Employee engagement

How high employee turnover hurts your company

High employee turnover hurts the business bottom line. It’s estimated that the average cost of a lost employee is 38 percent of the employee's annual salary. Considering the average income in the U.S. is $50 000 a year, that’s a $19,000 per person. When employees leave, the ripple effect can be felt throughout the company. Lost knowledge, training costs, interviewing costs, and recruitment costs all add up, and companies cannot afford to ignore the long term implications high employee turnover has on the success of the business. As soon as an organisation takes the time to consider high churn rates, it starts to focus its narrative on compensation, benefits, training, development, engagement, and morale boosting activities. This leads to a highly motivated, and engaged workforce.

Today, it’s uncommon for an employee to remain at a company for more than 5 years. In a survey by the Bureau of Labor Statistics it found that the average time an employee spent at a company in 2014 was three times higher (10 years versus 3 years) amongst employees between the ages of 55 and 64, than those between the ages of 25 to 34. Companies cannot prevent their employees leaving for the ubiquitous greener pastures, however there are means and ways of preventing the inevitable. Factors such as lack of training, ineffective leadership, and employee communication can all pave the way to the exit door. Companies need to shift their focus to their employees in order to be successful in the long run.

1. Lack of training

Employee retention strategies begin right from when the new employee steps through the door. On boarding is an important process as it ensures employees have the necessary knowledge, skills and behaviours needed to become successful in the long term. By introducing them to the mission and the values of the company, new arrivals can adopt company wide practices quicker. When a company implements a successful on boarding program, they experience 54 percent greater productivity and 50 percent greater retention.

But on boarding is only one part of the employee training cake. Once employees have been through the on boarding, and familiarize themselves with the company, and their role, they may become disengaged due to lack of training opportunities. Employees today want to develop themselves into the best that they can be. They want to expand and polish their skills, abilities, and experiences. In a recent survey, it indicated that 40 percent of employees who receive poor job training left their position within the first year. Employees who feel restrained or get bored will eventually start looking elsewhere to fulfil their advancement needs. Well trained employees help increase productivity and profitability because training helps solve the potential performance problems of the job. Employees who are trained, develop more rounded skills to help them contribute more to the company.

2. Ineffective leadership

There is a long standing belief that employees don’t leave their jobs, but rather their managers. Leaders who do not create the right opportunities for their employees, don't communicate with them, and don't appreciate them often leads to a high turnover rate. Bad leadership can also be felt throughout the entire organization – only not in a good way. Corporate culture becomes a meaningless term where leaders claim it exists while employees shake their heads in frustration. There is a lack of clear, consistent communication from leadership to the employees. As a result, the office is run by rumour mill, politics and gamesmanship. Employees are uncertain of the company’s goals and objectives for success and they have no idea how they fit into that picture, or what their level of importance is toward making it happen. Employees who feel comfortable with their leaders, often feel more engaged and inspired. The right leader is someone who is able to inspire, motivate and coach their workforce. They often seek opportunities for their delegates and support them in their ongoing development in the workplace. When a company has good leaders, communication is daily and open. Every employee clearly understand the vision and the goals of the organisation, and everyone has input into how they can be improved. Employees also feel that they are important and that their job matters within the company.

3. Lack of communication

Communicating with employees, empowering them and creating a culture for them to thrive are all fundamental parts to retention. When important decisions are made by the C-suite, employees and management are generally left in the dark. Lacking of answers deter top management from providing the information that employees need. Creating a structured communication process that informs, emphasizes and affirms the employee's actions in the workplace all contribute to keeping churn rates low. Communicating is a skill that should come naturally, however it can be the hardest skill to learn. When managing employees, it’s important to keep all communication channels open). Being aware of the questions, concerns and fears that employees might have, and, pro actively communicating answers, will build transparency and trust, and lead to a keeping retention low.

As seen from the above, a certain responsibilities are on business leaders to solve. Once a business is able to overcome these challenges, it becomes difficult for employees to leave the organisation. But without understanding there whether or not there is a issue to solve, its a good idea to determine how high your turnover is in the first place.

Turnover is calculated by dividing the amount of people who left the organisation by the number of employees currently at the organisation over a given period (usually a year).

(number of people who left ÷ people currently employed) x 100

For example: 7 people leave in 2015, and there is currently 100 people the organisation.

(7÷100) x 100= 7% 
7% turnover rate per year.

Here were the averages per industry (U.S) in 2015:

All Industries: 15.6%

Banking & Finance: 17.2%

Healthcare: 16.8%

Hospitality: 29.3%

Insurance: 10.4%

Manufacturing & Distribution: 13.3%

Not-for-Profit: 15.3%

Services: 15.2%

Utilities: 7.2%

According to a Gallup report, a good number a company should aim to achieve is 10 percent. However, this is based on Jack Welch’s performance management system of stack ranking, which today is seen as old and outdated (even GE is throwing it out). In reality, if 10 percent of the high performers are leaving, the business ends up having a serious problem. One of the first things a company can do to understand their turnover rates in more detail is to track it by a performance quartile. To do this, clearly track turnover by each quarter. Set clear and objective measures of productivity. And determine which employees are performing the best in each department.

Regularly check people's engagement to understand how each individual is feeling towards their goals. Do this by implementing a bi weekly check in, where managers schedule a time for each one of their delegates to simply open up a continuous dialogue (1:1). By doing this, employees will feel more comfortable about expressing the way they feel in the workplace. When managers do this, they are able to understand the flaws in the team and act on them in a timely manner. This allows a company to become more agile and quicker to respond to business threats. What's more, from the bi-weekly check in, business leaders can understand their weaknesses, and determine what drives disengagement.

When a company implements a tool, such as Impraise, it allows them to start an engagement survey quickly, which then can draw immediate insights into the current health of the organisation. This allows them to understand where their employees may feel they need more clarification or better business practices.

 

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Photo Credit: Alexander Lam