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StrategyDriven Talent Management Article | How to Reduce Employee Turnover Rate

How to Reduce Employee Turnover Rate

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StrategyDriven Talent Management Article | How to Reduce Employee Turnover RateEmployee turnover rate refers to the number or percentage of employees who leave an organization and have to be replaced by new workers. Employee turnover is a common issue affecting both big and small firms. The problem with employee turnover is that it costs a lot of money and time to replace an employee.

According to a report by the Society for Human Resource Management (SHRM), the average cost of replacing a single employee can be as high as $4,425. The cost of replacing an employee may include the onboarding and training expenses, severance benefits, and fees for processing technical details and documents. The figure also includes any time lost during the recruitment and onboarding process. So, how can you reduce or prevent employee turnover and avoid losing valuable time and resources?

Hire the Right People

The very first step towards avoiding a high turnover rate is hiring the right people to begin with. Create thorough hiring, recruitment, and onboarding process that sieves through the job applicants to find the most suitable candidates to work in your company.

Although skills and qualifications are important, selecting the right staff goes beyond examining academic and professional achievements. Scrutinize candidates on soft skills that would come in handy for the job position. Also, ask about the candidates’ career paths and goals to see if they align with what your company has to offer. These are excellent criteria to measure whether a candidate will be happy and satisfied with their position in the business.

Create A Flexible Work Environment

The 9-to-5 workplace regimen seems like an outdated and traditional workplace arrangement nowadays. Many employees are now looking for more flexible workplaces where they can balance their work and personal life more easily and conveniently. In fact, most employees value workplace flexibility more than other job descriptions.

Flexibility defines things like working hours, collaborations, workload, deadlines, and rules about absenteeism and reporting to work.  With modern IT solutions, you can have employees working from home, on a contract or freelancing basis, or even during odd hours. In such a case, however, you have to implement work from home policy guidelines to ensure accountability. Remember, the goal is to create a relaxed atmosphere without compromising productivity.

Offer Competitive Salaries and Benefits

One of the main reasons why people go to work is to earn money. Offering competitive salaries and benefits can help your business attract exceptional talent and retain employees. Money is a great incentive that you can use to lure employees into dedicating their time and effort to meeting the company’s goals.

You don’ even have to raise your salaries and benefits by thousands of dollars. Just take a look at what other employers in the same industry are paying their staff and raise your offering by a noticeable margin – and that should be enough to discourage competitors from poaching your employees.

Praise and Reward Exceptional Employees

Besides compensations, benefits, and salaries, you should also look into recognizing and rewarding exceptional work and employees. Recognizing your workers’ efforts and rewarding their hard work accordingly makes them feel valuable and important to the company. This gradually develops into building trust and long-lasting relationships between the employees and the employer. Plus, a fair reward and recognition system helps motivate morale and determination among the workers, which leads to higher employee satisfaction and productivity.

Many employers fail to see the importance of their employees, probably because they think they’re dispensable. However, your employees are most certainly one of the essential assets that your business has. Employees are the lifeblood of any organization that needs human input or labor, which is why they must be valued and appreciated. And although employees can be replaced, it’s a costly process, and a high turnover rate can hurt your operational costs and productivity significantly. So, work on ways of retaining your employees to avoid expensive surprises along the way.

StrategyDriven Diversity and Inclusion Article | Diversity and Inclusion – Return on Investment, part 1: Employee Turnover Reduction

Diversity and Inclusion – Return on Investment, part 1: Employee Turnover Reduction

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The cost of employee turnover is staggering and yet goes largely unrecognized. There is no financial statement line item, no general ledger entry, and no budget explicitly set aside for this expense that can cost an evenly modestly sized company well over a million dollars each year. And a significant portion of voluntary attrition is directly related to the abusive work environment many employees indicate exists within the marketplace today. Thus, improvements in workplace civility can directly improve the organization’s bottom line.[wcm_restrict plans=”75937, 25542, 25653″]

A company of 250 employees making an average of $43,000 per year experiencing a 20 percent attrition rate spends an estimated $2.15M on employee replacements annually.

