Proposed Retention Metrics
At the heart of our approach to retention metrics is the core premise that effective retention metrics require an organization to more carefully examine each incident of turnover. Gross measures of turnover and retention really say little about the quality of employees lost and retained. The following metrics address these concerns.
Metric One: Turnover Index. Each organization will need to maintain a database of persons leaving the organization and make several key ratings about each person who leaves. These ratings will comprise the turnover index and be used in other metrics as well. Table 9.1 shows the elements of the turnover index.
| Element | Score (1 to 5) | |
|---|---|---|
| Reason for Departure: To what extent was the departure potentially avoidable? | 5 being potentially avoidable | |
| Replaceability: How difficult will it be to replace the leaver with someone at the same level of competence? | 5 being very hard to replace | |
| Performance: How well was this person performing at his or her job? | 5 being high performer | |
| Potential: How much potential did the person have to move to a position with greater responsibility? | 5 being high potential | |
| Index Score | Sum the four ratings |
High scores on this index (which ranges from 4 to 20) indicate a person that the organization would not want to lose. A low score indicates a person whose loss was unavoidable, that is easily replaced, was performing badly, and had little potential—in other words, a desirable departure.
The Index score, between 4 and 20, sums up the individual’s desirability. A low score indicates an employee who is very likely to leave yet easily replaceable, a low performer with little potential. A high score indicates the exact opposite—the most desirable type of employee.
Metric Two: Adjusted Turnover Percentage. Simple turnover statistics tell little about the exact nature of the turnover. Nonetheless, turnover percentages have appeal as they are familiar, simple, and easy to communicate.
Metric Three: New Employee Loss Metric. There are two particular areas of concern for which special metrics are needed. The first of these is covered by this metric—the loss of new employees soon after employment. There is substantial evidence that the quality of new employee development activities and the manner in which new employees are brought into an organization is a key determinant of new employee turnover. It is also a very costly phenomenon. This metric addresses a simple-adjusted turnover for new employees for each of their first three years of employment (see Table 9.2).
| Lost in 2005 | Lost in 2004 | Lost in 2003 | |
|---|---|---|---|
| Employees hired in 2005 | |||
| Employees hired in 2004 | |||
| Employees hired in 2003 |
Metric Four: Competency Opportunity Metric. This metric extends the use of the Human Capital Development Contribution (HCDC) ratio proposed in the development metrics. The core premise of this metric is that the loss of more experienced employees who are replaced by less experienced employees results in a lost economic value added that is rarely calculated. You may recall that HCDC is expressed as the dollar return for a dollar of compensation. Our second premise parallels that of human capital economics and utility analysis that says that a conservative estimate of the economic value of an employee’s competence is represented by the employee’s salary. The Competence Opportunity Cost is attributable to turnover, or failing to retain employees. To calculate this metric, one more thing must be added to the data collected for each person who leaves. Specifically, calculate the difference between the salary of each person who leaves and that of the person’s replacement.
Compensation Difference = Annual Compensation of Leaver – Annual Compensation of Replacement
The result will be the economic contribution forgone by having a less competent person in the position. A positive number is a cost to the organization while a negative number represents a net gain for the organization.