Losing Michael Jordan hurts but losing Homer Simpson rates a party, so avoid lumping all turnover together.
Note: This think piece is designed to convince you to narrow your retention focus
Let me be blunt; most companies are experiencing record high turnover rates. However, I estimate that over 50% of that turnover would be prevented if they weren’t using an antiquated retention approach. Unfortunately, I have found that most retention managers also don’t know squat about how to minimize the business impacts of employee turnover.
Their lack of insight and knowledge becomes obvious immediately after learning the only real turnover/retention metric is their organization’s total turnover percentage (i.e., our turnover rate last year was 18%). The second indicator of their lack of focus is when they consistently institute across-the-board retention actions designed to impact all employees equally.
These two misguided approaches are driven by the outdated assumption that the primary goal should be to retain every employee. In fact, because of your limited time, resources, and the uneven business impact of turnover in different jobs. Your retention efforts should be narrowly focused on those high-impact employees that are likely to leave due to preventable reasons (we call them regrettable turnover). Focusing on regrettable employee retention is critical because one of the highest “risk factors” throughout the business is the potential dollar loss that occurs when (not any employee) but your regrettable employees leave for preventable reasons.
The key lesson to be learned is… to focus your retention efforts primarily on the approximately 20% of your employees that would produce the highest negative business impacts if they left.
I – Because Not All Turnover Is Equal… First Identify, Prioritize, And Then Focus On Your “Regrettable Employees” That Create The Highest Negative Business Impacts When They Leave
Most organizations don’t have the time or resources needed to fight to keep every employee. So it makes business sense to prioritize your key employees and then narrow your retention efforts to focus on what is known as “regrettable turnover,” an employee that executives will deeply regret losing. Their departure will “result in significantly higher than average “negative business impacts.” You need to take three steps to narrow your retention focus successfully.
Step #1 – Identify and prioritize the employees that are “at-risk” of leaving (i.e., flight risks) is your first step
It makes little sense, and it consumes valuable resources when you invest in retaining employees who actually have a low probability of leaving in the near future. This “low-flight risk” group is likely to include those close to retirement, intensely loyal to the company, the recently promoted, and those with significant soon to vest stock options. For example, IBM found that it can predict with 95% accuracy those employees that will likely quit within six months.
Step #2 – Further narrow your retention efforts to identify and prioritize those flight risk employees with preventable turnover causes
The second step for reducing regrettable turnover is identifying and then stopping the departure of flight risk employees who might leave because of reasonably preventable causes. It’s important to realize upfront that much of your turnover is preventable.
One study by Insight Link revealed that 50% of all voluntary turnover was preventable. For example, a manager can often influence the “preventable causes” like pay, working conditions, a lack of learning and development, job flexibility, and job content factors.
On the other end of the spectrum, it also makes little sense to undertake a major effort to keep employees leaving because of turnover causes that can’t easily be influenced. Typical non-preventable causes might include leaving because their family is relocating, they are returning to school full-time, serious health issues, new full-time childcare obligations, or because they won the lotto (note: a decision to retire would not normally be considered as non-preventable because many can be convinced to delay their retirement).
Incidentally, you can more accurately identify the real causes of why an employee left if you use post-exit interviews (which is where the exit interview is delayed to a month after their departure). Finally, realize that those employees that are already well into their active job search will have a much lower probability of being convinced to stay, despite all of your last-minute retention efforts.
Step #3 – Further Narrow Your Retention Focus And Prioritize The “Regrettable Employees” In The Following High Impact Groups
Initially, you began with a group of high flight risk employees with preventable turnover causes. And now the next step is further to prioritize and narrow down your retention targets to only include those employees in the following 7 high business impact groups.
- High impact individual employees need to be a priority retention focus area – because not all employees have the same negative business impacts when they leave. You need to begin working with the COO to identify and focus on the group of individual employees. In addition to being at risk, they have a much greater business impact because of their capabilities. Individuals that qualify for this group usually have rare but essential skills, extensive contacts, a history of great ideas, or important experience. Other high-impact individual employees may include significant innovators, revenue generators, agile leaders, and the developers of internal talent. And after you identify them. Focusing your retention efforts on this group of individual employees makes sense because it’s extremely costly to lose their exceptional business capabilities.
- Top-Performing employees need to be a priority retention focus area – even though not all top performers will have exceptional business capabilities. It still makes sense to focus your retention effort on the top performers in every team. And especially during these turbulent times when so many recruiters are aggressively poaching. It’s important to realize that turnover among this highly desirable cadre of “top performers” can be extremely high (in one year, an alarming 47% of top performers quit). These individuals are classified as regrettable employees because their high performance disproportionately impacts team performance. In fact, Google found that 90% percent or more of the value on a team comes from the top 10% of team members. Incidentally, you should add an extra retention effort on those top performers who would be likely to go to a direct competitor if they choose to leave. Because of the added costs to results when they take your best practices, plans, relationships, and ideas with them. Add a retention focus area that covers employees rated in the top 15%, based on job performance, team member forced rankings, or performance appraisal scores.