Cost of Attrition

The American Management Association estimates the cost of employee turnover as ranging from between 25 percent (for entry level employees) and 250 percent (for executive level employees) of the employees annual salary.1 These costs are derived from a multitude of sources including:

  • Exit costs including time to conduct the exit interview, stop payroll, change benefits, turn-in equipment, etcetera
  • Turnover costs associated with managerial exit interviews, work-in-progress turnover to other employees, rescheduling of ongoing work, etcetera
  • Lost productivity of employees filling in for the vacant position
  • Overtime and/or temporary employee costs to fill in for the vacant position
  • Cost to hire a replacement employee including advertising, resume screening time/cost, manager and staff interview time, interview travel costs, and new hire relocation costs and signing bonuses
  • New hire training costs including general on-boarding and employee training and position specific training
  • Lost/low productivity until the new employee is fully productive in his/her new role

And then there are the qualitative costs including:

  • Loss of customers and contacts
  • Lost business knowledge and technical expertise

Based on a U.S. average annual salary of $43,0002 and average annual voluntary turnover rate of 23.6 percent3, it is easy to see how an organization can have considerable employee turnover expenses.

An Abusive Work Environment

While many like to think of the modern workplace as being diverse and inclusive, a place where individuals respect and value each other, surveys by the Sp@rtacus Group, the Employment Law Alliance (ELA) and WBI/Zogby indicate quite the contrary. A survey conducted by the Sp@rtacus Group found that 61 percent of employees witnessed diversity-related acts of incivility, disrespect, and/or discrimination at work.4 According to ELA, 44 percent of Americans indicated they have worked for an employer or supervisor who they consider abusive. A WBI/Zogby survey revealed that 37 percent of workers reported being bullied at work.5

These instances of workplace incivility profoundly impact a company’s financial performance as revealed in the research report, Assessing & Attacking Workplace Incivility6. From among the 775 individuals surveyed, instances of workplace incivility resulted in:

  • 28 percent lost work time avoiding the instigator
  • 53 percent lost work time worrying about the incident or future interactions
  • 37 percent believed that their commitment to the organization declined
  • 22 percent decreased their effort at work
  • 10 percent decreased the amount of time that they spent at work
  • 46 percent contemplated changing jobs to avoid the instigator
  • 12 percent actually changed jobs to avoid the instigator 7

In addition to those who do leave, Sp@rtacus Group research finds that 73 percent of employees experiencing disrespectful and demeaning behavior would leave the company if a better job were available – making these employees six times more likely to quit than those not experiencing workplace incivility.8

Calculating Diversity and Inclusion’s Return On Investment – Employee Turnover Reduction

Workplace incivility clearly contributes to employee attrition which in turn directly impacts the organization’s bottom line. This occurrence presents leaders with an opportunity to realize financial benefits from investments aimed at improving the workplace environment. Estimating the return on investment for such initiatives involves the following steps:

  1. Determine the annual organizational attrition rate caused by workplace incivility – This rate can be calculated using exit surveys and resent culture surveys balanced against benchmark studies. Note that direct measurement using exit surveys alone may result in a lower than actual rate if such feedback is not collected anonymously.
  2. Identify the initiatives to be implemented in order to improve workplace civility – Expert advice from individuals/organizations specializing in the field of diversity and inclusion should be consulted to identify those initiatives best suited to address the organization’s unique needs and circumstances.
  3. Estimate the cost of implementing these initiatives on an annual basis – Use standard project management cost estimation methods to determine the expected monetary cost of all resource expenditures expected to be made during implementation of these initiatives on an annual basis. Alternatively, expert advice from individuals/organizations specializing in the field of diversity and inclusion could be consulted to determine this variable.
  4. Estimate the reduction in annual organizational attrition caused by workplace incivility – This will vary based on the nature of the initiatives undertaken. Expert advice from individuals/organizations specializing in the field of diversity and inclusion should be consulted to determine this variable.
  5. Estimate the cost to the organization of a 1 percent turnover rate – Use the StrategyDriven Cost of Employee Attrition Nomograph to calculate the cost to the organization of a 10 percent annual attrition rate. Divide this value by ten.
  6. Determine the annual value of improving workplace civility through attrition reduction – Multiply the percent reduction in annual organization attrition to be realized determined in Step 4 by the 1 percent turnover cost per year value determined in Step 5.
  7. Determine the component of Diversity and Inclusion’s return on investment value to the organization resulting from reduced attrition – Subtract the cost of the workplace civility initiatives determined in Step 3 from the annual value of improving workplace civility through attrition reduction determined in Step 6 and divide the result by the cost of implementing the workplace civility initiatives determined in Step 3. Multiply this value by 100 to convert to a return on investment percent.

