Determining Your Appropriate Turnover Rate
Employee turnover rate is a metric that all organizations use to determine how well (or how poorly) they keep people employed with their organization. More often, this is measured as employee retention—the percentage of employees who stay.
Turnover rates in most industries tend to be about 15 percent, meaning that 15 percent of employees will leave a company in a given year. Sure, there are differences in the retail industry where seasonal employees are used more frequently, or the resources industry where employees tend to stay for longer so that turnover is lower in most years.
Let us ignore the exceptions on focus on the 80 percent of companies that have a turnover of about 15 percent. Is that a good number? Is it all right to lose 15 percent of your employees every year? I do not know what the right number is (I am sure someone will tell you the right number is 12.34 percent).
What is more important is whether or not you are keeping the employees you want to keep. The employee turnover numbers represent the percentage of overall employees who are leaving a company. Some of those employees should leave. Some should stay. Do you know what your turnover percentage is for employees that you are trying to retain? If it is still 15 percent, then I would be concerned. That means that almost 2 out of every 10 employees you are trying to retain are still leaving. You should be retaining more than 95 percent of the employees you want to keep. It should be an anomaly, not the norm, that one of your top people leave.
In Chapter 7, we discussed purposeful customer retention reduction, which meant specifically not trying to retain the customers whom we do not want. The same applies for employees as well. Why are we making retention efforts for employees we do not want? Let them go. Focus your efforts on the ones you do want.
Let us make this more applicable. For starters, how do we measure turnover for those employees we want to retain? Here is an easy way to do that:
Start by identifying who they are. Seriously, go through your organization and identify the 15 or 20 or 200 people whom you really want to retain. Put their names down on a list somewhere. Keep adding to it and taking away from it as new people join the organization or improve their performance or leave. Who should be on this list?
• People who are your top performers in key areas of the organization
• People who have great management and leadership potential
• People who have proven they can adapt to new environments, and learn and apply new skills
• People who take on leadership roles regardless of where they sit in the organization
• People who put the organizations’ best interests before their own
• People who can get things done
I think that is a good start for now. Go off and make your list.
You should be focusing your retention efforts on these employees. Get to know them and what they like, and then do everything you can to keep them. And remember that not more than 5 percent of these employees should be leaving in any given year. Why is this important? For two keys reasons: (1) You keep your best people; (2) Every other employee sees that you are making efforts to keep your best people. That means if they want to keep their job, they had better figure out how to be identified as one of those best people.
Not everyone wants to work for a company that is constantly changing and evolving. Not everyone is comfortable with innovation and change. You need to determine what kind of organization you want to be, and then hire and retain the best people to help you achieve that.
Purpose employee turnover means that you are not worried about what percentage of turnover you have for the overall organization, but only for the employees you have identified as critical to the organization’s success. Let us assume there are four types of employees in your organization: the top performers, the good performers, the adequate performers, and the poor performers. Here is how I would treat each group:
Your retention focus should be on the top performers, and those good performers who have the potential to be top performers. You should also have a metric to see how you are faring in each of the top two groups. Is your employee turnover rate in the top performers group lower than it is for the overall organization? I sure hope it is. Remember the 95 percent rule. 95 percent or more of these employees should be staying with your organization each year.
Your employee turnover rate should be lower with your top performers than with the rest of the organization. If it is not, then you need to reevaluate and change your retention strategies. If more of your best people are leaving than the rest of the organization, then you are in trouble.
The obvious benefit of keeping your best people is that you do not have to replace your best people with other people. The following are some other benefits to think about:
• Top people attract other top people. Retaining your best people makes it easier to attract a higher caliber of people.
• Hiring and recruiting costs go down. As you attract more people, you do not have to pay for headhunters or search firms to find you candidates.
• You are investing money in developing people who will have a long-term impact on the organization.
• Your brand and reputation improve.
• Severance costs will go down. Fewer of your top people will want to leave; so you are not forced to pay severance for those wanting to leave.
• Your reputation in the industry goes up. More customers want to buy from you, and more people want to work for you.
By focusing your specific retention efforts on your top people (thus reducing your employee turnover rate with the top two groups), you become the organization that everyone lines up to join, not the one everyone rushes out the door to leave.