People management: staff turnover can be costly
High staff turnover can prove costly, particularly to small businesses.
Of course, some degree of turnover is inevitable and can even be beneficial.
A trickle of leavers makes way for the recruitment of new blood and facilitates the career progression of those who remain. However, excessively high turnover can clearly be detrimental. Not only are employees costly to replace but customer service, relationships with suppliers and company performance can suffer too. If key individuals have developed a tendency to walk away then simply bemoaning the fickleness of today's employees is a poor solution.
Better, perhaps, to gauge the true extent and cost of the problem. Annual national labour turnover statistics provided by The Institute of Personnel and Development (IPD) can give employers some feel for normal levels of turnover. Using the standard crude wastage method, labour turnover is calculated as number of leavers in a set period divided by average number employed in that period x 100. While this method has some disadvantages (it takes no account, for example, of the length of service of the leaver) it does give companies a clear warning of excessively high turnover rates.
Of the different occupational groups, the lowest level of turnover, at 12%, is found within management and administrative groups. The highest rates, almost twice as much, are found among sales staff and the unskilled.
The average cost of replacing a salesperson, according to the IPD research, is £2,500, while the cost of hiring an unskilled operative can exceed £800. These estimates are based on a broad view of leaving costs which include personnel administration of the leaver; replacement costs (recruitment, interview time), transition costs (training time, unproductive time while learning, induction) and indirect costs (loss in customer service/satisfaction). While the specific figures are debatable, the general implication is clear: excessive staff turnover probably costs more than you think.
High turnover is usually a function of negative job attitudes and/or low job satisfaction, combined with an ability to secure employment elsewhere.
If your turnover seems excessive, it is worth re-examining not just pay but also your recruitment and induction process, career development opportunities and staff morale. Statistics show that one-fifth of employees who quit do so within the first six months of employment. Reasons for this rapid departure may include poor induction, over-qualification or a misconception about the job. Given the high costs of staff turnover, it makes sense to give prospective employees a truly realistic view of what they will be expected to do.
Exiting employees often complain that the job they were asked to perform bore little relation to that described at interview. Enabling the job candidate to interview current staff, particularly those who have done the job before, may bring expectations back down to earth.
Canvassing existing employee views on the induction process, job fit and job satisfaction could provide a few pointers on why people leave.
All current research suggests that pay alone is rarely the sole cause of rapid turnover. The exodus may be caused by problems in the working environment which could, if known, be alleviated.
In addition, exit interviews provide a vital tool in discovering, albeit too late, the reasons for departure. Exit interviews consist of a 'farewell form' designed to capture information not only about the person's reason for leaving but attitudes towards the company and immediate supervisor.
The leaver should also be given the opportunity to discuss their feedback with a manager who is not necessarily their immediate boss. Questions can range from: Was the job/were the duties described to you fairly when you started? to Would you recommend this company to others? Exit interviews may seem irrelevant when faced with the urgent matter of filling job vacancies, but a vital step in improved labour retention is to adopt a structured approach to discovering why people leave.
Judith Oliver is a contributing editor for Management Today.