Turnover rate: How to avoid disaster
Turnover rate: How to avoid disaster
When workforce is in short supply, retaining personnel is crucial to ensuring the viability of your business. Whether it’s the loss of skills or knowledge, negative consumer experience or the time needed to train a replacement, losing an employee can be more expensive than you think. According to Edda Pizzati, a business consultant and human resources specialist at Inno-centre, the cost of losing an employee is equivalent to that employee’s annual salary. Here, Pizzati helps us recognize the warning signs that an employee is about to leave and how the issue should be addressed.
How is turnover rate calculated?
The simplest formula involves determining the percentage of employees who leave on an annual basis. For example, if 30 employees out of 100 leave the company, then the turnover rate would be 30%.
But Pizzati takes it further. She explains that to improve this percentage, you need to look deeper. “We can look more specifically at voluntary versus involuntary departures, new employees, divide the numbers by department, by management or by position type,” she explains. The result may lead to more appropriate responses.
Are yearly evaluations still relevant?
According to Pizzati, yearly employee evaluations aren’t enough because they rarely represent opportune moments for real dialogue. “In fact, evaluations are a tool, not a form of career management. Managers need to understand how to make the most of them in order to take effective action on what they learn. Otherwise, if nothing actually happens, the employee will lose faith.”
Pizzati says that a turnover rate of 15% is considered high. Yet some sectors have rates that are even higher, which she attributes to mistaken beliefs in the power of business culture.
Causes of an elevated turnover rate
While we often hear about the importance of flexible work schedules and remuneration, Pizzati considers these factors as only “surface causes.” She notes that in SMEs, the real causes generally stem from immediate supervisors or the person heading the business. “The deeper reason is usually related to management.”
For Pizzati, good management leads to good results. But what do employees look for in a manager? “The good news is, the answer is simple: Be courteous, respect your employees and encourage them to be independent, which means recognizing their skills and ability to make good decisions,” she summarizes.
The effect on growth
Above and beyond the numbers and any human factors, personnel stability remains a powerful tool for growth. “Low employee retention rates have a negative effect on actual business opportunities. Another result, which is invisible but highly important, is losing the support of a qualified person,” emphasizes Pizzati. This factor is even more significant when you consider that the employees left behind are often overlooked. “We often see periods of work overload followed by a loss of motivation. This is even more problematic in a context where the recruitment-to-hire time is becoming longer and longer.”
Retention is good, engagement is better
For Pizzati, retention happens automatically when there is genuine communication with all employees. “People need to understand why they’re going to work every morning. Also, things are not necessarily okay just because your retention rate is high. According to experts, 65% of employees have little personal investment in their work. So even though they might not leave, the company has every interest in lowering that percentage. That’s why, while we need to focus on retention, we need above all to focus on employee engagement.” So what should you do to motivate the troops? “You need to stabilize your current situation, then detect and eliminate any sources of dissatisfaction. Only then can you hope to create an engaging motivating environment.”
As for exit interviews, the HR specialist doubts they have any relevance. By definition, they're an exercise performed when an employee is leaving the company and about to move on to other things. So the true reasons behind the employee’s decision, according to Pizzati, are usually hidden. “Instead of asking employees why they’re leaving, you'd be better off regularly asking them what motivates them to stay!” she concludes.