Why Your Employee Turnover Is Exploding – Explained By the Numbers

Note: This “think piece” is designed to get you to completely rethink your approach to retention.

Turnover rates are the highest in a decade and your retention numbers aren’t likely to improve until you shift to a data-driven retention approach. This article will explain using numbers why so many firms that rely on intuitive decision-making are failing miserably at curbing their tremendous dollar loss from preventable turnover.

Information related to the increased importance of retention

CEO’s list retention as their top challenge – Retaining/attracting talent is the #1 internal issue in this global survey of CEO’s (2019 new global survey).

Employees are quitting jobs at the highest rate in a decade – The monthly quit rate is 2.6%, or the equivalent of a 30% turnover rate over 1 year. The industry with the highest turnover rate is Leisure and Hospitality at 51.8%. Other industries have much lower rates including finance and insurance (13.4%) and the federal workforce at 6.8%. Turnover also varies significantly by region, with the highest in the South at 29.9% and the lowest in the Northeast at 19.6% You can find the average turnover rate for your industry and region at BLS.gov.

Be warned, most employees are open to new opportunities – when they are approached by a recruiter. On average up to 85% of employees will respond positively. (Source: LinkedIn)

Turnover costs reach up to 40% of a firm’s earnings – Turnover-related costs reach more than 40% of your pre-tax income when your firm’s turnover is in the 75th percentile. And even when your firm has an average turnover rate, turnover-related costs still reach more than 12% of your pre-tax income. (Source: PWC)

Turnover replacement costs at some job levels can exceed four times salary – the estimated costs of turnover vary with job level. Here are some cost estimates at each level:

  • Hourly employee – $3,500 (SHRM)
  • Entry-level salaried employees – 30-50% salary (Karlyn Borysenko)
  • Exempt employee – 150% salary (Kwasha Lipton)
  • Non-exempt employee – 175% salary (Kwasha Lipton)
  • Manager/sales – up to 5x salary (Bill Bliss)
  • Highly skilled high-level employees – 400% of salary (Karlyn Borysenko)
  • Executives with a base salary to $250,000 – 28x salary (Bradford Smart)

Most firms are now focusing on retention – Recently 63% of employers listed retention is a top priority. But 5 years earlier, only 20% of firms rated retention as a top priority. (Source: Payscalesurvey)

The most powerful action for getting executive attention is “show them the money” –Normally, you won’t get a single executive interested in turnover when you report the traditional turnover percentage (i.e. 18%). Instead, report $18 million in productivity went out the door — and $9 mil. of that was preventable. Work with the COO’s and the CFO’s offices to develop a process for credibly putting a dollar value on lost talent.

Managers wouldn’t normally tolerate any other catastrophic loss – If an employee walked out your front door carrying thousands of dollars’ worth of equipment managers would act immediately to stop them. But when one of your employees that you’ve invested hundreds of thousands of dollars in salary and training announces they’re going to leave many hold a party celebrating their leaving.

Retain the best because recruiting replacements is now extremely difficult – For the first time since the data was collected, there are more job openings than unemployed people to fill them (3.6% unemployment versus 4.7% job openings). So, refilling turnover vacancies will be difficult, slow and expensive. (Source: Department of Labor)

Using a single turnover percentage can be dramatically misleading – Don’t mislead your executives by only using a single turnover percentage number (i.e. 10%), because if you only lose one person on your team of 10, you may only have a 10% turnover rate. However, if that person is named LeBron your team is in big money trouble! Additional turnover metrics that you should report include the percentage of regrettable turnover, performance turnover, revenue impact turnover, preventable turnover, diversity turnover, and positive or desirable turnover.

Most costs of turnover calculations undercount the real costs when calculating the cost of losing a top employee. You must look at the value of the productivity that they generate instead of just their salary. Because their productivity contribution (revenue per employee) may be five times greater than their salary. Be sure to include the costs related to some departing employees stealing your ideas and customers. And if they go to a competitor, the cost is multiplied by 2 times.

Also, realize that when you lose a top performer 3-5 others will likely follow them. And with their departure, you lose all their investment in training and their capabilities. Realize that new hires will weaken your team’s culture. Finally, realize that the replacement employee may be a weaker performer (because top performers quit first). And it may take a new hire that must relocate 500 days to become assimilated and to get up to full productivity (Source: D. Bloom 2001).

