Turnover is a normal workplace occurrence, but it’s one that comes at a steep price. According to the Huffington Post, a paper from the Center for American Progress which cites 11 research papers published over a 15-year period determined that the average economic cost to a company of turning over a highly skilled job is 213% of the cost of one year’s compensation for that role.
In today’s tight job market, where unemployment is extremely low, it can be tempting to think your employees won’t leave. Where would they go? In reality, the competition for top talent drives competitors to invest in human capital as a growth strategy.
Aside from the hard costs of replacing an employee, there are often even steeper risks. In fact, the risks of turnover extend far into the organization where the loss of institutional knowledge or far greater losses can occur, such as when customers leave to follow a trusted employee to their new place of business. The risks become even greater when an employee is terminated. We’ve all heard stories of employees jeopardizing customer relationships, theft of company property or trade secrets, and performing acts of revenge (recall the Twitter employee who hid Donald Trump’s Twitter account).
In short, the risks of employee turnover can cause harm to people, brands, and profits. So, it’s worth having a plan.
Let’s look at where we stand with turnover today. Catalyst recently provided a highly useful “Quick Take” on employee turnover and retention, Catalyst, Quick Take: Turnover and Retention (May 23, 2018), the results of which are summarized here:
The State of Employee Turnover:
- In 2016, the global voluntary turnover rate was 9.6%. Functions with the highest turnover globally include finance (12.7%), sales (12.6%), and HR (10.9%).
- By 2030, talent shortages will significantly impact the financial and business services sector with projected shortfalls in the United States totaling $435.7 billion
- In 2016, the median length of time U.S. workers stayed with their employers was 4.2 years (a decrease of approximately .5 years from 2014).
- Employees are at highest risk for turnover in their first year with a company.
- The most commonly cited reasons for employees leaving in their first year include career development, job characteristics, wellbeing, and work-life balance.
- Some research shows that cases where an employee voluntarily leaves are preventable 75% of the time.
- Turnover is expensive. For entry and mid-level positions, the cost to replace an employee is between 30% and 150% of their annual salary. For executives, this figure can rise up to 400%.
The State of Employee Retention:
- Older employees (those between 55 and 64 years old) stay the longest. This demographic of workers stays with a given company for an average of 10.1 years, which is more than three times longer than workers between 25 and 34 years old (2.8 years).
- High-performer turnover negatively impacts company performance. Organizations with a strong reputation attract higher quality talent, but they are more impacted by the loss of that talent—high performers are more difficult to replace.
- A flexible workplace may influence whether an employee stays with your company or pursues alternatives. Flexibility, such as a family-friendly office, can drive retention, satisfaction, and morale.
Knowledge is key and could be the difference between employee churn and retention. It is important to assess the risks that often go hand-in-hand with turnover. Equally, it is important to proactively look at your current practices and identify new ways to drive employee retention.