Employee Turnover Trends

Minimizing turnover at the workplace has long been held as conventional wisdom that almost goes without saying.

Lately more companies are taking the approach that managing turnover in terms of keeping it low just for the sake of having a low turnover rate is not necessarily the most profitable practice.

Instead of managing turnover and giving equal value to all employees the notion is that retention efforts should be focused on certain types of employees rather than across the board.

For example, at Applebee's their system doesn't reward managers for keeping turnover low, it rewards them for keeping turnover low for top-performing employees. In their case the company divides its employees into three groups: the top 20 percent, the middle 60 percent, and the bottom 20 percent. (The 20/60/20 approach.)

With the retention efforts of their managers focused on the top 80 percent of employees the company doesn't even set retention goals for the bottom 20 percent. Many of those in the bottom percentage will leave and be replaced by a new group of hires, some of whom may turn out to become top-performers.

Turnover usually rises during economic expansions and falls during recession, in an inverse proportion to the unemployment rate. Today we are experiencing ongoing soft labor markets and unusually low quit rates.

In this environment the trend is that many companies are more concerned with the turnover rate being too low rather than too high.

With a heightened concern about wrongful termination lawsuits managers can sometimes be reluctant to release poor performers, and this in turn may lead to a loss in competitiveness.

Some advantages of higher turnover rates are in introducing new talent, and cost savings through resetting salaries and other measures. In some cases employers must replace old skill sets with new ones as technology or the customer base changes, or for a different demographic mix or a better distribution of age groups.

To facilitate this some companies are now moving towards semiannual or even quarterly reviews to speed up the process of terminating low performers or employees who can't step up to meet new requirements of the company.

The trend seems to be that workforce management executives are more likely to think that unless they are creating "churn" in their turnover they are facing a situation of ongoing inflated labor costs and stagnation.

More About Employee Turnover

One of the main financial benefits of turnover is that it provides an opportunity to reset salaries.

As employees at the high end of the pay structure leave, cost savings are typically seen when a company brings in a replacement at a lower rate, or promotes from within and lowers the rate for that employee's replacement.

Turnover can also produce substantial savings in employee benefit programs, especially when younger workers replace older workers. Most of the higher costs of benefit programs come from health care premiums, which are age-related.

Jamie Hale, senior consultant at Watson Wyatt predicts that total benefit costs for older workers are generally around 20 percent higher than for younger workers.

Some other savings that can be seen by turnover are annual bonuses that are not paid, open-position savings, and the value of any performance improvements that might result.

Of course there are costs, as well as savings, involved in any turnover equation.

In the past "turnover cost calculators" have provided input for financial costs, but no inputs for financial gain.

In making turnover calculations now companies are more often aware that a standard cost/benefit analysis cannot be provided for when the focus is only on the cost side of the equation and does not include the benefit side.

When both costs and benefits are considered a more realistic cost/benefit analysis can be reached, and as a result turnover is now often viewed in a different light.

By documenting all of the savings produced by turnover as well as the costs, companies now can manage turnover levels so that financial gains outweigh the losses.

Summary

Too much recruitment and training costs employers money, but so does a workforce stacked with stale managers and unmotivated employees.

At least in this climate of soft labor markets and low quit rates turnover is now more likely to be seen as an opportunity for bringing in fresh talent into a workforce while at the same time extracting savings by lowering labor costs and adjusting benefits packages.

But even without current labor market conditions, employers are taking a new look at controlling and managing turnover in a more comprehensive way.