Turnover (employment): Wikis

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In a human resources context, turnover or labor turnover is the rate at which an employer gains and loses employees. Simple ways to describe it are "how long employees tend to stay" or "the rate of traffic through the revolving door." Turnover is measured for individual companies and for their industry as a whole. If an employer is said to have a 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 can be harmful to a company's productivity if skilled workers are often leaving and the worker population contains a high percentage of novice workers.

In the U.S., for the period of December 2000 to November 2008, the average total non-farm seasonally adjusted monthly turnover rate was 3.3%.[1]

Contents

Costs

When accounting for the costs (both real costs, such as time taken to select and recruit a replacement, and also opportunity costs, such as lost productivity), the cost of employee turnover to for-profit organizations has been estimated to be up to 150% of the employees' remuneration package.[2] There are both direct and indirect costs. Direct costs relate to the leaving costs, replacement costs and transitions costs, and indirect costs relate to the loss of production, reduced performance levels, unnecessary overtime and low morale.

Internal vs. external turnover

Like recruitment, turnover can be classified as 'internal' or 'external'.[3] Internal turnover involves employees leaving their current positions and taking new positions within the same organization. Both positive (such as increased morale from the change of task and supervisor) and negative (such as project/relational disruption, or the Peter Principle) effects of internal turnover exist, and therefore, it may be equally important to monitor this form of turnover as it is to monitor its external counterpart. Internal turnover might be moderated and controlled by typical HR mechanisms, such as an internal recruitment policy or formal succession planning.

Skilled vs. unskilled employees

Unskilled positions often have high turnover, and employees can generally be replaced without the organization or business incurring any loss of performance. The ease of replacing these employees provides little incentive to employers to offer generous employment contracts; conversely, contracts may strongly favour the employer and lead to increased turnover as employees seek, and eventually find, more favorable employment.

However, high turnover rates of skilled professionals can pose as a risk to the business or organization, due to the human capital (such as skills, training, and knowledge) lost. Notably, given the natural specialization of skilled professionals, these employees are likely to be re-employed within the same industry by a competitor. Therefore, turnover of these individuals incurs both replacement costs to the organization, as well as resulting in a competitive disadvantage to the business.

Voluntary vs. involuntary turnover

Practitioners can differentiate between instances of voluntary turnover, initiated at the choice of the employee, and those involuntary instances where the employee has no choice in their termination (such as long term sickness, death, moving overseas, or employer-initiated termination).

Typically, the characteristics of employees who engage in involuntary turnover are no different from job stayers. However, voluntary turnover can be predicted (and in turn, controlled) by the construct of turnover intent.

Causes of high or low turnover

High turnover often means that employees are unhappy with the work or compensation, but it can also indicate unsafe or unhealthy conditions, or that too few employees give satisfactory performance (due to unrealistic expectations or poor candidate screening). The lack of career opportunities and challenges, dissatisfaction with the job-scope or conflict with the management have been cited as predictors of high turnover.[4]

Low turnover indicates that none of the above is true: employees are satisfied, healthy and safe, and their performance is satisfactory to the employer. However, the predictors of low turnover may sometimes differ than those of high turnover. Aside from the fore-mentioned career opportunities, salary, corporate culture, management's recognition, and a comfortable workplace seem to impact employees' decision to stay with their employer.[4]

Many psychological and management theories exist regarding the types of job content which is intrinsically satisfying to employees and which, in turn, should minimise external voluntary turnover. Examples include Hertzberg's Two factor theory, McClelland's Theory of Needs, and Hackman & Oldham's Job Characteristics Model [5]

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Investments

Alternatively, low turnover may indicate the presence of employee 'investments' (also known 'side bets') [6] in their position: certain benefits may be enjoyed while the employee remains employed with the organization, which would be lost upon resignation (e.g. health insurance, discounted home loans, redundancy packages, etc). Such employees would be expected to demonstrate lower intent to leave than if such 'side bets' were not present.

How to prevent turnover

Employees are important in any running of a business; without them the business would be unsuccessful. However, more and more employers today are finding that employees remain for approximately 23 to 24 months, according to the 2006 Bureau of Labor Statistics. The Employment Policy Foundation states it costs a company an average of $15,000 per employee, including separation costs, paperwork, unemployment; vacancy costs, including overtime or temporary employees and replacement costs including advertisement, interview time, relocation, training and decreased productivity when colleagues depart. Providing a stimulating workplace environment in which fosters happy, motivated and empowered individuals, which lowers employee turnover and absentee rates.[7] Promoting a work environment that fosters personal and professional growth promotes harmony and encouragement on all levels, so the effects are felt company wide.[7]

Continual training and reinforcement develops a work force that is competent, consistent, competitive, effective and efficient.[7] Beginning on the first day of work, providing the individual with the necessary skills to perform their job is important.[8] Before the first day, it is important the interview and hiring process expose new hires to an explanation of the company, so individuals know whether the job is their best choice.[9] Networking and strategizing within the company provides ongoing performance management and helps build relationships among co-workers.[9] It is also important to motivate employees to focus on customer success, profitable growth and the company well-being .[9] Employers can keep their employees informed and involved by including them in future plans, new purchases, policy changes, as well as introducing new employees to the employees who have gone above and beyond in meetings.[9] Early engagement and engagement along the way, shows employees they are valuable through information or recognition rewards, making them feel included.[9]

When companies hire the best people, new talent hired and veterans are enabled to reach company goals, maximizing the investment of each employee.[9] Taking the time to listen to employees and making them feel involved will create loyalty, in turn reducing turnover allowing for growth.[10]

Calculation

Step 1. Calculate the average number of employees The number of employees is calculated by adding the number at the start of the period, to the number at the end of the period. Then dividing by 2 to arrive at the average number of employees.

