LTT Business Bulletin - August 2017
More from LTT
Mel Tunbridge, Principal at Agile People Partners, identifies
the key things you should know about your employee turnover
Turnover – not the $$ kind, the employee kind. One of the constant issues organisations face that is industry agnostic is employee turnover – how much is too much? Various % figures are bandied around as optimum per industry and these can vary greatly depending on the data source. If too much turnover is an issue, surely no turnover is perfect then? Probably not.
Let’s start with a definition of employee turnover. I’m going to borrow a simple one from the Small Business Chronicles;
Employee turnover refers to the number or percentage of workers who leave an organization and are replaced by new employees. Measuring employee turnover can be helpful to employers that want to examine reasons for turnover or estimate the cost-to-hire for budget purposes.
There are two main categories of turnover: voluntary turnover is when an employee quits; involuntary turnover is when an employee is laid off or fired.
For the purposes of this article we are going to exclude promotions and internal transfers to other roles within the business. I’m going to add those into the workforce planning bucket – rest assured this is still a bucket of data well worth tracking and measuring.
The calculation of employee turnover is simple in itself. The most commonly accepted calculations is as follows:
employee turnover = number of separations / average number of employees.
The problem is real. Research by Price Waterhouse Coopers (PWC) found Australia came last in a list of 11 developed countries when it came to staff leaving within 1 year at 23%. So nearly 1 in 4 new employee’s leaves their job before their first 12 months is up! The cost is estimated to be at least that employee’s annual salary in lost productivity, not to even mention the cost associated with recruitment and replacement – you do the math!
I’ve had one client who had in excess of 100% turnover annually. The reason they had sought out my services was around trying to make a cultural shift in the organisation and issues making it “stick”. Once we got a reliable data source and I could demonstrate categorically the turnover figures annually, the CEO was flabbergasted. Much ranting, raving and “why has no one informed me of this?” I won’t repeat what he said when I attached the impact to the bottom line! I cut that meeting short and rescheduled for a few days later. I only asked 3 questions:
- How could you not have suspected, even intuitively, that there was a high turnover?
- What are you prepared to change to rectify the issue?
- Why are people leaving?
In the example mentioned above, it was a simple case of employees being promised all sorts of fabulous things in the recruitment process, but once inside, and the glossy romance of the new role had begun to tarnish, the reality was far from the promises. Like meeting someone online and when you turn up to that first date you realise that profile picture is one taken 10 years ago! Once we started a consistent, honest, and warts and all script in the recruitment process, and the people coming in had already bought into that, the turnover bleeding started to stem. We agreed on some targets, measured quarterly for the next year and now they have an agreed annual turnover target that they feel is appropriate for their business.
Turnover statistics become increasingly important when employees are waiting to see what that annual review/salary increase or bonus looks like. A study completed by the Australian Human Resources Institute, found that the average employee turnover rate in Australia is approximately 16%.
In my experience, issues such as turnover (either too much or not enough) are not ones requiring complex, high tech solutions. And, moreover, throwing more cash at employees rarely works long term, gone is the era of “golden handcuffs”. Employees are demanding more! Often, just shining a constant light on the data can make a shift in itself – the old “what gets measured gets done” theory.
Ask yourself these questions:
- Do you have an agreed and consistent definition of “turnover” in your business? For example: does it include internal promotions and movements? Does it include or exclude redundancies, etc?
- Do you know what appropriate turnover levels are for your organisation? (it might be different from your industry norm for a variety of reasons)
- Do you know who you are willing to lose v’s not? And what are you doing to manage that?
- And if nothing else, do you have a reliable data source?
It’s well over time to begin the turnover conversation in your business. Just tracking the statistics is not enough.