Last Edited June 2006
Employers seek competitive advantage through strategic initiatives and
aggressive cost control measures. Turnover, frequently overlooked, can
be a major drain on corporate resources. Turnover in the workplace, therefore,
is a legitimate source of concern for many employers. Well thought-out
turnover programs can be very effective in reducing this unnecessary cost.
This article is designed to assist employers in developing an effective
program to reduce turnover and is divided into four domains: (1)
General Considerations [below], (2) Determining
the Extent of the Problem, (3) Determining the
Causes for Turnover, and finally (4) Corrective
SECTION I: GENERAL CONSIDERATIONS
Problems of turnover in the workplace have been a continuing source of concern and expense to employers. The obvious importance of this area of human resources management has been well documented. Turnover, the movement of people into and out of the workforce or between industries or geographical locations, has been a topic of discussion by the economists since the inception of economic theory. Turnover is a specialized section of this total perspective. In this publication, labor turnover is defined as the movement of employees into and out of the workforce of an individual company or functional work unit.
Economists have spent a great deal of time studying this turnover primarily because it is considered to be one of the best indicators of the health of an organization. Morale and productivity are correlative. If morale, productivity and turnover are considered to go hand-in-hand, it can also be assumed that high movement of labor is an indicator that organizational health needs improving. Many textbooks and courses offered in the field of employer-employee relationships devote at least some attention to this subject because of its relation to productivity.
Employee turnover may be one of the most costly items of production. Yet, it is one of the least studied. The literature on the subject describes the enormous costs associated with turnover. Many articles on the subject attempt to motivate management by indicating that the costs of turnover are extreme and can be avoided.
The majority of successful companies have maintained fairly accurate cost records of production of all parts manufactured. Any good retailer can tell you the direct and indirect costs associated with marketing in his/her store, yet, these same employers will fail to take into account the costs of doing business including turnover. HR professionals are aware that the statistical data associated with preventable turnover may be a ready measure of the caliber of work they have performed. Most managers, when attempting to gauge one aspect of the quality of a HR department, usually will establish some recordkeeping in order to determine the amount of the turnover.
Even with minimal costs for recruiting, employing and training, extensive turnover is extremely expensive. The direct and indirect costs to an individual company can only be determined by that company. For example, two companies in the same industry and in the same geographic location, drawing upon the same labor market for employees, might have significantly different costs of employment operation. For either to assume that its costs are the same as the industrial or geographical area is an error. Therefore, each company needs to determine its own costs of turnover.
As the prosperity of the country increases, turnover also increases. During periods of depression or recession, as unemployment increases, turnover decreases. But, when competition becomes a threat or if sales drop, management's interest in this aspect of the human resources function increases.
As a high temperature reading on a thermometer will indicate that something is physically wrong, high turnover findings indicate there is a problem within an organization. Definitive studies and diagnosis, however, must be made in order to determine the cause and the possible cures.
Economic theorists compare this subject to the life force of growth within the individual. They say that society and individual companies benefit by turnover. It is their contention that without turnover of employees the productive forces become stale. New employees in an organization frequently bring new concepts and increases productivity.
We live in a free society where rights and privileges are protected. One of these is the right to change jobs. Yet, from the organization's point of view, too many job changes can create difficulties for management. Therefore, management must effectively work with individuals in order to lower turnover rates.
Anticipated — Unanticipated Turnover
Although there is a plethora of literature on turnover, a study of data indicates certain comparable concepts about this subject. Turnover is "anticipated" or "unanticipated." In the anticipated or predictable area there are such factors as seasonal employment similar to the agricultural and canning industries. Retirements of older people and military service of younger workers are also included in this category.
Unanticipated turnover includes sudden resignations due to unhappiness with the job, the supervision or other work conditions. Accidents or previously unknown diseases would fall within this category. Pregnancy after the normal childbearing period is an unanticipated or unpredictable factor.
