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Turnover is expensive. Lowering it doesn't have to be.
Laura DeMars, CFO Magazine
February 15, 2006
It's not about the money. Companies that experience high rates of employee turnover will likely find that it's not salary issues that cause workers to walk out the door.
Instead, employees are looking for benefits, training, and flexibility. "The average employee wants to make a difference," says Nancy R. Mobley, CEO of Insight Performance Inc., a human-resources consulting firm in Dedham, Mass. She believes the cost of high turnover justifies the cost of catering to employees' needs. "They just want to balance their work and their personal lives and feel like they're doing a meaningful job," Mobley says. Flexible work schedules, job sharing, and cross-functional rotations can go a long way toward extending the average tenure of employees.
Not only do employers suffer lower productivity when there is a high turnover rate, but it's also expensive. Mobley estimates that it will cost an employer one and a half to two times the annual salary of a person who leaves the company to recruit, interview, and train a replacement.
At FreshDirect, an online grocer that delivers in the New York area, CFO and founder Jason Ackerman says "turnover of experienced high performers is even more costly," not to mention disruptive. Ackerman should know. Just two years ago, FreshDirect was experiencing turnover rates of 200 percent. Part of the problem was that new hires weren't fully prepared to adjust to the work required. "Many of our employees work at night and in the cold, and it takes a few weeks for them to decide if the schedule works for them," he says.
So FreshDirect focused its employment searches on neighborhoods that allow for an easy commute to its facility and made sure potential employees fully understood the job requirements before they were hired. It also upgraded the break room and meal offering, and improved medical coverage. Then, the company tied a portion of managers' pay to turnover rates in each department.
Based on the changes, FreshDirect managed to cut its turnover rate to just under 75 percent, but Ackerman hopes to get that number below 50 percent.
Reducing turnover also hinges on building loyalty. "The challenge is learning how to keep those [workers] who are susceptible from being poached," says Steve Bookbinder, a principal at Towers Perrin, which recently published a survey on employee engagement at work. The study found that just 21 percent of U.S. employees feel highly engaged at work, an indication of employee loyalty. Some 41 percent are willing to consider job offers even if they are not actively looking.
Another top reason employees quit their jobs is because they have difficulties with their managers. "Employees leave when their managers either don't advocate for them or cross them somehow," says Mobley. She advises employers to foster better relationships between managers and workers and to build a culture based on recognition, planning, and rewards for performance.
Gayle Powelson, CFO of The Solae Co., says that uncertainty among employees about their career tracks can also lead to turnover. So the St. Louis–based food company recently created career ladders that map out common career paths by position, with experience and education requirements. "This takes away much of the mystery of selection and promotes transparency in career decisions," says Powelson.
Turnover isn't always harmful, she adds. "Sometimes it helps companies improve, as new individuals bring novel ideas and different perspectives to the organization."