Turnover is a serious problem for business today.
Many companies are finding it more difficult to retain employees as the economy and job market improves. Baby boomers are also retiring in increasing numbers. The employment culture is changing as well. It is now common to change jobs every few years, rather than grow with one company throughout one’s employment life, as was the case with our fathers and mothers. Employees are also increasingly demanding a balance between work and family life.
Turnover costs for many organizations are very high and can significantly affect the financial performance of an organization. Direct costs include recruitment, selection and training of new people, with a phenomenal cost of time and expense. Indirect costs include increased workloads and overtime expenses for coworkers and reduced productivity associated with low employee morale.
Costs vary from organization to organization, some as low as a few hundred dollars to as high as four times the annual salary of the employee. This tool can help you calculate the cost of replacing an employee.
It has been estimated that, on average, it costs a company one-third of a new hire’s annual salary to replace an employee. At Missouri’s 2015 minimum wage of $7.65 an hour, the cost to replace just one employee is more than $5,000.
Causes.
1. Rude behavior. Studies have shown that everyday indignities have an adverse affect on productivity and result in good employees quitting. Rudeness, assigning blame, back-biting, playing favorites and retaliations are among reasons that aggravate employee turnover. Feeling resentful and mistreated is not an enticement for a good work environment. 2. Work-life imbalance. Increasing with economic pressures, organizations continue to demand that one person do the work of two or more people. This is especially true when an organization downsizes or restructures, resulting in longer hours and weekend work. Employees are forced to choose between a personal life and a work life. This does not sit well with the current, younger workforce, and this is compounded when both spouses or significant others work. 3. The job did not meet expectations. It has become all too common for a job to significantly vary from the initial description and what was promised during the interviewing stage. When this happens it can lead to mistrust. The employee starts to think, “What else are they not being truthful about?” When trust is missing, there can be no real employee ownership. 4. Employee misalignment. Organizations should never hire employees (internal or external) unless they are qualified for the job and in sync with the culture and goals of the organization. Managers should not try to force a fit when there is none. This is like trying to force a size-nine foot into a size-eight shoe. Neither management nor employee will be happy, and it usually ends badly. 5. Feeling undervalued. Everyone wants to be recognized and rewarded for a job well done. It’s part of our nature. Recognition does not have to be monetary. The most effective recognition is sincere appreciation. Recognizing employees is not simply a nice thing to do but an effective way to communicate appreciation for positive effort, while also reinforcing those actions and behaviors. 6. Coaching and feedback are lacking. Effective managers know how to help employees improve their performance and consistently give coaching and feedback to all employees. Ineffective managers put off giving feedback to employees even though they instinctively know that giving and getting honest feedback is essential for growth and building successful teams and organizations. 7. Decision-making ability is lacking. Far too many managers micromanage to the level of minutia. Micromanagers appear insecure regarding their employees’ ability to perform their jobs without the manager directing every move. Organizations need employees to have ownership and be empowered! Empowered employees have the freedom to make suggestions and decisions. Today “empowerment” seems to be a catch-all term for many ideas about employee authority and responsibility. However, as a broad definition, it means an organization gives employees latitude to do their jobs by placing trust in them. Employees, in turn, accept that responsibility and embrace that trust with enthusiasm and pride of ownership. 8. People skills are inadequate. Many managers were promoted because they did their jobs very well and got results. However, that doesn’t mean they know how to lead. Leaders aren’t born—they are made. People skills can be learned and developed, but it really helps if a manager has a natural ability to get along with people and motivate them. Managers should lead by example, reward by deed. 9. Organizational instability. Management’s constant reorganization, changing direction and shuffling people around disconnects employees from the organization’s purpose. Employees don’t know what’s going on, what the priorities are or what they should be doing. This causes frustration leading to confusion and inefficiencies. 10. Raises and promotions frozen. Over the years, studies have shown that money isn’t usually the primary reason people leave an organization, but it does rank high when an employee can find a job earning 20 to 25 percent more elsewhere. Raises and promotions are often frozen for economic reasons but are slow to be resumed after the crisis has passed. Organizations may not have a goal to offer the best compensation in their area, but if they don’t, they better pay competitive wages and benefits while making their employees feel valued! This is a critical combination. 