Controllable — Uncontrollable Turnover
Another category of turnover is controllable versus uncontrollable. Discharge of an employee who has been with the company for sometime would fall within the "controllable" classification. The discharge might be defined as a forced turnover because companies could make the decision not to terminate. In those companies or industries where there is a high degree of repetitive operations, poor wages, hours, or working conditions, "quits" would be considered of this type. Management at these companies often admit that their high rate of turnover is expected. By increasing wages, shortening working hours, or making the working conditions better, employers could perhaps reduce their turnover. However, the cost of implementing these factors may exceed the turnover cost. Turnover in this type of situation is derived out of the company's policy. For if it is controllable, why isn't it? If it is uncontrollable there is nothing we can do.
Most functions within the HR department that are developed to reduce turnover fall within the controllable category. Good employment selection, orientation and placement practices should have one objective: controlling predictable turnover, to aid in retaining skilled and motivated workers.
This is one reason human resources managers see turnover statistics as an indicator of the quality of their performance.
Certain types of terminations fall within the uncontrollable category, such as death and retirement. Death, resulting from an accident or a disease is particularly unpredictable. Normal retirements may be planned for, but are not necessarily controllable.
Other uncontrollable types of separations arise out of domestic responsibilities. Spouses often enter the labor force with the intent of remaining there. Of course, there is the person who takes a job for a year or two in order to help during high financial outlay periods. These might be predictable in an employment office with good testing and employment interview procedures. However, in those cases where the individual has gained employment with an eye on the long-range possibilities, sometimes circumstances in the home has a direct bearing. The spouse may be transferred; a child may become ill; a close relative at some distant point needs attention. These would be uncontrollable by either the individual employee or the management.
Cost of Turnover
The expense factor of high cost of turnover causes deep concern. The three major categories to consider are separation, replacement, and training costs.
Separation costs include the cost of exit interviews, administrative cost of separation pay, UI payments and costs relative to loss in productivity .
The cost of exit interviews is composed of two cost factors: the cost of the interviewer's time and the cost of the terminating employee's time. The cost of the interviewer's time is calculated by adding the preparation time and the time required for the interview, multiplying this figure by the interviewer's pay rate and multiplying the resulting figure by the number of turnovers during the period. The cost of the terminating employee's time is calculated by multiplying the time required for the interview by the weighted average pay rate for terminated employees by the number of turnovers during the period. Adding the resulting figures from these two calculations yields the cost of exit interviews over the period.
To calculate administration costs for turnover, multiply the time required by the human resources department for administrative functions related to terminations by the average HR department employee's pay rate by the number of turnovers during the period. The cost of separation pay is calculated by multiplying the amount of separation pay per employee terminated by the number of turnovers during the period. The additional cost of unemployment tax is calculated by multiplying the higher unemployment tax rate by the budgeted taxable wages for the following year. The cost of decreased productivity has to be determined separately for each turnover and then added together. These are the cost of the increased waste of materials, the cost of increased maintenance, the loss of productivity of the exiting and new employee, and the increased cost of accidents.
Replacement costs are determined by two factors:
- Selection and placement.
Managers calculate recruitment costs by adding advertising, college recruiting, employment agency fees, recruitment brochures and pamphlets, employee awards and public relations activities costs for the replacement effort. Selection and placement costs are calculated by adding the costs of application blanks, interviewing time by the HR department and line managers, medical examination, reference checking, psychological testing, applicants travel expenses including actual travel, reservations, and conducted tours, and a reasonable figure for HR department overhead.
HR professionals calculate training costs by adding the costs of informational literature, instruction in a formal training program, if any, and instruction by employee assignment. The cost of informational literature is calculated by multiplying the unit cost of the informational package by the number of packages distributed during the period. The cost of instruction in a formal training program is calculated by multiplying the hours required for instruction during the period by the average pay rates for all trainers, trainees and instructors. The cost of instruction by employee assignment is calculated by multiplying the number of hours required for instruction by the new employee's pay rate added to the instructor's pay rate by the number of instructional hours during the period.