Example Return On Investment Calculation for Employee Turnover Reduction

Background

Organization Size: 400 employees
Average Employee Salary: $43,000 / year

Calculation (Illustrative)

  1. Annual Organization Attrition Due to Workplace Incivility: 12 percent
  2. Workplace Civility Initiatives to be Implemented: workforce training, executive/management coaching, performance appraisal system upgrade, new diversity and inclusion organizational performance measures implemented, Diversity and Inclusion Council established
  3. Annual Cost of Implementing Workplace Civility Initiatives: $300,000 / year
  4. Estimated Annual Reduction in Attrition Due to Workplace Incivility: 4 percent
  5. Cost to the Organization of 1 Percent Annual Attrition: $172,000 / year
  6. Annual Value of Workplace Civility Initiatives from Employee Turnover Reduction: $688,000
  7. Annual Return On Investment of the Workplace Civility Initiatives: A 129 percent return on investment!

Final Thoughts…

Workplace civility improvement initiatives have a far more expansive impact than just reducing incivility related attrition. In future articles, we’ll discuss how to calculate these benefits to determine the total financial benefit of these initiatives.

Lastly, we presented a strong financial case for implementing programs aimed at improving the workplace environment. However, we at StrategyDriven believe such programs are not only the financially prudent thing to do, they are the morally and ethically right thing to do. All employees should be treated with the utmost respect, not because it is financially beneficial to do so but because as fellow human beings they deserve to be treated as such. It is our sincere hope that all leaders will work to end workplace abuse, bullying, and discrimination and that they and their employees will respect and value their colleagues.

Sources

  1. “The High Cost of Employee Turnover,” Scott Allen, American Express, April 7, 2010

    Note: Quantitative employee turnover cost estimate provided by the American Management Association.

  2. “May 2009 National Occupational Employment and Wage Estimates – United States,” U.S. Department of Labor – Bureau of Labor Statistics, May 14, 2010 (http://www.bls.gov/oes/current/oes_nat.htm#00-0000)
  3. “U.S. Annual Employment Turnover Rates by Industry and by Geographic Region Through August 2006,” Nobscot Corporation, 2010 (http://www.nobscot.com/survey/us_voluntary_turnover_0806.cfm)

    Note: Data supplied by the U.S. Department of Labor

  4. “Linking Employee Commitment & Workplace Incivility to Corporate Earnings,” Craig B. Clayton, Sr., The Sp@rtacus Group, July 2004 (http://www.hrm-ri.org/whitepapers/dEPS_White_Paper_Ver.12.2005.v17.pdf)
  5. “The High Cost of the Bad Boss,” American Management Association, October 2, 2007 (http://www.amanet.org/training/articles/The-High-Cost-of-the-Bad-Boss.aspx)
  6. “Assessing and Attacking Workplace Incivility, “ C.M. Pearson, L.M. Andersson, and C.L. Porath, Organizational Dynamics, Volume 26(2), Fall 2000
  7. “The Brutus SyndromeTM,” Craig B. Clayton, Sr., The Sp@rtacus Group, January 2005
  8. “Linking Employee Commitment & Workplace Incivility to Corporate Earnings,” Craig B. Clayton, Sr., The Sp@rtacus Group, July 2004

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StrategyDriven Business Politics Impacts Article | Employee Attrition

Business Politics Impacts – Cost of Employee Attrition

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StrategyDriven Business Politics Impacts Article | Employee AttritionThe staggering cost of employee turnover goes largely unrecognized. There is no financial statement line item, no general ledger entry, and no budget explicitly set aside for this expense that can cost evenly modestly sized companies well over a million dollars each year. Yet a significant portion of voluntary attrition is directly related to an abusive work environment created, in part, by excessive business politics. Thus, reduced workplace politics can directly improve the organization’s bottom line.

A company of 250 employees making an average of $43,000 per year experiencing a 20 percent attrition rate spends an estimated $2.15M on employee replacements annually.

Cost of Employee Attrition

The American Management Association estimates the cost of employee turnover as ranging from between 25 percent (for entry level employees) and 250 percent (for executive level employees) of the employees annual salary.1 These costs are derived from a multitude of sources including:[wcm_restrict plans=”45349, 25542, 25653″]

  • Exit costs including time to conduct the exit interview, stop payroll, change benefits, turn-in equipment, etcetera
  • Turnover costs associated with managerial exit interviews, work-in-progress turnover to other employees, rescheduling of ongoing work, etcetera
  • Lost productivity of employees filling in for the vacant position
  • Overtime and/or temporary employee costs to fill in for the vacant position
  • Cost to hire a replacement employee including advertising, resume screening time/cost, manager and staff interview time, interview travel costs, and new hire relocation costs and signing bonuses
  • New hire training costs including general on-boarding and employee training and position specific training
  • Lost/low productivity until the new employee is fully productive in his/her new role

Additionally, there are the qualitative costs including:

  • Loss of customers and contacts
  • Lost business knowledge and technical expertise

Based on a U.S. average annual salary of $43,0002 and average annual voluntary turnover rate of 23.6 percent3, it is easy to see how an organization can have considerable employee turnover expenses.

