Controlling the High Cost of Turnover

All companies experience turnover to some degree. Many companies refresh their pool of employees by restructuring their organization every three to four years, and even though the change is sometimes good, it is always costly. Other companies just can’t seem to hold onto people. Sometimes this is a casualty of the industry, such as in Hospitality or Retail. Those industries do tend to lose people more frequently. Nevertheless, if you own or manage a company where high turnover is an issue, you are needlessly losing a tremendous amount of money. Calculations for turnover costs can vary depending on the position, but typically they range from 1.5 to 2.5 times the annual salary.
When determining the true cost of turnover to your company, don’t just consider hard costs such as severance pay, litigation, training costs, advertising and recruiting costs. The heavier expenses actually lie in the things that are not immediately apparent. For example, a restructuring can have a terrible impact on employee morale. Fear and uncertainty tend to de-motivate and distract employees, thereby lowering productivity. Being short staffed also lowers productivity, and stresses the remaining team members, which could lead to increases in absenteeism and the dreaded “stress leave”.
The fall-out from turnover gets even worse when you calculate the customers you lose due to lost relationships with departed employees. Quite often the reason you have your customers in the first place is because they like the people they are dealing with. When you lose an employee, you may lose his customers too. You may also lose customers because the lack of staff has compromised the quality of customer service in your business. Botched orders, slow delivery, lack of stock, missed deadlines, and trying to recover from errors, all cost money.
Knowledge loss and knowledge acquisition have a cost as well. When someone leaves your company he takes company secrets, client information, technical skills and more with him. What’s more, it will take his replacement an average of 14 months to get over the learning curve. That’s 14 months of lower productivity, confused and perhaps frustrated customers, frustrated co-workers, mistakes in processes and any number of other workplace mishaps. Once again, it’s money out the company window.
So now you know why you need to hang onto your people, but do you know how? A lot of companies spend a tremendous amount of money on professional recruiters and personality assessments with the hope of being able to find the right person for the job. The assumption is that if you pick the right person he or she will stay around. While both of these methods are helpful, they are not the only answer to your problem. The fact is, if you have a problem with turnover, it is probably not because you continually hire the wrong people. It is more likely because of you. As John C. Maxwell says in his book Leadership Gold, “People quit people, not companies.” In other words, if someone quits, take it very personally.
It all comes down to Employee Engagement. Engaged employees do not quit. They are fulfilled, content, dedicated and highly productive. They feel they have an important role to play in the success of the company, and no one will lure them away.
I have a client in Alberta who complained that the labour shortage there has made it virtually impossible for companies to retain people. Competitors continually try to lure people away with offers of higher pay. Don’t be fooled into believing that money is the real issue behind your stream of departing employees. Some may leave for that reason, but if they are engaged, they will not feel so compelled to leave. They have too many important things to do for your company and won’t likely trade a great work environment for an unknown and possibly disastrous one.
A 2003 Statistics Canada study looked at whether or not alternative work practices decrease turnover. The study conducted by René Morissette and Julio Miguel Rosa determined that these practices for the most part seem to have little impact on turnover, except where there is a formal policy of information sharing. They continued to say that the quit rates were also lower in companies that had self-directed work groups and in those with a policy of profit sharing.
I can’t help but see the connection between employee engagement and these particular practices. Information sharing and forming self directed work groups are important in the strategic development of employee engagement. Please note, however, that policy does not affect results, people do! Many companies have wonderful policies around training, communication and work practices but failure to implement, or weak implementation of these policies renders them useless.
Keeping your people engaged requires continual effort in involving them in your business. Your frontline people need to be just as involved in the success of the company as the President. The job functions are different, but both need to understand their relationship to the mission, vision and values of the organization as well as their unique role in creating positive bottom line results.
The Gallup Organization developed 12 questions to determine employee engagement and through extensive surveys determined that only 29% of employees are truly engaged in their work. Buckingham and Coffman discuss the significance of these questions in great depth in their book, First Break All The Rules (Simon & Schuster, 1999). These questions are keys for leaders in determining how to breach the gap between employee presence and employee engagement. Remember, engaged employees don’t quit, so understanding the factors that lead to disengagement is crucial if you are trying to reduce turnover in your organization.
The questions are as follows:
1. Do I know what is expected of me at work?
2. Do I have the materials and equipment I need to do my work right?
3. At work, do I have the opportunity to do what I do best every day?
4. In the last seven days, have I received recognition or praise for doing good work?
5. Does my supervisor or someone at work seem to care about me as a person?
6. Is there someone at work who encourages my development?
7. At work, do my opinions seem to count?
8. Does the mission/purpose of my company make me feel my job is important?
9. Are my co-workers committed to doing quality work?
10. Do I have a best friend at work?
11. In the last 6 months, has someone talked to me about my progress?
12. This last year, have I had opportunities at work to learn and grow?

Consider this list a checklist of sorts. If, as a leader, you make every effort to make sure your people can answer positively to these questions, then you shouldn’t have a very big problem with either turnover or employee performance and your profits should soar.
If you are not sure how to get your people to the point where they can answer these questions with the highest degree of agreement, then you need help. Leaders need to learn how to lead, and to tell you the truth, an awful lot just don’t have a clue. Truly, you can never stop learning about leadership. You will never know it all or remember it all, and great leaders are the ones who engage in continual development and encourage the same in their people.
In fact, most problems in companies can be attributed to poor leadership. If your Customer Service reps don’t care about customers or always show up late, it’s likely not because they are twenty years old and self-centered. It is more likely because they are working for a company that doesn’t make them feel important and hasn’t successfully tied them to the mission, vision and values of the organization. So once again, take those shortcomings personally and do something to change the situation. These problems are definitely a reflection of your leadership!
If your teams can’t meet deadlines, somewhere in there is a leader who can’t gain willing cooperation from people, isn’t clearly expressing expectations, can’t make decisions, or who can’t delegate effectively. Whatever the cause, there is a problem that needs fixing and the leader is at the core of the problem.
Fixing your leadership problem will certainly have a positive impact on your turnover rates, and even in industries or professions where high turnover is typical, improvements can be made. Ignoring the problem will achieve nothing and since no business was ever intentionally created to lose money, it makes no sense to let this opportunity go by.
Whether you engage the services of a training professional or simply read every book you can find on leadership, make sure you implement the strategies you learn and cultivate an atmosphere of acceptance and support at work. If you consistently dedicate yourself to practising exceptional leadership, you will discover your employee turnover rates are a non-issue.
An edited version of this article has been published at www.trainingmag.com