Assuming that it costs $1000 to employ a new person and assuming that the profits of a given company were to fall within the 10 percent before taxes category, the company would have to forego $10,000 worth of productivity to employ that person. As another way to demonstrate the high cost of turnover, assume you employ a person at an annual salary of $14,040 ($6.75 per hour). At the end of twenty years this decision amounts to $280,000 without even factoring in salary increases or taxes and benefits. When making capital expenditure decisions involving this much money, management is very careful. By contrast, management does not tend to make employment decision with the same degree of care. Management fails to factor into its decision-making how long the prospective employee will remain with the company, or even how productive the employee might be. When turnover costs are amortized, employers can see how expensive the cost of replacing one person can be.
Of course, the cost of turnover for each company must be determined by that specific organization. Through well-written human resources policies and practices, costs may be minimized. Similar companies of comparable size in similar or related industries show widely varying costs. If a competitor can maintain low cost of employee replacement while you are expending large amounts of money, the competitor is in a favorable position to capitalize on the difference.
Tangible and Intangible Costs
Turnover costs are:
- Tangible and measurable
- Intangible or relatively immeasurable
Even the immeasurable factors create a significant impact upon the efficiency and organization of the enterprise. Tangible costs are:
- Formal training
- Lost production and extra burden
- Extra Social Security Tax
- Extra Unemployment Insurance Tax
Tangible costs include disruption and disorientation of the production unit by the break up of work teams, disruption of morale, increased employee complaints and grievances, reduced supervisory efficiency, reduced supervisory morale, generally lower productivity in higher turnover areas, the stimulation of additional turnover, and over hiring in order to maintain an average work force. More on the- job accidents, higher scrap rates, additional overtime and increased staff in order to handle replacement needs, could probably be measured after intensive study.
In most cases, determining an organization's tangible turnover costs and related potential savings will justify the cost of conducting a turnover study. This article focuses on measurable costs.
1. Employment Costs
Employment costs include the total of all direct and indirect costs. These costs are chargeable as expenses for recruitment, selection and replacement of employees. Typical expenses would include wages and salaries of all employees who are exclusively engaged in the employment activity and the appropriate percentage of wages and salaries of employees who spend a portion of their time on an employment activity, pre-employment medical examinations, advertising, recruitment, testing materials, stationary and supplies, plus the appropriate allocation of departmental overhead costs.
Two concepts emerge about employment costs. First, without separations and subsequent replacements, the employment activity would be of no value. Opponents of this view state that regardless of whether a company has terminations, it must have someone who is performing the employment function. Therefore, only the costs of replacements should be included in the cost analysis. This second argument does not seem reasonable, for if a company maintained a static work population, the chances are it would not need to study its turnover costs anyway. Any company that has been in business for even a short period of time has some dynamic involvement. If it has no turnover, it is so small or so static that labor turnover analysis is meaningless. For this reason, it is recommended that the total employment operation be charged to labor turnover and be amortized between all hires or rehires regardless of whether they are accessions or replacements. One rule of thumb is to include any item within the employment activity such as, special contests for employees, distribution of not only recruitment brochures, but also, annual reports, etc., attendance at luncheons, seminars or special programs devoted to any activity that would fall within the employment category.
The only accurate way to gain turnover cost information related to the employment activity is to specifically study a control group and record all expenditures of time and money associated with those hires. Expenditures would be interview time, telephone check-back time, correspondence and conversation periods associated with that hire, and on ad infinitum. However, this type of cost analysis would not only become burdensome, but in the end, would probably not develop any more accurate cost data than the amortization of the total function over those employed. Any time not spent in the employment activity should not be counted as an employment cost.