For example: At the start of the year the firm employed 1000 people. At the end of the year the firm employed 1200. To arrive at the average we add together 1000 + 1200 = 2200. Then divide by 2 to get our answer 2200/2 = 1100 This figure is the average number of people employed during the period.

Step 2. Calculate the number of departures during the period The key here is to make sure that we only include those departures that are actually relevant. That means those that come within the definition we are using. So for the definitions we are using in this example the relevant figures are: Total number of exits = 220 Voluntary = 110 Early = 55

Step 3. Divide departures by number of employees To arrive at our final figures, we divide the number of relevant departures by the average number of employees. Then multiply by 100 to get the percentage rate. For total turnover we have: 220 / 1100 (x 100) = 20% For voluntary turnover we have: 110/1100 (x100) = 10% For early turnover we have: 55/1100 (x100) = 5% Calculating Employee Turnover[11]


However, please keep in mind that there are a number of complications:

Let's say there were 100 employees at the beginning of the year, and 100 employees at the end of the year, and at the end of the year, 84 of those employees were the same ones as were there the previous year. You might say that the turnover rate was 16%.

But suppose one of those 16 who left was actually replaced three times. The employee quit in January, the replacement quit in April, and another person was hired who lasted only until November. Then you might want to count every time an employee left the company and another one was hired - in this case you'd get 18%.

Another complication: suppose the work force is 100 at the beginning and 90 at the end of the year. Perhaps 16 people have left, but only 6 have been hired during the year, while 2 more were hired and retired within the same year. You might define turnover as 18/100 or as 18/90, or as 18/95, since 95 is the average of 90 and 100. Instead of 95, you might want to do a fancier average, where you actually add up the number of employees on each day of the year, and divide the total by 365.

One more complication: who decided it was a calendar year that we should use for sampling the turnover rate? Perhaps there was no turnover at all for 3 years prior, and then a shift in management caused a lot of people to leave this year. Then a more representative measure would average over 2 or 3 or 4 years. Maybe you'd want to average the turnover in each month of the last 48, but weight recent months more heavily than earlier months.

Models of turnover

Over the years there have been thousands of research articles exploring the various aspects of turnover, and in due course several models of employee turnover have been promulgated. The first model and by far the one attaining most attention from researcher, was put forward in 1958 by March & Simon. After this model there have been several efforts to extend the concept. Since 1958 the following models of employee turnover have been published.

  • March and Simon (1958) Process Model of Turnover
  • Porter & Steers (1973) Met Expectations Model
  • Price (1977) Causal Model of Turnover
  • Mobley (1977) Intermediate Linkages Model<br
  • Hom and Griffeth (1991) Alternative Linkages Model of Turnover
  • Whitmore (1979) Inverse Gaussian Model for Labour Turnover
  • Steers and Mowday (1981) Turnover Model
  • Sheridan & Abelson (1983) Cusp Catastrophe Model of Employee Turnover
  • Jackofsky (1984) Integrated Process Model
  • Lee et al. (1991) Unfolding Model of Voluntary Employee Turnover
  • Aquino et al. (1997) Referent Cognitions Model
  • Mitchell & Lee (2001) Job Embeddedness Model

References

  1. ^ "Job Openings and Labor Turnover Survey". Bureau of Labor Statistics. 2008. http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=JTS00000000TSR. Retrieved 2009-01-21.  
  2. ^ Schlesinger, Leonard A.; James L. Heskett (1991-04-15). "Breaking the Cycle of Failure in Services". MIT Sloan Management Review 33 (3): 17–28. http://sloanreview.mit.edu/the-magazine/articles/1991/spring/3232/breaking-the-cycle-of-failure-in-services/. Retrieved 2009-01-21.  
  3. ^ Ruby, Allen M. (January 2002). "Internal Teacher Turnover in Urban Middle School Reform". Journal of Education for Students Placed at Risk 7 (4): 379–406. doi:10.1207/S15327671ESPR0704_2.  
  4. ^ a b Dijkstra, Eelco (December 2008). "What Drives Logistics Professionals?". http://europhia.com/docs/europhia-research-what-drives-logistics-professionals.pdf. Retrieved 2009-01-21.  
  5. ^ Hackman, J. Richard; Greg R. Oldham (August 1976). "Motivation through the design of work: test of a theory". Organizational Behavior and Human Performance 16 (2): 250–279. doi:10.1016/0030-5073(76)90016-7.  
  6. ^ Tett, Robert P; John P. Meyer (1993). "Job Satisfaction, Organizational Commitment, Turnover Intention, and Turnover: Path Analyses Based on Meta-Analytic Findings". Personnel Psychology 46 (2): 259–293. doi:10.1111/j.1744-6570.1993.tb00874.x (inactive 2009-01-21). http://www3.interscience.wiley.com/journal/119295540/abstract. Retrieved 2009-01-21.  
  7. ^ a b c Employee Pride Goes Wide. (2005, February 2). Graphic Arts Monthly, Retrieved February 23, 2009, from Academic Search Premier database.
  8. ^ Costello, D. (2006, December). Leveraging the Employee Life Cycle. CRM Magazine, 10(12), 48-48. Retrieved February 23, 2009, from Academic Search Premier database.
  9. ^ a b c d e f Testa, B. (2008, September 22). Early Engagement, Long Relationship?. Workforce Management, 87(15), 27-31. Retrieved February 23, 2009, from Academic Search Premier database.
  10. ^ Skabelund, J. (2008, May). I just work here. American Fitness, 26(3), 42-42. Retrieved February 23, 2009, from Academic Search Premier database.
  11. ^ Calculating Employee Turnover http://www.employee-retention-guide.com

Further reading

Historical interest


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