As you drive down the street in any town in this county the most prolific visible sign is “help wanted”. With an unemployment rate of 3.8 %, the replacement of those who leave is extremely difficult. Managers need to minimize turnover to maintain a workforce that can produce its products and service its customers. The Work Institute reports that in 2018, 42 million employees left the company where they had been employed. That amounts to one in every four people. The Society of Human Resources Management (SHRM) estimates that replacement costs to hire a new employee is $4,129.
Calculating Turnover Percentage
Let’s understand the term turnover rate. It is calculated as follows. First add the total number of employees at the beginning of a period to the total number of employees at the end of a period. Divide that sum by 2. That provides the average number of employees during that period. . Then count the total number of employees who left during the period. Divide the total number who left by the average number of employees and multiple that fraction by 100 to produce the turnovers percentage
The formula is
- B- Number of employees at the beginning of the period
- E- Number of employees at the end of the period
- L- number of employees who left
L/(B+E/2) X 100= Turnover Percentage
Setting a Goal
One would question, what turnover rate did others in my business experience? We would suggest that many industry associations collect that information and provide it to their membership. Dailypay (www.dailypay.com) recently provided the following for 2018:
- Federal Government Positions 3 %
- State and Local Educational governmental positions 4%
- Finance and insurance Jobs 7 %
- Wholesale Trade 9%
- Hotels 60-300%
- Supermarkets 100%
- Retail 59%
- Fast Foods 100%
What the target for your business should be is a combination of the percentage for your industry and your employment history. Let’s assume it needs to be better and should be improved.
Causes of Turnover
The common assumption about the causes of turnover are economic. Some left for more money. In some case that is true. Remember that when it comes to employment that every business is in a competitive environment. Learn what others in your business and geographic area are paying and be sure your wages are competitive. If an employee leaves to get a higher wage and your wages are competitive there may be other reasons.
There are three strategies to consider when considering wages and compensation. You may choose to be the lowest payer. In this case you have decided that the skills required to perform the job are minimal and there are plenty of individuals in the labor market who can fill to position. An example might be unskilled labor jobs. The second is to pay at the mean wage for the industry. You want to pay a fair wage, but do not prioritize hiring and employing the very best of the best. Many retail jobs might fall into that category. The third strategy is to have pay scales at the top of the employment market. Those firms have profit margins that can afford hiring the best in the field and pride themselves in exceptional service. Skilled trades such as electrician or auto mechanics are examples of these.
Is Low Turnover Always Good?
Years ago it was very common to attend a retirement party where someone with decades of service received a gold watch. In today’s ever changing employment environment, that has become a rare occurrence. We now live in an environment where technologies change, markets change, and businesses often move to a more favorable location. For the most part, employees need not have an expectations of job security. They do need to be flexible, continuously learning and be looking for new challenges.
Employee turnover needs to be expected, but only caused by changes in the markets or industry. Turnover caused by the culture within the organization needs to be minimized. Is this a good place to work? Is my manager someone I can trust and is fair in their dealing with the staff? Is compensation fair and competitive in the market? Negative answers to these questions can cause turnover to be higher than similar businesses in the area.
Low turnover can be an indication of stagnation. Employees are stuck in their ways. The organization cannot adapt to changes in the market or industry. Creativity is not forthcoming. At one time, General Electric made it a policy to release percentage of the lowest performers each year. Others have executed similar policies to which forces turnover in an attempt to but keep the culture productive.
How to Minimize Turnover
The goal of every manager should be to minimize the departure of their best employees. Here are some tips:
- Hire the Right People- Don’t just fill a slot with a warm body. Read the article on our website Finding and Hiring the Right People and the Power Point video Hiring the Right People
- Give Praise Appropriate- Praise done properly is inexpensive and can produce amazing results. Quint Studer in his book Hardwiring Excellence tells how staff can be motivated in a hospital.
- Maintain Competitive Compensation- Know what others are paying and develop a strategy discussed above.
- Provide a Career Path. Large organizations can provide the possibility of promotion and more responsibility. They need to groom employees to achieve those opportunities. Small companies have less opportunities but can groom staff members to except increased responsibility yielding personal and organizational growth. Motivated people don’t want to be in a dead end job.