New-hire early turnover is also a major issue – In the booming economy, early turnover is a major issue. Four percent of new hires quit on the 1st day, 25% decide to leave during their 1st week and 30% actually quit within the first 90 days. (Source Jobvite survey 2018)

The most powerful strategic retention actions

Be data-driven – 95% of company retention efforts don’t work because they operate on intuition. There is literally nothing more important than committing to making all important retention decisions based on data.

Most turnover is preventable so proactive action is important – “Nearly 77 % of turnover could have been prevented by employers.” Such a large percentage gives retention a high ROI. (Source: Work Institute 2018 exit interview results)

Predicting who is likely to quit because it gives you time to prevent turnover – Google, Hershey, and IBM all have processes for predicting individual employee turnover. IBM’s AI assisted “predictive attrition program” has a 95% success rate for predicting who will quit within 6 months. And it has already saved them $300 million. (Source: IBM) Also, remember to target top performers because they are the first to go.

Prioritize your retention targets – Realize that all employees and jobs don’t have an equal impact. So, prioritize and focus your resources on high-impact employee targets and those that are most likely to leave, because trying to keep everyone will actually cost you more! The highest impact individuals to keep are innovators, followed by revenue generators.

Time your retention efforts because employees don’t leave at random times – Most employees leave a company within one month of their anniversary date. Salespeople leave after getting their annual bonus, usually in December. (Source: entelo.com) Quit rates typically increase from March until October… and they decrease in November and December. (Source: BLS statistics 2017)

Failing to have a great job will not by itself make most leave – Make sure that managers realize simply having a bad job doesn’t spur much turnover. What triggers employees to start a job search is a bad job plus another triggering event or “career wound.” So managers must know these triggers and watch for them in their “at risk” employees. These triggers often include the ending of a project, losing a promotion, a perception of unfairness, their boss leaving or a family event. (Source: M. Homula)

Expand the goals of your retention effort – In addition to retention, your overall goals should include providing managers with a retention toolkit. And increasing the turnover of low performers, getting top former employees to return and making sure that exiting employees leave “happy” (so they won’t badmouth your firm on social media).

Data points related to the causes of turnover

Managers cause much of their own turnover – The No. 1 reason why people quit a job is…”People leave managers not companies. In the end, turnover is mostly a manager issue” (Gallup survey). At least 75% of the causes of turnover can be influenced by managers.” (Source: Gallup)

Standard exit interviews provide misleading causes of turnover – It’s important that you identify the real turnover causes for key individuals. Start by determining if all employees leave for the same reason. Unfortunately, normal exit interviews are problematic because employees regularly provide misleading answers due to the pressure to get a good reference (most simply blame pay). But if you delay the interview by even 2 weeks and hold a post-exit interview, you will find that up to 40% of the answers from normal exit interviews change. (Source: Work Institute) If you want to find the real new compensation of a departing employee, wait a month and simply ask them for a copy of their offer letter.

Overly focusing on compensation is problematic – “Only 22% mentioned money” as the reason for their exit. (Source: Gallup survey) However, giving more money is the most common retention practice.

Feeling unappreciated is a major reason why employees consider leaving – 66% of workers are likely to leave their job if they feel unappreciated. (Source: OfficeTeam) The most common reason for leaving at Google is feeling underused.

Toxic employees are a major cause of turnover – Failing to terminate toxic employees can be a problem because toxic employees make others 54% more likely to quit (Source: Cornerstone Selection). To learn more about the damage done by toxic employees, see my recently published “Toxic Employee Handbook.

Educate your managers on the reasons why average workers leave – The most common turnover causes in descending order are career development, opportunities for growth, achievement & security, the work environment, management behavior, and job characteristics. (Source: Work Institute survey). Unfortunately, 5 of the 8 most common turnover reduction actions focus on compensation (Source: OI Partners 2012). Management behavior also matters because 30% of employees leave because of a manager’s condescending attitude and 24% leave because their manager harassed them. (Source: BambooHR)

Development without career opportunities – Be careful because you can actually increase turnover if there are no opportunities for advancement after professional development is completed (Source: S. Seibert U of Iowa 2011)

The most effective retention tools

If you want to solve your retention problems, here are the most effective retention tools.

