The Perils of Misunderstanding Turnover

Much time and attention is paid to turnover levels and costs.  (I have joked, on my other blog, about the fact that my most popular posts there have not been my clever little opinion pieces, but rather the ones where I share turnover statistics.  Ouch.)

Joking aside, though,  HR pros and business leaders are often guilty about approaching turnover in a rather simplistic, one-sided way -- overlooking the sometimes critical upsides of turnover and failing to consider the unique organizational and workforce factors necessary to properly assess turnover costs and benefits in their own organizations.  This is the point that Mercer Senior Partner Haig Nalbantian makes in his eye-opening article "Perils and Pitfalls of Relying on Turnover Cost Estimates", published in Mercer's Online Journal Mercer Select (membership/subscription by request to Mercer).  He describes not only the cost and potential benefits of turnover, but also uses case studies to illuminate how turnover varies in its impact and discusses how to better analyze an organization's own turnover situation without relying on generic "rules of thumb." 

I particularly appreciate his highlighting of a few of the positive outcomes turnover can bring to organizations and their workforces:

--Turnover may  help weed out poor performers, allowing their replacement by higher performers.

--Turnover can correct for that classic labor market inefficiency: employees poorly matched to jobs and organizations.

--Turnover may open up slots for up-and-coming talent who are competing to move up in the career hierarchy, thereby motivating them to perform better and remain with the organization.

--Higher turnover may enable an organization to transform or "remodel" its workforce to accomodate new business requirements.

--At a more macro level, certain kinds of turnover can end up stimulating greater and faster innovation.  The movement of talent across organizations may allow ideas and know-how to circulate more readily within a sector or discipline as new groupings of talent are forged -

What struck me in reading Haig's article was not only the folly of our tendency to overlook the positive and transformative impact that turnover can have on our workforce, but also our inclination toward reward practices that stop turnover - any turnover - from happening in the first place.  As Haig points out in one of his case studies, organizations implementing premium reward packages in an effort to brand themselves as "best places to work" are often unwittingly dropping in roadblocks to the kind of workforce skill growth and transformation increasingly needed for business prosperity and survival.  This reinforces the point made here at the Cafe in a recent guest post by Keystone Award winners Jay Schuster and Patricia Zingheim, who warned about practices - like many work-life programs - that "are most likely to create a workforce linked to their organization by entitlement rather than a win-win partnership based on being rewarded for adding true value to the organization."

All of which stresses the importance of bringing a deep understanding of our organizations' workforces and talent needs, as driven by business strategy and competitive challenges, to all of our reward design efforts.

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares.

Image courtesy of clearpathemployer.com

Comments

[E. James (Jim) Brennan]

Well said, Ann. "For every door that opens, ..." etc. People tend to forget how helpful turnover can be when that troublesome annoying person quits to terrorize some other unsuspecting enterprise and you quickly call a meeting to whip up some innocuous letter of reference that avoid rebounds without actually lying. No, managers only remember the great one "who got away," as though people were fish to be landed, filleted and either consumed or mounted on your wall. Hard to face that unfortunate truth that people have their own hopes and dreams which don't always fit your situation.

We do occasionally discuss this here http://www.compensationcafe.com/2011/05/let-your-people-go-gracefully.html but it is a truth that warrants regular revisiting.

[Jacque Vilet]

LOL --- unfortunately it is the sometimes the "holy terror" that stays and the ones that have been terrorized leave.

But I agree. A certain amount of turnover is healthy.

[E. James (Jim) Brennan]

Whoops... my hyperlink (inserted above) seems to be broken due to the accidental addition of a space or something, so I'm re-posting it: http://www.compensationcafe.com/2011/05/let-your-people-go-gracefully.html should work.

[Juliana]

I remember preparing turnover reports and explaining positive attrition (ppl we would like them to move on to greener pastures) and negative attrition (top talents and people who goes above and beyond) for a presentation. When the positive attrition were high, we think that we are on track. But if the negative attrition starts climbing, we start looking around at what we are missing.

With everything else, statistics can be used as an indicator but not a rule set in stone. An attrition below a certain percentage would be nice but to keep things into perspective, how many percent of those are positive attrition?