2. Break-in Costs
Break-in-costs result from the substandard performance or quality of new employees as they become adjusted to the new work environment. An easy method to determine such costs would be to develop standards of operation for all major activities and place a worker unit value upon them. Again, by placing a production dollar-value upon the hours of work of each employee, the HR analysts could by simple multiplication obtain the dollar break-in cost figure. The lost production between what an employee actually performs and the standard for that job, is to be multiplied by the worker-value unit. For example, if the cost of each production hour is quoted at $9 and the employee produces 16 hours less production volume than would be required under standard for a given week, the break-in cost would be $144.
Retail, utility or service establishments also have some form of value system for each employee on the payroll. Their break-in cost would be computed on the ratio between an average employee performing in a given position and the reduced effectiveness of the new employee until the point of average employee capability is reached. Let's say that an average salesperson in a department of a store sells $2,000 worth of merchandise in one week, while a new employee is selling $1,000 worth. The new employee has been 50% effective. If the overall burden cost of maintaining the employee on the payroll is $9 per hour, then his break-in cost for that week has been one-half (1/2) the number of hours he worked times $9. Similar ratios can be developed on almost any human work activity, including outside service representatives, bank tellers or professional and technical employees in a variety of activities.
3. Breaking-in Cost
This cost represents that dollar-value of time spent by the supervisors delegated to train or orient the new employee on his/her job assignment. The accounting of this on-the-job training time is very difficult, unless accurate records are kept of new employee activity in individual departments. The dollar cost figure will differ for varying positions within the organization. Statistical sampling, however, could be made from which the average cost could be determined. The analyst making the cost analysis would have to monitor the activity throughout the sampled group in order to ensure that all reasonable time was recorded.
The lost production of any non-supervisory employee doing the training should be included in the cost. The lost production activity would be calculated similarly to the break-in cost for the new employee. If a person's normal production were 35 units of work for the week; and because of time spent training new employees the employee only produced 30 units, then for that time the employee has been only 88% effective. Therefore, 12% of his time would be multiplied by the hourly worker value unit. This would become his portion of the breaking-in cost of the new employee added to any time the supervisor had spent.
4. Formal Training Cost
This is the cost of the organized training period for the new employee. This cost refers only to organized periods of time and not on-the-job training costs, which are included under the breaking-in cost. Periods spent in orientation programs, plant tours or other activities in the classroom or training programs are included. If the work activity were of such a nature that the employee would be sent to special seminars, programs or college classes on company time or at company expense, this also should be a portion of the training costs. One problem may be determining when the formal training period is over in these kinds of activities. It is suggested that only those training programs that are associated with placing the new employee on the job and making him an effective producer should be placed in this category.
At some point in time, the training would be to improve the employee's capabilities beyond what would be expected of the new employee. Some companies believe that only those activities in which the new employee is engaged during his first three months of work should be added to this type of cost. It is suggested, however, where a programmed training period is established for all new employees for some future period in time, that the cost should be placed in this category. For instance, many companies have cycling sales training programs that renew every six months. A new employee, hired during this training period, would be scheduled to attend some six months later. The cost of the employee's attendance at the program should be counted as a portion of the formal training time.
5. Separation Costs
The total of all costs specifically chargeable to the separation of employees from the organization is defined as Separation Cost. Typical expenses include lost hours of production resulting from the separation processing, exit interview time by human resources representatives and all other periods spent by employees in activities such as: Payroll, Credit Union, Security or others involved with the employee in processing his/her termination.
6. Lost Production and Extra Lost Production and Extra Burden Costs
These costs are defined as those expenses brought about because of under-staffing of company facilities, due to separation of employees. These costs must include the financial outlay of securing replacement employees and the overhead burden rate of the company and its application against reduced units of production. Any additional overtime work to maintain a normal production level is also placed in this category.
One intangible cost that might have application in this area, if significant time were spent in the study of it, is that of the lost production created just prior to an individual's leaving his job. Once the employee has made the decision to terminate or has been given notice of layoff or discharge, in all likelihood, lower productivity will follow. Not only does the employee produce less, but his attitude affects other employees. Discussions about his new job and his reasons for leaving consume time. His discussions with other employees can become extensive. It is very naïve to expect all of these discussions to take place during non-working hours. In order to lower the costs of such disruptions, some consideration should be given to a policy that immediately releases terminating employees from active participation in work. (CAUTION – By separating an employee who has resigned before the date of resignation was to take effect creates an obligation to pay unemployment insurance – the resignation is converted into a discharge by accelerating the date of leaving).