- Diverse employees need to be a priority retention focus area – most companies have a robust diversity recruiting program, but few have even an informal diversity retention program. So if your organization appreciates the value of diversity on a team, it’s a good idea to have a “diversity retention effort” that covers all of your diverse employees. However, when your resources are limited, consider developing a retention focus area that covers only the diverse employees that work in jobs where diversity has its highest business impact. Those jobs where diversity has its highest impact include executives and managers, diverse professionals in product development, customer service, marketing, sales, and DEI professionals.
- Leaders in your succession plan need to be a priority retention focus area – if you have an effective internal succession plan. It makes sense to make the current and future executives a part of your retention focus. You should especially focus on those plan members that would generate significant negative publicity if they left prematurely.
- Those that will likely take others with them need to have their own priority retention focus area – as many as 20% of your admired formal and informal leaders have a great influence over others. And as a result, should they decide to leave, they will likely bring along 3 to 5 other employees within six months. As a result of their ability to influence others, you should also have a retention focus area covering these highly admired individuals.
- Everyone working in critical jobs and business units may need their own retention focus area – in some cases, to maintain continuity. You will want to keep every employee working in critical jobs, teams, or business units. Regardless of their flight risk, capabilities, or performance level. Those “keep them all” areas can be broken into two categories.
- Those working in mission-critical jobs need their own priority retention focus area – although they might not be top performers or innovators. Anyone working in a “mission-critical job” will impact a large business. So it makes sense to identify and then focus your retention efforts on employees working in strategic or mission-critical jobs. Those jobs might include AI developers, salespeople, new business developers, product developers, project leads, recruiters, and investment and marketing professionals. Also, any individual employee working in a critical job where replacements are extremely hard to find should be further prioritized. because these jobs are so critical that you may attempt to retain every employee working in them. Including even average performers and those employees with a low flight risk.
- Those working in strategic business units need their own priority retention focus area – because of their growth rate, trajectory, the opportunity for market dominance, or profitability. A few business units or critical teams will have an extremely high current or future business impact. And as a result, to maintain continuity, there should be a retention focus area covering almost every employee working in these critical business units.
Part II – Because All Turnover Is Not Equal… Realize That Losing Some Employees May Actually Be A Good Thing
Because all turnover is not equal, I have highlighted the importance of focusing retention on those who will create a significant negative impact should they leave. However, on the other side of the coin. It’s also important to realize that losing some employees will have a minimal negative or even a positive business impact. So I urge you to scan this next section to understand unique cases better when losing some employees may not be a major problem. Those lower impact turnover areas include:
- Toxic employees, losing them may be a positive – even one “toxic employee” can literally poison the work environment and strain initiative and morale. So it’s time to realize that losing them will likely significantly improve team productivity and retention. So don’t spend any time trying to retain them.
- Bottom performers, losing them may be a positive – many employees on a downward trajectory are on a performance management plan. Unfortunately, few ever become top performers. And in almost all cases, it will take a lot of time and money to raise their performance on more than one level. So realize that any retention efforts focused on them will likely have a low or negative ROI. And will find that should they decide to leave on their own. When you have a strong recruiting process, the replacement hire will almost always be an even better performer than the departed employee.
- Weak or blocking managers, losing them may be a positive – it’s literally true that no single factor has a greater impact on team performance than its manager. And because weak managers/supervisors seldom improve in the short/medium term. You should have a “bad manager identification program” (Google has one). And after your attempt to improve them produces no tangible results, no effort should be made to retain these weak managers. And in the case of mediocre managers that are not improving. You shouldn’t take any retention action for those with no positive future trajectory and are also blocking the promotion ladder for many below them. In most cases, the costs of losing these managers are smaller than the cost of losing any of the blocked employees under them because they grew frustrated seeing no path to future promotions.
- Employees designated for layoffs, losing them may be a positive – you likely have many employees that are working in jobs that may be eliminated during the next downturn or technology iteration. And if they’re still working for you when their job is actually eliminated. You’ll have to go through the pain of involuntary separation and the added costs of severance and career help. So it will likely be a positive if these redundant employees leave on their own with no retention effort.
- With a well-trained replacement, losing the primary employee may be okay – when the organization has an effective “backfill plan” for a position. The training and the “fill-in replacement experience” provided to the designated backfill may mean that there will be no loss in performance if the primary employee is promoted or if they quit. So, although you still probably wouldn’t want to lose them. If you did, the negative business impacts would likely be minimal.
- An extremely low voluntary turnover rate may not be a positive – some managers actually state that they have a goal of zero voluntary turnovers in their team. And if an individual manager actually reaches that goal. It is a common mistake to assume that an extremely low or “zero turnover” means that it is a well-managed team. Many bureaucratic government agencies have an almost zero turnover rate. However, that rate is not a result of great management or retention efforts. Instead, because the organization has such a bad external image. Or the fact that its employees are in such low demand externally because they are perceived as poorly skilled and motivated. As a result, one major chip firm set 4% as their minimal voluntary turnover expectation target. It also makes sense to track the percentage of your employees that are actively recruited (and kept) each year. It is a superior indicator of the desirability of your employees and the effectiveness of your retention program.
