Written by Heather Bussing
November 11, 2021
Hiring needed employees is a challenge and getting a lot of attention. But keeping the employees you have is even more important.
The cost of replacing an employee can be up to a third of the employee's annual salary, depending on their role. About two-thirds of this cost is due to reduced productivity and the other third is the hard costs of recruiting, training, and hiring temps to cover. These figures don't count the effects on morale and culture when people leave.
Employee turnover is normal. Historically, about 20% of the workforce changed jobs each year. While those numbers increased in 2020 due to pandemic layoffs and closures, turnover numbers have come down in 2021, but are still running higher than normal.
It's also important to distinguish between voluntary and involuntary turnover. Involuntary separations are the turnover employers want because of performance issues or business needs.
It's the voluntary employee turnover that employers need to be concerned about. The Bureau of Labor Statistics reports that in 2011, the voluntary turnover rate was about 1.5% per month, or 18% annually. As the chart below shows, those numbers have been creeping up for about 10 years.
For example, in 2016, the quit rate was 2.1% per month (25% annual). For 2021, the voluntary employee turnover rate was over 2.5% per month, which translates to more than 30% of the workforce leaving voluntarily during the year.
Some of the increase reflects normal retirements. Some is due to a predictable pandemic reshuffling as people who stayed put during the pandemic are moving on. Part of the increased quits are related to how businesses adjusted to a new environment and different ways of working.
Employee turnover rates are always highest for workers in their 20's and early 30's due to normal life changes such as getting married, having kids, and partners moving for work or school. But 2020 data indicates that one of the primary reason all workers are leaving is burnout and overwork. It's hard to know whether the experience of burnout is due to the job itself or whether at least some of it has to do with the added stress of living through a global pandemic and all the changes that came with it.
A 2020 Work Institute Survey indicates that the main reasons employees quit are:
Some of these may be easy to address, others are more complex and difficult.
When you're evaluating employee turnover at your organization, here's where to start and what questions to ask to reduce the turnover that matters.
This can be hard to figure out. Exit interviews are not always reliable because most employees don't want to burn bridges on their way out the door. One approach is to contact former employees several months after they leave to talk about why they left because they tend to be more forthcoming after they've found the next role and aren't worried about references. Some organizations send a survey with common reasons and an open text box for additional feedback. The response rates are probably mediocre, but nobody has to spend the time scheduling a conversation or dealing with someone who won't take their call.
Another approach is to dig into your turnover data. Are there higher quit rates in certain locations, departments, or with specific managers?
Engagement data can also give you clues. Are there certain demographic groups that have lower engagement based on age, race, or gender? How is engagement by location, division, department, and managers? Look for changes and differences between groups. Send out pulse surveys to learn more about what's happening with groups you're concerned about.
Also look at the types of data that can indicate harder to see problems. Increased absences and productivity or performance issues in certain groups or departments can all give clues that employees are struggling there.
Once you know where to look, find out what's going on. Check for clues in company-wide messaging systems like Slack. Check in with employees and any ERGs to see what issues they are seeing. Start with a survey and follow up with focus groups and individual conversations where it makes sense.
There are some reasons people leave that organizations have little or no control over. People relocating with a partner are going to leave. There is only so much you can change about the job itself and the work environment (although, on behalf of all the people with heaters or fans at their desks, the thermostat is something you CAN change). Changes to compensation and benefits are always limited by available resources and never as much as leadership would prefer.
Before trying to fix anything, eliminate the things that you can't fix, no matter how nice it would be.
Once you decide a reason for turnover is possible to address, look at whether it makes any sense to try. Reducing turnover for people who are likely to leave but problematic to work with probably won't reduce turnover in the long run. Those are the managers or co-workers who make people want to leave.
Other reasons for turnover like job characteristics or work environment may be theoretically possible to change but would require too much time and resources to do it.
This is also an easy excuse for maintaining the status quo. Be sure to examine what it would take to make changes before you decide it's not worth it.
In figuring out where to start, look at the information you gathered again to see where the problems are and why. Start with the biggest need and figure out a plan. If it's something that will take a lot of time and significant resources, take the first step and establish a timeline to reach your goal.
Pay equity often appears daunting because it's hard to assess and almost always involves giving people raises, which feels difficult and expensive. But there are tools that can help you determine potential pay gaps and experts who can help you develop a realistic plan to address any pay equity gaps.
It's also important to start with some quick wins. Causes like lack of career development or challenging work-life balance can be improved with some simple changes. There are many learning opportunities that are not expensive; some you may already have. Invest in your employees by giving them time to learn and help offset the costs.
Work-life balance can be enhanced with policy changes like remote work, flexible hours, and increased time off. Employees who are not stressed, burnt out and exhausted usually get more done in less time. Try it and see.
Employee benefits and compensation can also improve retention. Retirement plans and stock options that vest over time encourage people to stay. Pay equity and getting compensation right can save employees changing jobs for higher pay.
Problem managers are trickier, particularly when they generate a lot of revenue or are senior leadership. But if the real problem is that the organization has managers that are difficult to deal with, remember the high cost of turnover and calculate what it's cost the company so far. Look at the total cost of doing nothing and people continuing to leave. It adds up fast. Getting rid of problem managers is not only the right thing to do for your employees and the organization, it's almost always a sound financial decision too.
Working through these questions and focusing on what truly needs and makes sense to change will make a difference in retention. One of the best things an organization can do for its bottom line is to help employees want to stay.
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