Stay interview – The most effective retention tool by far – LinkedIn found that “Tell me why you stay” interviews can result in a 38% reduction in turnover. Stay interviews are periodic one-on-one conversations where their manager asks their employee what “sticky factors” keep them here. The discussion then focuses on how the manager can proactively reinforce those factors. (Author’s note: my new eBook on Stay Interviews is available on Amazon.)

Walk them downstream – to show their impacts – It’s critical that every manager knows the most impactful motivation. Harvard found that the #1 employee motivator is “connecting employees to those that benefit from their work.” Their research also found that meaningful jobs have longer tenure because “employees with “highly meaningful jobs were 69% less likely to plan on quitting their jobs within the next 6 months.” So, proactively increase their passion and their feeling of making a difference by letting them see their results / impacts, including meeting customers and those that work downstream. (Source: Harvard Business School

Compelling work – Make their work compelling with job redesign – For top performers compelling work is often the #1 retention factor. For example, Facebook found that “crafting motivating, meaningful jobs… is what really matters.” (Source: LinkedIn) Create a “more of/less of” list for shifting job duties to ensure that your employees are spending most of their time working on what they do best.

Compelling coworkers – Give them compelling coworkers – Netflix unambiguously found that their top retention tool by far was “Excellent colleagues trump everything else.” (Source HBR Jan. 2014)

A great manager – 65% of Americans would choose a better boss over a raise (twice as many would choose a better boss over the money). So, create a “bad manager identification program” using Project Oxygen criteria (75% improvement). Then fix the weak managers and then provide them with a retention toolkit. (Source: Michelle McQuaid)

Retention tool – The simplest and most effective tool for identifying whether an employee is a flight risk only requires a single question – Ask your “regrettable employees” this simple question: “How many nights during the last month… within 10 minutes after your head hits the pillow… did the excitement of going to work the next day enter your mind?” If the number is below 10, take that as a warning sign. (One Facebook employee told me their number was 30). The goal is to become like Genentech —“A Disneyland for scientists.”

Referral hires – Referral hires stay longer – 47% of employees hired via referrals stay for over 3 years. But for job boards the number is an abysmal 14%. Realize that referrals lead to longer tenure because the referring employee provides a support system. (Source: Jobvite)

Excitement list – Create a personalized excitement list – It is critical that a manager knows each employee’s list of motivators and frustrators. So, every manager should conduct an annual survey of all their employees in order to identify current motivators, because they shift over time.

Retention plans – Create personalized retention plans – Mass personalization is the key to retention. So, develop a personalized retention plan for each of your regrettable employees. And include in it sub plans for learning, recognition, challenge and where they would like to be in 18 months.

Minimize barriers to productivity – High productivity levels reward the most productive employees. So, work closely with individuals and the team to identify and reduce barriers that limit their success.

Management By Walking Around – Expanding daily face-to-face contact with your employees will build loyalty and make employees more open to sharing their issues. So, develop a MBWA schedule.

Ask them to stay on – This simple approach can be quite effective. Simply approach your most desirable employees and tell them how important they are to you and the team. And ask them to stay. Also, ask them to at least give you a heads-up warning before they start any job search.

Don’t hire money-driven people if compensation dollars are constantly limited where you work. Make a conscious effort to avoid hiring individuals that put a high priority on money. They will only get frustrated when they don’t get more money on a periodic basis.

Develop a diversity retention plan – Diversity recruiting efforts can be a waste if you don’t have a corresponding diversity retention plan.

Be careful of these retention approaches – Even engaged employees may quit because “43% of highly engaged workers… have weak or lukewarm intentions to stay” (Accenture 2011). Be careful with retention bonuses and pay raises because they might simply result in you paying to keep an unhappy and complaining employee around. Also, don’t assume that benefits retain. Because Google revealed, “The dirty secret of all these perks is that they don’t actually retain people or even attract people.” “They ultimately won’t swing people who are thinking about leaving.” (Source: Laszlo Bock) In order to be effective, retention levers must fit the likely turnover causes for this employee.

Final thoughts

I know that this is a lot of information to absorb. However, if it simply convinced you to shift to a data-driven retention approach, then I met my goal.

Author’s note: If this article stimulated your thinking and provided you with actionable tips. Please take a minute to follow or connect with Dr. Sullivan on LinkedIn and to subscribe to TLNT Daily

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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