Dear Tissy,
Here are a few observations I would like to make.
When does employee turnover become problematic?
There is no set level of employee turnover above which effects on the employing organization become damaging. Everything depends on the type of labor markets in which you compete. Where it is relatively easy to find and train new employees quickly and at relatively little cost (i.e., where the labor market is loose), it is possible to sustain high quality levels of service provision despite having a high turnover rate. By contrast, where skills are relatively scarce, where recruitment is costly, or where it takes several weeks to fill a vacancy, turnover is likely to be problematic from a management point of view. This is especially true of situations in which you are losing staff to direct competitors or where customers have developed relationships with individual employees, as is the case in many professional services organizations.
Some employee turnover positively benefits organizations. This happens whenever a poor performer is replaced by a more effective employee, and can happen when a senior retirement allows the promotion or acquisition of welcome 'fresh blood'. Moderate levels of staff turnover can also help to reduce staff costs in organizations where business levels are unpredictable month on month. In such situations when business is slack, it is straightforward to hold off filling recently created vacancies for some weeks.
Measuring employee turnover
Most organizations simply track their crude turnover rates on a month by month or year by year basis. The formula is simply:
Total number of leavers over the period x 100 divided by Average total number employed over the period
The total figure includes all leavers, even people who left involuntarily due to dismissal, redundancy, or retirement. It also makes no distinction between functional (i.e., beneficial) turnover and that which is dysfunctional.
Crude turnover figures are used by all the major surveys of employee turnover, including the major CIPD and CBI surveys that are carried out each year. So they are necessary for effective benchmarking purposes. However, it is also useful to calculate a separate figure for voluntary turnover and to consider some of the more complex employee turnover indices which take account of characteristics such as seniority and experience.
A stability index indicates the retention rate of experienced employees. Like turnover rates, this can be used across an organization as a whole or for a particular part of it. The usual calculation for the stability index is:
Number of staff with one or more years of service x 100 divided by Number employed a year ago
Costing employee turnover
It is possible to compute a 'not less than' figure very easily by working out what it costs on average to replace a leaver with a new starter in each of your major employment categories. This figure can then be multiplied by the crude turnover rate for that staff group to calculate the total annual cost of turnover. The major categories of costs to take account of are:
administration of the resignation
recruitment costs
selection costs
cost of covering during the period in which there is a vacancy
administration of the recruitment and selection process
induction training for the new employee.
Many of these costs consist of management or administrative staff time (opportunity costs) but direct costs can also be substantial where advertisements, agencies, or assessment centers are used in the recruitment process.
More complex approaches to turnover costing give a more accurate and invariably higher estimate of total costs. A widely quoted method involves estimating the relative productivity of new employees during their first weeks or months in a role and that of resignees during the period that they are working their notice.
Why do people leave organizations?
Employees resign for many different reasons. Sometimes it is the attraction of a new job or the prospect of a period outside the workforce which 'pulls' them; on other occasions, they are 'pushed' due to dissatisfaction in their present jobs to seek alternative employment.
Sometimes it is a mixture of both pull and push factors. For a fourth group, reasons for leaving are entirely explained by domestic circumstances outside the control of any employer, as is the case when someone relocates with their spouse or partner.
Recent research strongly suggests that push factors are a great deal more significant in most resignations than most managers appreciate. It is relatively rare for people to leave jobs in which they are happy, even when offered higher pay elsewhere. Most staff have a preference for stability.
It is important to appreciate that the reasons people give for their resignations are frequently untrue or only partially true. The use of exit interviews is widespread, yet they are notoriously unreliable, particularly when conducted by someone who may later be asked to write a reference for the departing employee. They are reluctant to voice criticism of their managers, colleagues, or the organization generally, preferring to give some less contentious reason for their departure.
Hope this will be of some help to you.
Cheers,
Prof. Lakshman