- A low involuntary turnover rate may also be problematic – many organizations also track their “involuntary turnover percentage.” The percentage of employees that were encouraged, asked to leave, or that were terminated each year. And although most are reluctant to release or fire any “not regrettable employee.” Proactively forcing unproductive or redundant employees out of the organization is one of the most effective ways to increase workforce productivity. So it’s important to be aware that having a low involuntary turnover rate of below 5% may be a sign that you have weak managers who have the expensive habit of carrying deadbeat employees too long.
|If you can only do one thing© – during this time when turnover rates are at a record high. Concentrate your retention efforts and limited resources on the employees that will create the highest negative business impact if they were to leave. Begin by capturing the names of those with the highest performance appraisal scores or forced ranking in each strategic business unit. And then encourage their managers to hold “stay interviews” with each of them.|
Part III – Consider Adding A Few Focused Turnover Measures That Will Drive More Effective Action
Once again, everyone should realize that a single overall employee turnover percentage has little value because it doesn’t generally drive any action. Also, this broad metric doesn’t tell you specifically where you need to act. So what is needed is an array of additional supplemental “focused turnover measures.” Each sub-metric covers an area that many executives have determined that most have higher retention rates. From these 10+ more focused retention sub-metrics, executives should choose those that will better reveal where focused employee or position retention actions are needed. The highest impact metrics that drive action are listed first on this list.
- The total $ cost of last year’s employee turnover
- The forecasted turnover rate for regrettable employees next year
- The turnover % among critical individual employees
- The turnover % in key positions
- The % of employees with preventable turnover causes that were retained
- The % of employees that are “at-risk” of leaving and the percentage that left
- The turnover % among top performers
- The turnover % of innovators, game-changers, and pioneers
- The turnover % among hard to replace employees
- The turnover % among diverse employees in high-impact jobs
- Your internal movement “churn rate” because it is a hidden form of turnover
More detailed information on these recommended supplemental turnover and retention metrics can be found here.
Part IV – You Won’t Be Able To Narrow Your Retention Focus… Until Your Managers Appreciate The Real Costs Of Regrettable Turnover
The key lesson to be learned is… that the most impactful error in retention is dramatically under calculating the total dollar cost of turnover.
The #1 cause of retention program failure at most companies is failing to make data-driven decisions throughout the retention process. I attribute that omission almost exclusively to the severe undercounting of the actual costs resulting from regrettable turnover. Most retention estimates put the cost of turnover at 1½ to 2 times an employee’s salary. However, I have found that this estimate is a severe under calculation. In direct contrast, I have found that after years of researching the true costs of turnover. The actual cost of losing a top performer working in a mission-critical job can exceed 10 times their salary! I have found that the commonly used underestimate is so low because the calculation formula that is used omits so many important business cost factors (outside of the standard recruitment and new-hire training and onboarding costs).
Here are the 22 most commonly omitted critical business-impact turnover cost areas:
|Customer impacts during the vacancy & replacement||Lost position productivity when the position is vacant|
|Lost innovation, ideas, secrets, and best practices||Neg. team impacts during the vacancy/replacement|
|The new hire may fail or perform at a lower level||The position may never be refilled|
|Turnover/replacement uses added management time||The loss of potential future leaders|
|Lower team results until the new hire is up to speed||Higher stress levels for managers|
|The costs of others following the departed||Lost diversity in key positions|
|Higher salary costs for the replacement||Overwork team members will increase team turnover|
|Legal issues during turnover and replacement||Turnover encourages recruiters to raid your team|
|Replacing them will weaken your team’s culture||High turnover will hurt your employer brand|
|Lower customer satisfaction in CRM jobs||Slower product development in product positions|
|Lost revenue in revenue-generating positions||High turnover cuts internal movement into the team|
You can find more detailed information on how to calculate the much higher real costs of employee turnover here.
I have been researching and writing about retention for well over two decades. Unfortunately, I have found that little has changed over that time period. I still find that most that claim to be retention experts are still not data-driven and most fail to be scientific in their retention approach.
One of their primary reasons for weak programs occurs in the measurement area where almost everyone assumes that all turnover is equal. For example, when you report that you have an 18% turnover rate. It assumes that losing Homer Simpson has the same negative business impact as losing LeBron James. And that losing a janitor has the same negative impact as losing your Head of AI.
To me, the “all turnover is equal approach” demonstrates that most don’t understand that the purpose of turnover metrics is to tell you which specific employees need attention and what turnover causes need to be resolved. So I urge all practitioners in the field of retention to update their approach.
First, by adding important sub-metrics like the turnover rate of top performers or innovators. Next, everyone should make sure that the real costs of turnover are always calculated. And finally, make sure that their retention efforts are narrowed and focused on high-impact employees that are working in jobs that have the highest business impacts. But whatever you do, immediately stop assuming that all turnover is equal!
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