According to the CIPD, employee turnover refers to the proportion of employees who leave an organisation over a set period of time. A large-scale, pre-pandemic research concluded that more than 25% of US employees would change employers within a year, incurring a mind boggling $600 billion cost for employers. While the average employee turnover rate may differ based on industry, geography, and job market, it is a global phenomenon that deserves to be a key consideration for all HR and business leaders.
Understanding turnover costing
High employee turnover is a major people issue, as it can have many monetary repercussions for an organisation. While the specifics are out of this article’s scope, here is a list of related costs that will help you realise the importance of actively managing your turnover rate:
- Processing a termination
- Finding a temporary cover for the leaver
- Recruiting a replacement
- Training the new joiner to get up to speed
Measuring employee turnover
The first step to reducing your turnover is making sure you gather accurate data on the issue. We suggest starting from tracking overall turnover by applying the below formula:
- Turnover Rate = (All leavers in a period of time / average employee count) x 100
- Overall turnover accounts for all your leavers, namely voluntary and involuntary.
However, not all turnover is bad for a business, so we suggest breaking down your data further to get more valuable insights. Given that unplanned departures are the ones most likely to have a negative impact on a business, it is recommended to focus on voluntary turnover, i.e. resignations. To do this, you can use the below formula:
- Voluntary Turnover Rate = (Resignations in a period of time / average employee count) x 100
Tracking the above data at regular intervals as well as before and after major people-related events will reveal your strengths and areas for improvement, allowing you to make informed decisions.
Employee turnover is an important HR metric. We really like good metrics here at Jobylon and have put together a free guide on 7 important recruitment metrics that we think you might like. You can get it for free by clicking the button (and don't worry, you can come back and finish this blog post right after 💙 )
Understanding why your people leave
Once you know the extent of your employee turnover, you are ready to start taking action. Now is the time to get a deep understanding of why your people leave. Generally, employees leave an organisation for either “push” or “pull” reasons.
Push reasons include dissatisfaction with any element of their job, including their pay, the relationship with their manager, and their scope of work. All these factors are internal, i.e. related to your business. On the other hand, pull reasons are related to the steps that other employers may take to lure your workforce away. Therefore, pull factors are external.
The best and most popular practice to collect relevant turnover data from your leavers is conducting exit interviews. Since this is a sensitive topic, some employees may be reluctant to share their thoughts openly. Using an external provider to collect this data anonymously can be an effective solution to this issue, helping leavers feel more comfortable to open up and share areas for improvement.
While the above exercise is the only way to get a detailed understanding of your people, high turnover is always related to one or more HR issues, such as:
- Recruitment: hiring the wrong people
- Induction: setting up new joiners to fail
- Compensation & benefits: not paying in a competitive and fair way
- Flexibility: failing to offer flexible working solutions to your workforce
- Performance management: evaluating performance in a biased and unfair way
- Career progression: offering irrelevant or non-existent career paths
- Culture: providing a sub-par working environment
- DEI: lacking in diversity and inclusion
Moving on, we will present you with a variety of HR best practices that you can use to reduce turnover. Read through and apply the ones that are relevant to your organisation.
- Hire your best staff
- Invest in meaningful onboarding
- Provide a competitive and fair pay
- Offer your people flexible working
Modernise performance management
- Help your people grow
- Champion a happy culture
- Be a Diversity & Inclusion leader
- Bonus: Give Employees a voice
Reducing employee turnover
1. Hire your best staff
Building a low turnover workforce should start at the beginning of the employee lifecycle. To put it simply, if you hire the wrong people, the working relationship is doomed to fail. How to enhance your selection approach, you ask?
We suggest keeping in mind the holy trinity of recruitment:
- Ability: Can the candidate do the job?
- Drive: Will the candidate do the job?
- Cultural fit: Does the applicant match with our values and ways of working?
2. Invest in meaningful onboarding
One of the most common HR mistakes is seeing onboarding as a checklist, neglecting its importance in setting someone up for success. If done right, the onboarding process can help new joiners to feel “at home” as soon as possible, preventing alienation. Make sure your induction process is designed around the below pillars as suggested by Gallup:
- Employees learn the company’s unique selling points
- New joiners learn how their job help fulfil the company’s mission
- Employees experience the mission and values of the company
Then, use your specific requirements based on geography, industry, and size to refine your process further.
3. Provide a competitive and fair pay
Compensation & Benefits are fundamental elements of any great employee experience. Even if each individual has their own motivators, everyone expects reward and recognition for their efforts. We suggest adopting a sophisticated reward management framework consisting of salary, bonuses, and benefits.
Most effective reward management models are based on the below pillars:
- Compensation philosophy: a clear and transparent compensation story for your people based on your mission, vision, and values.
- Market alignment: an accurate benchmarking for each role based on external data
- Seniority and expertise: tailoring the compensation package for each role based on the level of the job and the expertise of the employee
- Performance: rewarding high performance using bonuses
- Benefits: supplementing your reward packages with relevant benefits based on the needs of your workforce
4. Offer your people flexible working
The vast majority of knowledge jobs don’t require an employee’s physical presence in the office. However, many employers are failing to adjust to a flexible working model, even for employees who performed their job successfully on a remote basis during the pandemic. Flexibility may be one of the key reasons for the current Great Resignation, so best-in-class HR departments retain their top talent through sophisticated flexible working options.
You can think of flexible working in 2 ways:
- Flexible location, e.g. working from home
- Flexible time, e.g. not strictly 9-5
5. Modernise performance management
Traditional performance management systems are flawed. Firstly, a biannual process doesn’t cut it in a business world where people have to move at a high pace. Then, line managers may develop a subjective and biased opinion for team members, favouring some in the expense of others.
We suggest a modern approach to performance management based on the below elements:
- Providing anti-bias training to all line managers
- Offering ongoing feedback to all employees
- Moving away from a rigid process to informal conversations
6. Help your people grow
It is no secret that top talent is motivated by career progression. However, while all employers claim to offer career growth, this is not always the case. From big corporations with complicated and unclear talent processes to early start-ups with a chaotic approach to developing their people, career progression is an area for improvement for many employers.
The key to a successful career progression approach is tailoring it to your people, which is why it is important to keep in mind the below:
- Offer many career options, e.g. technical vs management
- Design clear and transparent career paths across the organisation
- Provide on the job training by allowing employees to work on their areas of interest
- Offer certifications and formal training when this is relevant
- Adopt a structured succession planning approach
7. Champion a happy culture
According to the legendary management consultant Peter Drucker, “culture eats strategy for breakfast”. However, despite culture’s importance for any organisation, many employers don’t invest the effort required to build and maintain a culture that allows their people to thrive. Regardless of your unique business needs, encourage a culture praising hard work in line with your values, marginalising toxic behaviours, and accommodating all generations.
8. Be a Diversity & Inclusion leader
Diversity & Inclusion is (finally) in the spotlight. However, while organisations are making efforts to educate their workforce, we still have a long way to go. For example, there are only 4 black CEOs in the Fortune 500. We suggest reducing your voluntary turnover by making sure that all your employees are equally appreciated regardless of their background.
9. Bonus: Give Employees a voice
In his classic book “Exit, Voice, and Loyalty”, Albert Hirschman proposed that when workers find themselves in an unsatisfactory employment situation, they voice their concerns to resolve issues or quit. Indeed, research has proven that when employers give staff a voice, it reduces turnover. Introducing an employee satisfaction survey is the first step to give employees a voice, however, it’s not enough. The most important element to build trust and engagement is to dedicate the resources to follow up on requests, so that you can resolve issues and retain your talent.