Are You Mistaking Good and Bad Turnover?

  • By: Tom McKeown
  • Blog
  • August 14, 2017

According to a study done by Compensation Force, over the past nine years the global aggregate for corporate turnover across industries has ranged between 14% and 19%. If divided into buckets, the percent of involuntary turnover, where companies terminate an individual’s employment has remained quite steady at 5-6%. This leads to the obvious conclusion that voluntary turnover is the real driver of employment shifts. But is all involuntary turnover good and voluntary turnover bad?

Entry Level Turnover – Tough to Read

Involuntary turnover is most often a function of performance. Even during a layoff, companies tend to use the opportunity to jettison people that have been on the low end of the performance scale. However, it’s necessary to get to a point in employee tenure where there is ample data to judge an employee’s performance. Despite the fact that one third of employees leave their job in the first 6 months, employers walk a fine line on pulling the trigger themselves. The reason being that an employee is rarely profitable in their first year, so it’s a question of how much investment does the company wish to write off?

Since there is little performance data in that early period of employment, the most effective indicators of new hire success are observances during onboarding and training. Is the person engaged and are they grasping what the company does? Routine testing of the employee’s knowledge both during formal training and at periodic intervals during the first year can be very helpful.

In addition to formal training, it can often be advantageous to assign a mentor to a new employee. This gives the manager another set of eyes to evaluate, and allows the employee a chance to gradually start doing functions of their job by contributing to work activities of the mentor. Mentoring also has the additional benefit to management of grooming future managers by providing this half step. It will demonstrate the mentor’s willingness to step up, and provide initial supervisory responsibilities.

Good Turnover – Low Performance and Toxic

Once a year of tenure has passed, employees will start to separate based on performance. The management will have decisions to make such as grooming high performers, motivating middle performers, and either intensifying development efforts or cutting poor performers. Then as you start to weed out or develop more tenured employees into upper-middle and high performers, management efforts turn to retention, as any turnover at this point would be considered bad.

At this point it is important to note that not all good turnover is performance related. There are several good reasons to terminate an employee who on paper has been doing well at their particular job. The first of course is the toxic employee. This is the person who infects the rest of the population with negativity, gossip, or any number of negative social maladies.   Although it is for the good of all in most instances to terminate such employees, be sure to follow proper HR procedures and document the process well.

Bad Turnover – High Performance and Tenured

But getting back to retention; once you have a stable of top performers helping drive your company forward, it’s important to think proactively about how to keep them on board. Don’t wait until they come forward with a competitive offer, because it is rarely a winning situation. According to national surveys of employees that accept counter-offers, 50%-80% voluntarily leave their employer within six months. So, start considering what the employee wants beforehand, and the best way to do this is with a conversation.

According to a study done by WorldatWork and the Hay Group, the three most effective methods to retaining key talent are sitting down with employees and discussing these three items:

  • Training and Career Path
  • Paying Above Market
  • Flexible Hours and Telecommuting

Even if you can’t totally acquiesce on all points, showing your top employees that you care and are willing to work and dialogue with them goes a long way.

Cost of Bad Turnover

Finally it’s important to understand the cost of losing top talent. The hard dollar price goes to the recruiting and training costs of putting someone new in a position. But there is also the productivity loss of that position going empty for a period of time, the intellectual capital that an experienced employee accumulates that leaves with them, and the impact on morale and culture when a star performer walks out the door. I can say from personal experience that the first thing colleagues do when someone leaves is check the website of where they went. It’s an open wound that could keep flowing.

According to a recent SHRM study, the total costs of a top employee leaving amounts to somewhere between 90% to 200% of their salary for an individual contributor, and almost double that for managers. Thus it’s better for the bottom line for managers to speak with top employees before those employees come to speak to them.

This article originally appeared on the TrenData website.

Connect with Tom

Tom McKeown was recently the CEO and Co-founder of TrenData, which was acquired by isolved HCM in 2021. He currently manages the product team and business unit for their People Analytics offering.

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