ). John Dewey, American philosopher and psychologist born in 1859, said that “The deepest urge in human nature is the desire to be important.” From HR’s standpoint, being important is not just about the corner office, job title, or even the highest salary. It is tied to their efforts to make each employee feel important. Recognition makes employees feel important. It is fundamental to make your top performers feel appreciated when they are efficient, innovative, and productive.
The lack of growth and learning opportunities is also a big contributing factor to top performers choosing to leave a company. Austrian psychologist Sigmund Freud emphasized that everything that an individual does in life is driven by “the desire to be great” Organizations that help their employees to “be great” are more likely to retain their top performers. Gallup explains that employee turnover is 19% lower in companies where managers assign an individual to the right position and where they discuss employee progress and objectives.
The fourth reason is the presence of a friend in the group. There is an 18% lower turnover per year in teams where some of the members are friends.
Calculating turnover rates
The employee turnover rate is calculated by taking into account new employees and those people who leave the company in relation to the average number of employees over a certain period of time. Steps to calculate the turnover rate:
Over the period of one year, in a company with 150 employees, if 20 people are new hires
and 10 have left the organization, the employee turnover rate is 13% (20-10/150 *100).
However, the 13% turnover rate in our example in and of itself doesn’t say much. One of the first things an HR manager can do is understand how their organization’s employee turnover rate compares to their industry peers. By comparing your organization’s performance to that of your closest competitors, ideally the top five industry leaders, you can establish a benchmark to set a turnover goal that is neither too high, nor too low.
With your employee turnover rate and an industry benchmark in hand, you are ready to calculate the other critical metrics for a truly holistic view of employee turnover in your company, enabling you to predict employee attrition and develop more effective employee retention strategies.
Employee turnover versus retention
Retention/turnover was the top workforce management challenge cited by 47% of HR professionals surveyed by the Society for Human Resource Management (SHRM) in 2018.
There are two primary HR metrics that can give leaders a more holistic view of employee
performance and job satisfaction. They are turnover and retention rates. They are calculated differently but complement one another.
What metrics are you tracking?
The basics: Employee turnover
- 1. Overall turnover rate
- 2. Voluntary turnover (functional versus dysfunctional voluntary turnover)
- 3. Involuntary turnover
Employee retention: top performers versus low performers
- 1. Overall retention rate
- 2. Retention rate of high performers
- 3. Retention rate of low performers
Completing the picture: two more factors
- 1. Feedback from employees and managers
- 2. Turnover costs
Overall turnover rate
Turnover rate refers to the percentage of employees that leave the company and the recruiting of new ones to replace them. Employee turnover can be attributed to different factors depending on the employees and the company’s situation.
This happens when an employee decides to leave and the company needs to fill the position. Richard Branson, founder of Virgin Group, says “Train people well enough so they can leave, treat them well enough so they don’t want to.” The more recognition your top performers get, the more likely it is that they will choose to stay.
Remember: the goal is functional turnover, not dysfunctional turnover, so depending on what type of employee those individuals are, their choice to leave your company determines whether it is a bad thing—or not—for the organization.
In this situation, the organization decides whether the employee stays or leaves. The company is prepared to let the person go, and it is not an unexpected situation. Reasons may vary, ranging from budget cuts, organization restructuring, poor performance or behavioral problems.
Overall retention rate: top performers versus low performers
An organizations retention rate measures how well—or how poorly—an organization retains its
But like turnover, it’s not just about how many employees you retain but rather which employees you are retaining.
Top performers are drawn to high-performance cultures. They will choose to stay in cultures and organizations that reward high expectations. Likewise, low performers tend to
voluntarily leave high-performance cultures.
The underlying goal for effective HR strategies is to create a positive turnover for low performers
and improve retention rates of top performers. Key factors that influence retention rates include
employee engagement and motivation, salary expectations, and recognition, flexible
workplaces, and the manager-employee relationship.
Feedback from employees and managers
Unlike all the other metrics on this list, feedback from managers and employees on your retention rate and other HR metrics is arguably the softest one. However, it is critical to understand what your managers and employees have to say about your HR policies designed to foster retention and lower employee turnover.
According to one study which analyzed 30 case studies taken from the 11 most-relevant research papers on the costs of employee turnover, it costs businesses about one-fifth of a worker’s salary to replace that worker. More complex jobs or positions that require higher levels of education and specialized training have even higher turnover costs. Managerial positions can cost an organization over 200% of an individual’s salary to replace a person. Recruiting and hiring expenses, overtime pay for personnel who pitches in to cover for co-workers who leave and production losses contribute to the high costs of turnover.
HR metrics provide valuable insights into what your organization’s turnover rate really means,
pinpointing areas in need of improvement and whether employee retention strategies are delivering expected results.
Understanding your employee turnover and retention data can help you make informed decisions about how to improve HR strategies and initiatives that make your organization more attractive for high-quality candidates and a place top performing employees choose to stay.
With StarMeUp, organizations can closely track employee behavior and performance. This
technology makes it easy to gather measure the performance of your top performers—and your low performers—so you can design HR strategies to retain an organization’s most valuable talent, striking a healthy balance between talent management and organizational culture.