An Abusive Workplace Environment

According to the Employment Law Alliance (ELA), 44 percent of Americans indicated they have worked for an employer or supervisor who they consider abusive. A WBI/Zogby survey revealed that 37 percent of workers reported being bullied at work.4

Workplace incivility profoundly impacts a company’s financial performance as revealed in the research report, Assessing & Attacking Workplace Incivility5. From among the 775 individuals surveyed, instances of workplace incivility resulted in:

  • 28 percent lost work time avoiding the instigator
  • 53 percent lost work time worrying about the incident or future interactions
  • 37 percent believed that their commitment to the organization declined
  • 22 percent decreased their effort at work
  • 10 percent decreased the amount of time that they spent at work
  • 46 percent contemplated changing jobs to avoid the instigator
  • 12 percent actually changed jobs to avoid the instigator 6

In addition to those who do leave, Sp@rtacus Group research finds that 73 percent of employees experiencing disrespectful and demeaning behavior would leave the company if a better job were available – making these employees six times more likely to quit than those not experiencing workplace incivility.7

Calculating the Cost of Employee Turnover

Political incivility within the workplace clearly contributes to employee attrition which in turn directly impacts the organization’s bottom line. Estimating the cost of employee attrition involves the following steps:

  1. Determine the annual organizational attrition rate caused by political incivility – This rate can be calculated using exit surveys and resent culture surveys balanced against benchmark studies. Note that direct measurement using exit surveys alone may result in a lower than actual rate if such feedback is not collected anonymously.
  2. Estimate the cost to the organization of a 1 percent turnover rate – Use the StrategyDriven Calculating the Cost of Employee Attrition Nomographs tool to calculate the cost to the organization of a 10 percent annual attrition rate. Divide this value by ten.
  3. Determine the annual cost of political incivility related employee attrition – Multiply the annual organization attrition determined in Step 1 by the 1 percent turnover cost per year value determined in Step 2.

Example Employee Turnover Cost Calculation

Background

Organization Size: 400 employees
Average Employee Salary: $43,000 / year

Calculation (Illustrative)

  1. Annual Organization Attrition Due to Political Incivility: 12 percent
  2. Cost to the Organization of 1 Percent Annual Attrition: $172,000 / year
  3. Annual Cost of Political Incivility Based on Actual Employee Turnover: $2,064,000

Final Thoughts…

StrategyDriven’s Diversity and Inclusion – Return on Investment, part 1: Employee Turnover Reduction reveals the available return on investment from improved workplace civility. It assumes, however, that leaders capable of making such improvements desire to do so.

Improvement initiatives reducing the prevalence of business politics within an organization are rarely pursued because those empowered to do so enable the political environment through complacency/indifference or benefit from its existence. Consequently, improvements are most likely achieved by newly appointed, strong leaders.

Sources

  1. “The High Cost of Employee Turnover,” Scott Allen, American Express, April 7, 2010Note: Quantitative employee turnover cost estimate provided by the American Management Association.
  2. “May 2009 National Occupational Employment and Wage Estimates – United States,” U.S. Department of Labor – Bureau of Labor Statistics, May 14, 2010 (http://www.bls.gov/oes/current/oes_nat.htm#00-0000)
  3. “U.S. Annual Employment Turnover Rates by Industry and by Geographic Region Through August 2006,” Nobscot Corporation, 2010 (http://www.nobscot.com/survey/us_voluntary_turnover_0806.cfm)Note: Data supplied by the U.S. Department of Labor
  4. “The High Cost of the Bad Boss,” American Management Association, October 2, 2007 (http://www.amanet.org/training/articles/The-High-Cost-of-the-Bad-Boss.aspx)
  5. “Assessing and Attacking Workplace Incivility, “ C.M. Pearson, L.M. Andersson, and C.L. Porath, Organizational Dynamics, Volume 26(2), Fall 2000
  6. “The Brutus SyndromeTM,” Craig B. Clayton, Sr., The Sp@rtacus Group, January 2005
  7. “Linking Employee Commitment & Workplace Incivility to Corporate Earnings,” Craig B. Clayton, Sr., The Sp@rtacus Group, July 2004

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