What Is Employee Turnover?

Most companies place high importance on hiring the best employees. They don’t hesitate to invest on recruitment processes, so that they get only the best in a vast pool of talents. 

However, even advanced recruiting software or efficient hiring process can’t ensure that employees will stay for the long haul.

It’s not enough to have the cream of the crop within your ranks. It’s more essential to focus on how to retain them as long as possible. 

Indeed, we should give more importance on employee retention. The longer we retain employees, the better working knowledge they have. They develop more skills and experience and become more productive.

A low employee turnover rate leads to high employee morale, better customer retention, and higher revenue.

What Is Employee Turnover

Employee turnover is the rate at which employees leave their jobs and get replaced by new hires.

There are two types of employee turnover. One is voluntary and the other, involuntary.

Voluntary turnover occurs when an employee quits their job.

This is initiated by an employee who chooses to leave. This could be due to a toxic work culture. It may also be due to unavoidable circumstances, such as an employee’s death or a spouse’s relocation.

Involuntary turnover happens when an employee is fired or terminated. 

This is a decision made by an employer for various reasons. One reason is poor job performance. Another is organizational restructuring.

Both types of turnover negatively affect a company’s profit margins. 

Continuing benefits must be settled. Severance pay given. Recruitment cost increases. Productivity decreases. And, ultimately, revenue decreases.

Indeed, excessive employee turnover hurts the overall productivity of any business. 

Obviously, some factors for high employee turnover are beyond the control of management. Other factors, however, can be addressed. 

Factors That Affect Employee Turnover

Before we address the issue of high employee turnover, we must first understand its underlying factors.

These are the main factors that cause high employee turnover:

Low job satisfaction

Satisfied employees are more productive and effective. On the flip side, dissatisfied ones exhibit low employee productivity. Employees are likely to quit if they feel undervalued. When their efforts remain unappreciated, they lose motivation.

Insufficient compensation and benefits

People work to earn a living. That’s the hard truth. When employees don’t receive enough compensation, it’s natural for them to look for greener pastures.

Poor management

We’ve all heard it many times. “People don’t leave companies; they leave their managers.” 

When managers act like drill sergeants expecting to be obeyed without question, employees’ capabilities are undermined. This then leads to low employee morale. Soon, you’d see employees looking for the exit door one after the other.

Lack of positive recognition and unfair promotion practices

Employees who don’t receive credit for their accomplishments lose their drive to work hard. The same goes for employees who are skipped over for promotion. Employees can feel disgruntled when slackers or suck-ups get promoted. These decrease overall productivity levels. 

Lack of personal and professional advancement

No one wants to be stuck in a rut. Every employee desires to move up the corporate ladder. But sometimes there isn’t any way up that ladder. When there are limited opportunities for career growth, employees opt to look for them elsewhere.

Effects of Employee Turnover

Employee turnover always costs a lot of money. A report published by the Center for American Progress reveals that the typical cost of turnover was 21% of an employee’s annual salary. For most businesses, that’s a substantial amount that could gravely affect their working capital. 

Here are three effects of employee turnover that affect revenue both directly and indirectly:

Undue Expenses

When an employee leaves, whether voluntary or involuntary, the company loses money. It can be expensive to settle severance pays, leave entitlements, redundancy, etc. 

Then there’s also the additional costs for recruitment and training. With employees leaving the company, there’s a constant need to hire and train new ones to replace them.

Lower productivity

High employee turnover means you have many inexperienced employees. Due to their inexperience, they need to undergo training and mentoring first. It takes a while for them to settle and be effectively productive.

Lower Quality of Product or Service 

Employee turnover negatively affects the company’s capacity to deliver minimum required services. Inexperienced employees who are still unfamiliar with policies and processes are more likely to have insufficient output. This in turn adversely impacts product quality or customer satisfaction.

How to Reduce Employee Turnover

Having to train new employees frequently is a waste of resources. As we’ve already mentioned, recruitment and training costs huge sums of money. This huge sum of money could instead be used for specialized training to further develop employees’ skills.

Here are some methods you can employ to significantly reduce employee turnover:

Hire smartly and effectively

An employee’s success relies on how well their skills match their job description. Asking situational questions during job interviews can give indications on how a potential employee would react to certain situations. This can give you an idea on whether they’re qualified for the job and if they fit the company culture.

Formulate a comprehensive orientation program

Make new employees feel welcome through an orientation program. This is also a great venue to cascade the vision and the mission of the company. 

Make employees feel that they play an essential role in achieving the company’s mission and vision. This will encourage them to stay long.

Provide competitive compensation and fringe benefits

People work so they can cover necessary expenses such as food, housing, and utilities.  Make sure their compensation covers those basic needs. 

Then, provide as many benefits as you can afford. One thing you can do is to ensure that all employees have the basic allowances and insurances. Assuring equal pay for women is another thing. 

Set effective performance evaluations

Performance feedback should be given to employees to help them improve their job performance. A manager evaluation can also be useful. Annual performance reviews, a 360 review software, and other tools can be used to craft more effective evaluations.

Put emphasis on career development

A sense of fulfillment brings happiness at work. Provide specialized seminars and trainings to develop self-actualization. For new employees, coaching and mentoring can promote team collaboration and work motivation.

Encourage work-life balance

People who are able to achieve their career goals without neglecting their family and friends become happy employees. If possible, allow flexible work schedules so they can create a work-life balance.

Conduct exit interviews

Exit interviews allow you to obtain objective and specific feedback from employees.  Candid feedback can help you devise effective interventions. You may also need to improve organizational design and strengthen management accountability.

Anything that increases costs or reduces productivity will ultimately reduce profit. To avoid unexpected costs of high turnover, take necessary steps from the get-go.