Some companies are aware of this problem and allow extensive time off during the last few weeks so employees can make arrangements for the job move. When asked why they do this, the comment is often something like this: "It is less expensive in the long run to get him out of the plant. In this way we only lose the production capabilities of one employee."
7. Extra Social Security Tax Costs
That portion of the extra FICA tax contribution that must be borne by the employer, because of labor turnover, is in the category of extra Social Security Tax costs. Labor turnover can result in a continuation of this tax beyond the period where they would normally cease. The sooner this cutoff period is reached, the greater the potential savings in excess Social Security Tax costs.
8. Extra Unemployment Insurance Tax Costs
Turnover impacts the amount of Unemployment Insurance taxes paid. It is known as an "experience rated" tax. Those who experience high turnover pay the highest unemployment insurance taxes. As an example let's take Company A with 100 employees and high turnover. Because it has high turnover it has earned a high tax rate-say 5.1%. Therefore it will pay $35,700 in U.I. taxes. (.051% on the first $7,000 times earnings per employees times 100.) Let us contrast that with Company B also with 100 employees but with low turnover, which has earned it a lower tax rate of 3.6%. It will pay $25,200 per year in U.I. taxes. (.036% on the first $7,000 times 100 employees.) Company A pays $10,500 more than Company B in U. I. taxes. Lowering turnover lowers U.I. taxes. Furthermore, as in the case of Extra Social Security Tax costs, the employer ceases to make a tax contribution on wages and salaries of each of his employees when base limits have been met. Turnover can result in a continuation of these tax payments beyond the period when they should have ceased. In general, the higher the average hourly or salary earnings, the greater the potential excess cost of unemployment insurance tax.
A. California Unemployment Insurance Tax Computation -- In the following example, we shall consider the effect of claims on a company's unemployment insurance reserve account and the bearing that this will have on its residual tax rate to be paid under our merit rating system. Each employer should know his tax schedule and should make computations based on that percentage. For our example, a 3.0% average rate will be used.
EXAMPLE: The California Unemployment Insurance Tax Wage Base is currently $7,000. Each employee's wages are taxed on the first $7,000 he or she earns each calendar year. Wages are reported, and unemployment insurance tax payments are made, after the end of each quarter. If a company had a static work force and no attrition, most of its unemployment insurance tax would be paid by the end of the second quarter.
However, a company will pay additional unemployment insurance tax on each new employee they hire during the course of a calendar year. If a company replaced twenty-four of its employees, the new hire's wages would all be subject to unemployment insurance taxation. Depending on their salaries, these employees could represent an additional $5040 in unemployment insurance taxation to the company (.030% of the first $7,000, times 24 new employees).
In determining the cost of unemployment insurance tax for a new hire several factors must be taken into consideration. When the new employee is hired, the new employee's salary, and the company's current tax rate are all considerations. An employee hired on December 1st, at $2000 a month, for a company tax rated at 2.0%, will only cost the company $80 in unemployment insurance taxes for the current year.
B. Federal Unemployment Insurance Taxes - Extra F.U.T.A. taxes
would be incurred as in the state example.
The basic purpose of regular turnover cost is to collect sufficient data
to enable the preparation of trend lines so that they are used for standardizing
intra- or inter-company labor turnover costs. As mentioned earlier, comparisons
between geographical locations or industries are of lesser value. Each
company must make meaningful comparisons of its own history and experience.
Employee turnover also entails certain destabilizing factors. Group and human adjustments need to be made whenever the group mix changes. Even when the low producing employee leaves a particular group, a social and psychological vacuum is created that must be filled. Often, even though that person may be replaced with a more effective employee, the adjustment period for both the person and the group can be long and costly.
