Retain Employees by Ignoring the Turnover Rate

Turnover is raising its ugly head again. Recently, more of our member organizations have come to us seeking information on employee turnover data, especially for skilled positions that appear to be increasing in demand despite a limited supply. But is looking at turnover data and benchmarking it to external data valuable? New i4cp research suggests the answer is mixed.

The most common employee data point measured in organizations (following total number of employees) is turnover rate. More than three-quarters (77%) of the organizations i4cp surveyed in 2012 reported tracking that number. What we found however, is that there is no statistically significant correlation between the mere act of tracking turnover rate and a company’s market performance.

However, there is more to the story. Nearly twice as many high-performing companies than lower- performers take action to prevent increases in unwanted employee turnover. Furthermore, there is a significant correlation with market performance when companies do this. So although there is no "magic number" for a company's turnover rate, it is a mark of high-performance organizations to constantly monitor and attempt to positively affect the rate.

So taking these two seemingly disparate pieces of information - turnover rate doesn't matter, but taking action to control it does - what can be safely assumed? And most importantly, how should this affect an organization's day-to-day business operations?

First, companies should stop benchmarking turnover data. Even measuring against companies of like-size in similar industries is a waste of time and money. Since the overall turnover rate is not tied to actual performance, comparing your company's rate to another's is useless for decision-making. However, monitoring changes in a company's internal rate is meaningful, and controlling for unwanted turnover is an important high-performance strategy.

Second, before rushing to implement new strategies to fend off increased turnover, take steps to understand why people are staying and why people are leaving. There a several key areas to consider; some are actionable and some are not:

• The labor market: The external labor markets matter a lot. The external opportunities are enablers that allow fewer or more employees alternatives to their current employer. To test this belief, i4cp ran a correlation between the U.S. unemployment rate and U.S. voluntary separation rate and found a near perfect inverse correlation (r=-.978, p=0.00). Translation: as the unemployment rate goes down, voluntary separation goes up. While this may not be surprising, the strength of the correlation may indicate that the ability of companies to control their own voluntary separation rate may be negligible at best.
• Shocks: I was introduced to "shocks" by Rob Tripp, Workforce Planning Manager at Ford Motor Company, who has been studying the topic of voluntary turnover for many years. His research suggests that a large percentage of voluntary employee departures are at least initiated, if not substantially caused, by special events he refers to as "shocks." Examples of a "shock" include spousal relocation or a family medical issue, and often the employee may leave immediately or with short notice regardless of overall levels of engagement or satisfaction with the job and company. In other cases, the "shock" event may cause the employee to reevaluate their sense of satisfaction and lead to a decision to seek employment elsewhere. In either case, as with the labor market, a company has very little ability to control "shocks."
• The future: Employee expectations about the future, of both the company's and their perceptions about their own future in the company, can influence a decision to leave, particularly if there are concerns about its business viability.
• Satisfaction: This factor is a favorite with consultants. Historically, research on voluntary turnover has looked at how various perceptions of the work environment impacts quit rates (pay, working conditions, supervisory treatment and promotional opportunities). The results consistently find that most of these experiences have some impact on the intention to leave (though lack of development and career opportunities is usually the dominant factor.
• Engagement: This is another popular favorite with consultants. It is true that to some extent, highly engaged employees tend to stay, but the engagement effect tends to lose its credibility as a turnover predictor because being moderately engaged or disengaged does not translate into making the decision to quit. Instead, moderately or disengaged employees tend to stay because of a perceived lack of viable external options.
• The boss effect: Much of the popular press assumes that the supervisor plays a major role in quit decisions. However, research show that how one feels about his or her boss is only modestly related to the decision to leave. Hence, the traditional studies of drivers of turnover don't support the belief that people leave bosses, not companies.
• Job embeddedness: Numerous studies have shown that job embeddedness, which basically means that the more embedded an employee is, the less likely they are to leave their job, predicts turnover beyond what is explained by standard leave factors. Three variables cause job embeddedness:
  • Links: People tend to stay in organizations if they have many formal and informal links to colleagues and community members
  • Sacrifice: If the perceived costs of losing valuable perks or amenities by quitting is too high
  • Fit: Compatibility or comfort with the work and external environment (they fit their job and community, and/or shared values with their job and community)

Employee turnover research conducted by i4cp shows a positive correlation between efforts to improve employee retention rates and market performance. Put another way, making an effort to recognize and reward employees - such as giving high flight-risk employees more freedom to choose project teams or any other methods of making employees feel valuable - does have a relationship with outperforming other companies in the marketplace. All of this is further evidence that turnover rate, seen as an abstract number, is not a valuable data point to focus on. Rather, it is the gestalt view of a number of different data points, and how they relate to each other and your organization's bottom line that is a more useful way of thinking about employee turnover rate.

Cliff Stevenson is a Human Capital Researcher for i4cp. Jay Jamrog is the SVP of Research for i4cp.