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The Costs and Trends of Employee Turnover – Part 1

“Employee turnover” is the number or percentage of workers who leave an organization and are replaced by new employees. According to Gallup, U.S. businesses are losing $1 trillion every year due to voluntary turnover, and the annual turnover rate in 2017 was at 26.3%. In 2018, the Work Institute reported that 28.6% of employees will leave their jobs for other opportunities. And if this trend continues into 2020, as many as 33% of employees will leave to work somewhere else!

Costs of Employee Turnover

Losing employees is expensive, and there are several reports that reflect different estimates of the cost of employee turnover. Gallup reported that the cost of replacing an employee can range from one half to two times an employee’s annual salary. A study by Employee Benefits News found that the average cost of losing an employee is 33% of their annual salary. And in 2016, the SHRM Benchmarking Report found that the average cost-per-hire is $4,129. 

Losing good employees can also impact employee morale, productivity, and customer relationships. One of the main reasons that the real cost of employee turnover is unknown is that most companies do not track exit costs such as recruiting, interviewing, hiring, training, and orientation. It’s also important to note that not all turnover costs are tangible. Areas such as loss of productivity, customer dissatisfaction, and lost expertise are even more difficult to measure.

Top Reasons for Employee Turnover

Low Compensation or Pay

Brian Kropp, Group Vice President and an HR Practice Leader at Gartner, noted that “The average increase in compensation for a worker who quits one job for another is about 15%.” The majority (44%) of respondents recently polled by Monster cited the need to earn more money as the main reason they are looking for a new job. The Society for Human Resource Management 2017 Employee Job Satisfaction and Engagement Summary showed that 56% of employees leave because of compensation/pay. 

Other research shows that individual performance pay (e.g; commissions, bonus, stock options)  improves job satisfaction. According to research conducted by Robert Half, the top reason employees leave is “inadequate salary and benefits”. And the tight labor market is fueling the turnover fire: the U.S. unemployment rate came in at just 3.7% for July of 2019, and the demand for workers has outpaced the supply. In this tight market, there are several opportunities for employees to seek another job that offers better pay, benefits, or perks.

Lack of Appreciation

OC Tanner research found that 79% of employees who quit their jobs claim that a lack of appreciation was a major reason for leaving. In their 2018 Employee Retention Report TINYpulse revealed that employees are 34% more likely to leave their companies within the next year when they do not feel valued at work. If an employee is consistently performing above average without recognition, two things will happen: they’ll stop putting nearly as much effort into their performance, and start looking for another job.

See also: The Employee Recognition Program: 5 Keys to Success

Management

You’ve probably heard the quote “People don’t quit jobs, they quit bosses”. It’s true: a Gallup poll of more than 1 million employed U.S. workers concluded that the number one reason people quit their jobs is a bad boss or immediate supervisor. “One manager with poor people skills can do damage to the culture and effectiveness of a company in a short period of time” says David Stevens, the executive vice president of corporate relations a Valor Global. Leaders need to be “people-oriented and able to harness their team’s talent and passion.” A bad relationship with your boss can have a negative effect on engagement, confidence, and commitment to the organization. Great leaders have the talent to motivate their employees and build good relationships with them.

Lack of Promotion & Training Opportunities

In 2018 the Global HR consulting firm Mercer surveyed 163 large employers and found that promotion opportunities and career changes were given as two of the top reasons most workers (especially members of Generation X and Millennials) leave their job. The urvey showed that 24% of employees left due to lack of career or training opportunities. Another survey conducted by PwC reported that 52% of millennials said that opportunities for career progression were what made an organization compelling to work for and 35% of the respondents stated that training and development programs were important. 

Without a defined career path, employees may not see an incentive to stay with the organization. In today’s competitive and modern work environment, employees want training and development opportunities that allow them to be one step ahead of the competition and remain efficient in their role.

Work-Life Balance

Forbes reported that being overworked is the main reason employees quit, especially for top performers. The Mercer 2019 study found that 54% of employees said that managing their work/life balance is one of the top five things their company can do to help them thrive at work. And according to SHRM’, 52% of U.S workers say they experience work stress on a day-to-day basis. In many organizations, it’s common for high performers to be given extra work. However, increasing workloads without a promotion or changing pay may cause employees to feel punished and eventually find another position that meets their needs. TINYpulse found that employees are 10% more likely to stay with their company when they have a good work-life balance. In addition, studies have shown that work life balance impacts healthcare costs and workplace accidents. 

In a recent SHRM blog, Tim Sackett, President of HRU Technical Resources, suggests that time is the most luxurious benefit you can offer an employee in 2019: “I think the best thing we can do as leaders is to ensure our people are actually taking their paid time off and when they do they know that it’s okay to completely disconnect. That we’ll have their back and to enjoy themselves.”

Lack of Challenging Work

In a survey conducted by Payscale, 27% of respondents stated what attracted them to the new organization was the opportunity to do more meaningful work. Mercer’s 2018 North America Turnover survey concluded that 24% of employees left the organization as a result of poor job satisfaction. Eventually, tasks can become routine and many employees will become disengaged when they no longer feel challenged and are not learning anything new. In today’s competitive work environment, employee engagement has appeared to be a critical driver of business success. When employees are engaged, this promotes retention of talent, customer loyalty, higher productivity, and improves organizational performance.

See also: 10 Questions to Ask Employees in their First 45 Days

Corporate Culture

In The Hays “What People Want Survey,” almost half (43%) of 2,000 respondents said they were looking for a new job, and corporate culture was driving their decision. Frances Geoghegan, Managing Director of Healing Holidays offered the following: 

“Several of my employees have said they have left previous jobs because they needed a more positive working environment. A negative atmosphere in the workplace is a common reason for many good employees to leave a business. No matter how many perks or rewards a business may offer, they won’t count for much if, when the employee is in the office, there is a toxic environment. There are plenty of stresses and strains that come with running a business; however, you can’t take this strain out on the people who work for you – they are trying to help you out and do their jobs, so you need to meet them halfway. A toxic environment can really affect an employee’s mental health and outlook on their job; it can make them question their worth and job security, which often makes them feel like they would be happier in another company.”

According to a recent Glassdoor survey, 48% of employees cited company culture as important in attracting them to a new job, and 37% identified company culture as a determining factor. The same study also revealed that regardless of whether or not employees received raises, on average workers in the survey sample traded up to companies with better workplace culture for their new roles. Although the survey did not suggest that employees always leave for a better culture, the research does suggest that company culture influences an employees decision to stay or leave an organization for the next step in their career path.

A Few Other Factors

Other important  reasons included benefits, lack of clear direction, poor fit with the job, relocation, obsolete technology, and relationship problems with other co-workers. However, The Work Institute found that career development, work/life balance and bad managers are consistently the top issues that push employees to job hop.

Ultimately, organizations want to attract and retain top talent. Talent can be your biggest asset and a source of a competitive advantage. Employee turnover is costly and impacts your bottom line. We know that losing talented employees can affect the success of your organization, so stay tuned for suggestions on decreasing employee turnover.

Coming soon: Part 2: Strategies for Decreasing Employee Turnover

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