Turnover begets turnover. As former employees communicate to others about the new positions they have obtained, the wages available, or the fringe benefits offered by other companies - dissatisfaction can develop in the work force. The grass is always greener on the other side, is a psychological truism. Long tenure employees, who have been pleased with their jobs, can easily be disturbed by such reports. Such dissatisfaction can trigger within that person the desire to change jobs, even though all economic and real factors would indicate that to stay in the present position would be better.
Group changes reduce supervisory effectiveness. Any turnover in the production group means added work on each manager. Added time must be set apart for training and for observing the manner in which personal adjustments are made by employees in the group. Even a cursory observation of a group in which one person has terminated will display change in group cohesiveness, the interrelationship between the individuals, changes in group attitude, and a resulting effect upon production. In some cases of course, production will rise if the individual who has gone was a negative factor. In most cases, however, the interaction process is negatively affected by change in group mix. Disruption in the cohesive element within the group is the responsibility of the immediate manager to overcome. The quicker the new member is trained and oriented, the more quickly stability will develop. Often, however, the induction and development of the new member is a hit and miss proposition and the period of adjustment takes longer than it should.
The adjustment of a new employees also affects the social balance of the productive group. In most groups, there are not only leaders but sub-leaders. When one of these key employees separates from the company, an even greater fragmentation canevelop. The communications system, the workflow process, and the working conditions are significantly affected. When the replacement is is less effective than employee who was replaced, the output can suffer in a variety of ways. Informal discussions about the terminated employee and his/her replacement can also be time . consuming. When an error is made by the new employee, it might be exaggerated. The desire of the group to help the new individual is so low that the adjustment period can be extended.
A fluctuating turnover factor may result in increased staff. A company with 100 employees, and 3 percent turnover, requires 103 employees over an extended time period, in order to meet schedules. An expenditure of approximately $2000 monthly is required in order to maintain two unskilled employees on the payroll. Again using the 10 percent cost-to-profit ratio, one could easily expect that $20,000 in production is necessary in order to carry the added staff. To reduce the turnover in this situation by even one person per month would increase profits with no additional costs.
Several factors can aid management in keeping turnover down. One of them is normal resistance to change. Employees who have been with a company for a period of six months usually have made satisfactory adjustments to the work environment. Such employees generally resist leaving an acceptable environment to go to the unknown. Occupational immobility is one of the areas of economic theory that needs additional study to indicate the steps that management may take to reduce the turnover of its employees.
New employees are socialized into a work group. After employees have been a part of a social group for a while, interrelationships with other employees have been developed. Although these may not develop into close friendships, the ties to the work group can be hard to sever. Friendships are created that can have a stabilizing effect upon the person. (Conversely we know that friendship are not always developed.)
The insecurities felt by human beings also aid in the reduction of turnover. Most persons would prefer to have another job prior to terminating a present position. The security of a paycheck makes it more difficult for the person to seek other employment. The locality in which one lives is also a restraining factor. In many cases, a person may have moved to a particular locality because of individual preference. The idea of new employment would be greeted less enthusiastically, if it were to mean a move out of that area. The family restraints of children in school, church groups, community activity, etc., also tend to keep one within certain boundaries of job movement.
One's original acceptance of a position is partially dictated by the perspective of what benefits can be obtained by going to work for that company. One perceives that certain needs will be met and accepts the employment. Wages, hours and working conditions are significant forces. Only very strong external forces can overcome this internal need satisfaction. A mode and standard of living has been set by the job and the company. Invariably, a change of position will upset expectancies, such as vacations, sick leave, special holidays, etc. One is not prone to give up these golden shackles easily.
Seniority systems and pension plans have a retaining effect after only a few years of employment. Some employees stay with their organization because they are treated well and because the company offers great benefits. These "golden handcuffs" can have a stabilizing impact on the workforce. (On the other hand, in some industries benefits don't vary significantly from one company to another.) Graded vacation plans, for example, can also have a stabilizing impact. As employee increase in years of service they accrue more vacation time. Thus, a senior employee who changes jobs may also run the risk of starting the new job with less vacation time.
