Understanding Employee Turnover Key to Staying Ahead

Turnover is one of those things leaders pay attention to when it goes bad. They don’t usually think of good turnover, although it does exist.

Conventional wisdom is there is no perfect turnover number — what’s good for one organization may not be good for another. Further, there are many ways to distinguish between good and bad turnover, or what is the right amount for any organization. Different industries will have different rates.

For instance, the fast-food industry generally considers more than 30 percent turnover acceptable, while the aerospace industry would be on red alert with the same numbers.

Even within industries, turnover rate can change. Certain business models such as quick service retail allow for, or create, more turnover than others.

Geography also can play a part in turnover, which is closely associated with general employment rates. However, this is general wisdom.

To put it to the empirical test, the Institute for Corporate Productivity, or i4cp, a research organization where the author works, surveyed 181 employees at commercial and noncommercial industries in May 2012 and found no correlation between specific turnover rates and overall market performance.

The survey was based on self-reported ratings encompassing an organization’s performance in four key areas: market share, revenue growth, profitability and customer satisfaction.

This research, although it did not correlate any particular turnover rate to market performance, did find a positive correlation between efforts to improve employee retention rates and market performance.

Essentially, paying attention to an organization’s turnover rate, and making efforts to retain key employees to control the turnover rate, does have a positive correlation to outperforming other companies in the marketplace.

Numbers Aren’t Everything
An organization’s turnover rate, seen as an abstract number, is not a valuable data point to focus on.

It is a number that only can be understood in relation to many other facts and numbers such as the general unemployment rate, local and national politics, and climate, all of which are relative to an individual organization.

In our division of Lockheed Martin [Missiles and Fire Control], we have miniscule turnover,” said Jon Turner, senior organizational development analyst at global aerospace, defense and technology company Lockheed Martin.

“We’ve been consolidated, and with their business model, turnover will be higher. We do benchmark against external, but we also have a fairly extensive internal historic record.”

Lockheed Martin’s situation raises a pertinent point — benchmarking against competitors or similar organizations should not be viewed as a useless exercise, but it does not provide the full picture.

Consider the analogy of driving on a highway. Matching speeds with surrounding motorists isn’t a bad strategy, just one that needs to be mixed with other approaches such as meeting the speed limit and accounting for road conditions to maximize safety.

If, for instance, unemployment in the area has decreased steadily but an organization’s turnover has remained constant, internal factors may play a larger role in creating turnover than external factors.

Similarly, if an organization’s overall turnover rate remains steady, but one department is trending higher than all others, that is a clear “check engine” light.

Turner said one of the organization-specific characteristics that help shape Lockheed Martin’s approach to turnover is that the company offers people the opportunity to have a career, not just a job.

With that as a philosophy, it always has been important for it to track turnover. “The other thing that’s important is that there is a cyclical nature to our work,” he said. “So we have to ask, is attrition coming from normal cycles in our business, or is it something that’s coming from internal causes?”

Those kinds of internal causes are what make turnover so difficult to benchmark. The “boss effect,” which is the impact a supervisor might have on a stay or leave decision, corporate brand and even misleading job descriptions can cause turnover at rates that have little to do with anything that might be considered industry standard.

For Douglas Punt, senior human resource consultant and project manager at ConnectiCare, a Connecticut-based health insurance company, comparing his organization’s turnover to the industry standard, even in local areas, is not setting the standard high enough.

ConnectiCare has been consistently rated No. 1 for customer satisfaction among health plans in Connecticut, which means it doesn’t want to measure turnover against competitors.

“You don’t want less than 5 percent,” Punt said. “Our turnover for the last 10 years has been somewhere between 5 and 10 percent, but usually closer to 5 percent.”

Since customer service is a top priority at ConnectiCare, a high turnover rate in the customer service center — more than 30 percent — a decade ago was a sign that talent managers needed to take action. Although the turnover rate was not high for a call center per se, it was high for the company, considering its focus.

“Our brand equity here is built on customer satisfaction. We’ve had the highest level of customer satisfaction in the state of Connecticut for probably 12-13 years,” Punt said.

Turnover Begins With Hiring
Hiring and termination are almost directly linked, and therefore changing hiring practices can have a linear impact on turnover. Employees who are given clear job expectations and hired for the right skills tend to be successful and want to stay.

Punt used turnover rate information to highlight the potential problem with job descriptions to HR staff, and they were able to provide some timely interventions such as talent-based interviews, personality assessments,
interview training and techniques on how to write clearer job descriptions.

Those interventions improved the hiring process; both voluntary and involuntary separations went down from their high of more than 30 percent to their current rate of less than 5 percent.

In addition to controlling turnover, ConnectiCare also was able to boost the overall metrics of its customer service department.

In many cases the actual turnover numbers don’t matter; the reasons for the turnover are what’s important. “You have to look at the whole picture,” Punt said.

“We have low companywide turnover, so turnover at positions that the call center folks might be interested in moving to might be virtually 0 percent, and we’re hiring very talented people who might be anxious to get to a higher-level position; that might explain an increase in turnover. Or if business needs or job expectation changes, you might end up with people who are underperforming, which will result in turnover. You have to look a little deeper than just the number.”

It’s a complex subject. Even when looking at historical turnover rates within a company, rates are meaningless without context. At ConnectiCare, the bright young minds entering the company were growing discouraged that there was nowhere for them to move to once they had mastered their entry-level jobs, so they moved to greener pastures.

This is a highly different proposition than a call center where top representatives leave because of antiquated managerial methods or discriminatory promotional practices.

When viewed as part of the overall business, turnover is an indicator, much like the gauges on the instrument panel of a vehicle. Five gallons of gas may be acceptable for one car, but disastrous for another.

The number itself is only relevant to the specific situation, but keeping an eye on it can highlight trends or patterns that can aid planning to avoid breakdowns and ultimately help talent managers arrive wherever the organization is headed.

Cliff Stevenson is a senior human capital researcher for the Institute for Corporate Productivity, a research organization. He can be reached at editor@talentmgt.com.