How much turnover is too much? Depending on an organization’s location and industry, the employee turnover rate can be anywhere from 5 percent to more than 100 percent. Most organizations conduct formal exit interviews and usually learn that employees leave for higher pay. Determining why employees started looking for another job in the first place is critical. People leave organizations for numerous reasons – read on and you may learn why people are leaving your organization.
Research shows that people don’t leave organizations, they leave people. Poor or ineffective leadership is one of the top reasons businesses experience high turnover. Far too often, employees earn promotions because they did an excellent job in a lower level position. The reality is that the knowledge, skills and abilities for one job are only one part of those needed to be successful in a higher level position. When a company encounters excessive employee turnover, it must look for trends and take steps to correct the problem. One organization found that 25 percent of its turnover was in one department and under the same supervisor.
Organizational culture issues are a huge factor in turnover. It is estimated that as much as 80 percent of the turnover occurring among first-year employees is due to a “bad fit” in the organization. Employees either don’t fit the culture of the organization or can’t adapt to the operating style. Companies must learn to hire workers who are well-matched to the corporate philosophy and culture.
Inadequate compensation and benefits should not be discounted. People will often work in organizations for less pay if they like the organization, its people, enjoy their jobs and feel connected. The bottom line, however, is that at some point, economic survival may drive employees to leave. The answer is to make sure that workers are competitively compensated, taking into account the company’s industry, the geographic location where it operates, as well as the job description and skill level of each individual employee.
Many organizations fail to grasp the cost of turnover – identifying those costs can motivate leadership to implement changes. It costs between 25 percent to 30 percent of an employee’s salary and benefits package to hire a replacement. This cost takes into account the time and expense of the hiring process, training the new employee and lost productivity. Do the numbers, the answer can be staggering. If an organization has 5,000 employees and routinely loses 40 percent of them due to turnover, the average cost per individual is $4,000. In other words,employee turnover negatively impacts this company’s annual bottom line by $8 million. As competition increases for market share, the most profitable businesses will be looking internally to cut costs, and improve their ability to attract, hire and retain the best people.