11. Faith and confidence shaken. When employees are asked to do more and more, they see less evidence that they will ultimately share in the fruits of their labor. When revenues and profits increase along with workload, organizations should take another look at their overall compensation packages. Employees know when a company is doing well, and they expect to be considered as critical enablers of that success. Organizations need to stop talking about employees being their most important asset while treating them as consumables or something less than valuable. If an organization wants empowered employees putting out quality products at a pace that meets customer demand, they need to demonstrate appreciation through actions. 12. Growth opportunities not available. A lot of good talent can be lost if the employees feel trapped in dead-end positions. Often talented individuals are forced to job-hop from one company to another in order to grow in status and compensation. The most successful organizations find ways to help employees develop new skills and responsibilities in their current positions and position them for future advancement within the enterprise. Employees who can see a potential for growth and comparable compensation are more inclined to stay with an organization

Take these steps to develop a retention strategy: * Assess the current situation and measure the turnover rate in your company. Turnover is calculated by dividing the number of annual terminations by the average number of employees in the work force. * Measure the true cost of turnover. * Develop retention strategies and plan for expected turnover and a changing workforce culture. Employers must recognize that quality of work life is becoming more important to employees of all ages.
Initial steps to reduce turnover * Hire the right people and continue to develop their careers. Does your company have ongoing career development, tuition reimbursement or skills training programs? An investment in upgrading the workforce is one of the best investments you will ever make when looking at long-term growth. Hiring people that are a good fit with your culture— meaning their values, principles and goals clearly match those of your company — and then training as necessary will go a long way toward ensuring employee loyalty and retention. * Develop an employee oriented culture. Most companies with low turnover rates are employee oriented. They solicit input and involvement from all employees and maintain a true open-door policy, avoiding closed-door meetings as much as possible. Employees are given the opportunity for advancement and not micro-managed. And rewards are critical. Employees must believe they have a voice and are recognized for their contribution. Remember that trust and loyalty are a two-way street. Does your company’s culture encourage open communication and employee input? * Develop an overall strategic compensation package. This should include not only base and variable pay scales, but long-term incentive compensation, bonus and gain-sharing plans, benefit plans to address health and welfare issues, non-cash rewards and perks, too. To be competitive in today’s labor market, most companies find it necessary to offer a standard benefit package, including health, dental and life insurance, vacation and leave policies, investment and retirement plans. Many small companies cannot afford such a complete package. But what more could be done cost effectively toward creating an employee-oriented work environment? * Explore creative options. Creativity in compensation and benefits can make quite a difference to the welfare of the employee. For instance, if employee welfare is a genuine concern, what about child care? How much employee absenteeism is attributable to not having a dependable babysitter? Although the costs and liabilities involved in providing onsite day care can be prohibitive, perhaps you could subsidize childcare in some manner. Sometimes just negotiating rates for your employees with area childcare providers could be helpful. Maybe some kind of a company match would be possible. Household chore assistance is another possibility being used by some companies. * Consider other options such as alternative work schedules, flextime, preventative health care and wellness programs such as fitness center memberships as possible cost-effective benefits. Perks or non-cash rewards to recognize exceptional performance can be critical. Service recognition, event tickets, trips and public recognition can send strong messages regarding company culture and values. Try to examine the issues and needs of your employees to develop creative programs to address these needs.
Although costs associated with some of these suggestions may seem prohibitive, as well they may be, you must evaluate the costs of current turnover, analyze the reasons for your individual organization and develop strategies that in the long term are less costly than continued turnover. Some of these suggestions may not be so costly in comparison.
A word of caution. Be fair and consistent in establishing compensation. Promote from within if possible. Attempt to avoid bringing new people on board at a higher rate than current employees. Policies to prevent discussion of wages simply do not work. Furthermore, such policies are in complete opposition to open-door communications.
Although many companies use contract employees to address fluctuations in business, working side by side with someone who is making twice the rate of pay without any commitment or loyalty to the company can be a real morale killer. Avoid this if at all possible.
If your company follows these steps and shows genuine concern for employee well-being, you may not have to pay the highest wages in town to have the lowest employee turnover rate.