Reducing Turnover

The following is a list of the top reasons why people change jobs:

• The downsizing or the restructuring of an organization (54 percent)
• New challenges or opportunities that arise (30 percent)
• Poor or ineffective leadership (25 percent)
• Having a poor relationship with a manager (22 percent)
• For better work-life balance (21 percent)
• Contributions are not being recognized (21 percent)
• For better compensation and benefits (18 percent)
• For better alignment with personal and organizational values (17 percent)
• Personal strengths and capabilities are not a good fit with an organization (16 percent)
• The financial instability of an organization (13 percent)
• An organization relocated (12 percent)

In a human resources context, turnover is the rate at which employees leave an organization. Simple ways to describe it are “how long employees tend to stay” or “the rate of traffic through the revolving door.”  Staff turnover can be optimal when a poorly performing employee decides to leave an organization or dysfunctional when the high turnover rate increases the costs associated with recruiting and training new employees or if good employees consistently decide to leave. Turnover is measured for individual companies and for industries as a whole. If an employer is said to have high turnover relative to its competitors, it means that employees of that company have a shorter average tenure than those of other companies in the same industry. High turnover may be harmful to a company’s productivity if skilled workers are often leaving and the worker population contains a high percentage of novice workers.

Preventing the turnover of employees is important in any business. Without them, the business would be unsuccessful. However, according to the Bureau of Labor Statistics, more and more employers today are finding that employees remain for approximately 23 to 24 months. The Employment Policy Foundation reports that it costs a company an average of $15,000 per employee turnover, which includes separation costs such as paperwork and unemployment; vacancy costs, including overtime or temporary employees; and replacement costs including advertisement, interview time, relocation, training, and decreased productivity when colleagues depart.

Research on employee job turnover has attempted to understand the causes of individual decisions to leave an organization. It has been found that lower performance, lack of reward contingencies for performance, and better external job opportunities are the main causes. Other variables related to turnover are the conditions in the external job market, the availability of other job opportunities, and the length of employee tenure.

Providing a stimulating workplace environment, which fosters happy, motivated, and empowered individuals, lowers employee turnover and absentee rates. Creating a work environment that supports personal and professional growth promotes harmony and encouragement on all levels, so the effects are felt companywide.

Continual training and reinforcement also help to develop a workforce that is competent, consistent, competitive, effective, and efficient. Beginning on the first day of work, providing individuals with the necessary skills to perform their job is important. Before the first day, it is important for the interview and hiring process to expose new hires to the mission and culture of the company, so individuals know whether the job is a good fit and their best choice.

Networking and strategizing within the company provide ongoing performance management and help build relationships among coworkers. It is also important to motivate employees to focus on customer success, profitable growth, and the company well-being. Employers can keep their employees informed and involved by including them in future plans, new purchases, and policy changes, and by introducing new employees to the employees who have gone above and beyond in meetings. Engagement with employees—by sharing information with them or giving out recognition rewards—makes them feel included and shows them that they are valuable.

In addition, when organizations pay above-market wages, the worker’s motivation to leave and look for a job elsewhere is be reduced. This strategy makes sense because it is often expensive to train replacement workers.

When companies hire the best people, newly hired talent and veterans are positioned to reach company goals, maximizing the investment of each employee. Taking the time to listen to employees and help them feel involved will create loyalty, which, in turn, can have a big impact on employee turnover.

HR Challenges Today

Ultimately, the role of an HR manager is maintaining the level of human capital needed by the business to meet its organizational goals. In working to meet the demands for a high-quality and dedicated workforce, HR managers must cope with challenges and trends that often lie beyond their control. How they react to and address these challenges can have a big effect on the success of the organization. The following is a summary of the major challenges facing human resource managers today.

Increased competition for qualified workers. As labor market conditions improve and economies expand, more companies are drawing from the same pool of skilled workers. Employees who possess skills sets that are in short supply find that they can have their pick of employers, and HR managers need to be ready to respond with benefits beyond salary, such as flexible working hours, employee-oriented working conditions, and long-term job security. The degree to which an organization is reputed to be a “great place to work” can affect the success of recruitment and retention efforts, as prospective employees now often rate employers on criteria such as CSR, intellectual-property policies, and environmental issues.

Changing demographics in the labor pool. With the aging of the baby-boom generation, older workers are expected to make up a much larger share of both the population and the labor force than in the past. The aging of the overall population has a significant impact on the labor pool and its growth. Populations age as a result of increases in life expectancy and/or a decrease in their fertility rates. According to the U.S. Census Bureau, the ratio of people 65 years and older to those between 20 and 64 years could double between now and the middle of the century. In addition, the ethnic and gender composition of the workforce is changing. Historical data and projections from the BLS shown in the table below highlight some of the trends in the demographics of the U.S. workforce.

Increased globalization of economies. As countries enter into more and more global trade agreements such as the Trans Pacific Partnership (TPP), companies are finding it easier to go offshore and/or outsource key functions within the organization. When processes go offshore, an entire division of a company may be relocated to another country, eliminating jobs in the U.S. permanently. For example, Hewlett Packard laid off five hundred employees working in customer service and technical support in Conway, Arkansas, when it moved the division to India. Many colleges now outsource their bookstore services to companies such as Barnes & Noble, thus eliminating the positions associated with managing and running the college bookstore. In such cases, it often falls to the HR manager to lay off the personnel in the departments whose responsibilities have been outsourced. 

Workplace violence. While more and more information on the causes of workplace violence and ways of handling it is available, there is often no reasonable explanation for its occurrence, and, despite everything we know or do, violent situations happen. No employer is immune from workplace violence, and no employer can totally prevent it. Today’s HR managers are tasked with informing employees about workplace violence policies and programs, investigating all acts of violence, threat, and similar disruptive behavior, and encouraging employees who show signs of stress or possible violence to seek counseling or help through employee assistance programs. 

Employee turnover. In a human resources context, turnover is the rate at which employees leave an organization. Simple ways to describe it are “how long employees tend to stay” or “the rate of traffic through the revolving door.” Staff turnover can be beneficial when a poorly performing employee decides to leave an organization or detrimental when the high turnover rate increases the costs associated with recruiting and training new employees or if good employees consistently decide to leave. High turnover can be harmful to a company’s productivity if skilled workers are steadily leaving and the worker population contains a high percentage of novice workers. HR managers must constantly be on the lookout for ways of reducing employee turnover. As you’ll recall, it costs a company, on average, $15,000 when it loses an employee.

Data-driven HR practices. The growing importance of “big data” presents human resource managers with an opportunity—and puts them under pressure. Business leaders are increasingly demanding that HR professionals, like their colleagues in other functional areas, use metrics and in-depth analysis to both make good decisions and demonstrate the return on investment of key expenditures.^[1]

These are just a few of the emerging topics and trends that today’s HR managers must handle, while still recruiting, hiring, and maintaining the organizations’ existing workforce. As the world becomes increasingly complex, so do the roles and responsibilities of today’s human resource professionals.

Check Your Understanding

Answer the question(s) below to see how well you understand the topics covered above. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.

Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.