U.S. businesses lose €10 billion annually due to employee turnover. The same amount would be enough to achieve universal access to water and sanitation for all the developing countries!
Great news for those who are staying tuned for my series of articles. Time flies and one more week has passed. Today, I am going to explore another issue HR management has to face daily and will share some tips how to potentially solve it. In a previous post, I wrote about employee absenteeism and what results might be reached if we reduce absenteeism by 1 day. Now it is the time to open a discussion on employee turnover and its impact on the bottom line.
Many studies have shown that employee turnover and absence have some interrelationships. Even though they are not so highly correlated, but absence might indicate employee’s intention to leave ajob, which might impact higher turnover rate. Turnover rate is also a relatively easy to assess. It refers to the number or percentage of workers who leave an organization and are replaced by new employees. Measuring employee turnover can be helpful to employers that want to examine reasons for aturnover or estimate the cost-to-hire for budget purposes.
The Bureau of National Affairs estimates that U.S. businesses lose €10 billion annually due to employee turnover (CoAdvantage, 2015). The same amount, what was estimated as additional costs, would be enough to achieve universal access to water and sanitation for all developing countries! (Shah, 2013) The magnitude of these numbers shows that many mistakes are being made in retaining employees. Let’s see how much money could be saved if organizations would improve their employee turnover rate.
United Kingdom - one of the leading global economies at the same time has one of the highest volatility in their workforce. Average employee turnover rate in the UK is 15% per year, although this varies drastically between industries (Monster, 2015). For instance, HSBC’s annual sustainability report states that employee turnover rate was 19% per year. High turnover rate is quite common in banking and finance industry due to competition between companies and positions, high stress level in a workplace and many other reasons. Nevertheless, this rate indicates that HSBC has been facing problems with employee loyalty and retention. The other big market player BP stated to have employee turnover rate of 12%, which might sound low comparing to UK average. However, the rate is disappointing comparing to oil and gas industry average, knowing the fact that employees tend to have longer tenure in this field. The turnover cost on annual salary on average is 40% for mid-range positions (Rasmussen, 2014). This means - replacing new employees might bring more loss than benefit.
According to our calculations, if these two companies would invest in to employee engagement which would in turn decrease turnover rate by 25%, the bottom line savings would yield - €113 million to HSBC and €91 million to BP.
We made a similar comparison of two Danish businesses. Knowing that Nordic countries have different labour culture where employees are more loyal and are less willing to change their jobs often the employee turnover rate on average is 13% (Ministry of Development and Economy, 2012). Danske - stated in their annual report having an employee turnover rate of 9%. Another Danish corporation, Maersk, reported their employee turnover rate was 5,3% in 2014. These low rates are not so surprising keeping in mind cultural aspects. However, the executive teams of these two organizations have plans to improve results by reducing employee turnover. If happens so, a decline of 25% of turnover rate might bring gains to Danske and Maersk of €10 and €11,5 million respectively.
Finland is famous for employee loyalty and low turnover rates. According to latest publications, it was only 9% (Ministry of Development and Economy, 2012). Although the companies we have studied showed opposite results. Nokia announced their employee turnover rate for 17,8%. That is very high comparing to the country average, however not exceeding the normality limits for industry. Another Finnish leading business Neste claimed to have employee turnover rate of 15.6%. For Finnish businesses the numbers are quite high, showing that companies waste lots of money on recruitment, motivation, and on-boarding. Decreasing it by 25% would save up to €11,7 million for Nokia and at least €3 million for Neste.
First of all, hiring the right people from the start is a single way to decrease the risk of higher turnover. What HR managers suppose to do is carefully select candidates, not just ensure they have the right skills but also foresee if they fit well with the company culture. What comes next is retaining your employees. You must pay attention to employees’ personal needs, provide challenging tasks and ensure they receive appropriate training, feedback, and recognition from their managers. Leave some space for personal development and growth, because the lack of improving opportunities is one of the main reasons why employees leave companies. Create social and comfortable atmosphere based on good relationships. Involving workers in any kind of activity like social events, team-buildings, after-work meetings, family days will engage your employees. Keep your employees up-to-date with your company business news, discuss it, and give a chance to express their opinion.
Sounds straightforward and easy, but the only question is – how to implement these changes and know exactly whatare the most important priorities? Real-time people analytics are crucial in solving these issues in the competing talent acquisition environment of the XXI century. Make the change, shift from the annual employee engagement, voice-of-employee surveys to something agiler, allowing continuous improvement while democratizing the employee environment in a distraction free method for the employees. Consider PulseTip as a helpful daily tool to engage your staff in relevant daily discussions and topics. In the long run, it enables managers to receive feedback on more important topics such as — employee satisfaction, team, training, engagement, personal achievements, etc. Despite the informative side for HR department, pulse feedback is the bonding element between staff and management. It gives a feeling that every employee matters. Appreciated people are less likely leave companies. Just listen to all your employees – technology supports it. Transform your organization to a more accountable, transparent, and engaging atmosphere where employees feel appreciated and valued. You will instantly see the drop in employee turnover.
Simply start today with PulseTip by asking “My manager showed gratitude for a well delivered job” (Answers: Strongly Agree, Agree, Disagree, and Strongly Disagree). Deliver the results to the managers already next day. Track the progress in 2 weeks by repeating the question. Start a gratification campaign in your organization. Do not forget to appreciate your employees and they will value the relationship with the company.
Hope you got inspired and encouraged to start the change today. Get in touch with me (firstname.lastname@example.org) if you would be interested in a discussion on the HR management topic.
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