Another constraint to turnover is a non-competitive job market. With the specialized division of labor that we are attaining in the United States, many different types of positions become available. However, these are usually limited in number in any specific geographic area. For example, few companies retain research economists on the payroll. Therefore, a person desiring that specific position, has only a limited number of alternatives open to the economist.
A person's concept of his or her own marketability can also have an adverse effect on turnover. Feelings of limitation coupled with desire for security frequently act as strong deterrents to the person who talks about a job change.
Difficulties in Comparing Statistics
Meaningful turnover comparisons are difficult to obtain. To compare your company's turnover with a company in another geographical location is almost meaningless. Excluding the possibility of flood, earthquakes, severe economic crises, or other disasters that might cause people to move, most people are very much tied to their existing locality and environment. Therefore, much of the mobility happens within a radius of a few miles. The degree of effectiveness of a particular company in a given area in retaining employees doesn't always tell us much about what to do to reduce turnover.
Occupational mobility does not seem to be limited to any major geographical area of the country. The rates as published by the Bureau of Labor Statistics are very consistent throughout the United States over extended periods of time. Of course, when major industries like the automobile industry in Detroit or the aerospace industry in Los Angeles suffer a decline in sales, large layoffs occur raising the turnover rates of those given areas at that moment in time. Looking at the same industries over a period of five years, however, certainly will not indicate that Los Angeles or Detroit has a greater labor mobility than other metropolitan areas.
A very low turnover rate provides a competitive advantage to employers within a specific industry. A good working environment can help attract and retain highly skilled employees. To accept a turnover as "just one of the costs of doing business" without attach this business problem is to "put your head in the sand." By taking effective steps to reduce turnover employers can be more effective and competitive. Even seasonal turnover factors found in some industries can be controlled so some degree. In companies with seasonal turnover, some key employees and some jobs are retained over long periods of time. By reducing even a small percentage of turnover among seasonal workers could help the organization's competitive position.
Reasons for Management Inaction
Managers do not become concerned and take positive action to reduce labor turnover for a variety of reasons. Some managers feel turnover is normal, regardless of the rate. variation in turnover rates suggests that effective problem solving can reduce effectively reduce turnover. Even in our highly mobile society, employees are not prone to move out from an organization where the climate is right for accomplishment, productivity and the opportunity to aid in solving problems.
A second reason management does not address the turnover problem is that it does not know how to approach the problem. One of the objectives of this chapter on turnover has been assist management in designing effective programs so that management can take specific action to address the turnover conundrum.
There's a third reason why management does not face the turnover issue head on. Some companies want turnover within certain classifications. Some job are easy to fill and easy to train replacements. This is the approach that Mc Donald's takes with employee who flip hamburgers.
The self-satisfying argument that "we already have a good company" is another reason employers fail to address the turnover problem. How good your company's wages, hours and working conditions are meaningless unless employees perceive them as such. An organization must effectively communicate the value it add to the lives of its employees so that they don't leave needlessly. Failure to communicate what companies have done and are doing for the employees is one of the basic causes of turnover.
Some employees have left a job for a raise of as little as ten cents an hour. Obviously, such a minor raise means practically nothing to the individual; therefore the causes for turnover in such instances undoubtedly go far beyond the monetary rise in wages. The failure of management to communicate to employees of their rights, benefits and privileges often results in frustration and insecurity and the ultimate decision to look elsewhere for a job.
The frequency with which employees of one company move to another company with comparable benefits and working conditions is well known in human resources circles. Major human resources practices and salary surveys are continually being made to help companies remain competitive for labor. It is unusual for a person to leave one company and go to another in a related industry and derive significant financial benefit from the move.
Therefore, it must be assumed that working conditions are an important factor in accepting other employment. Improvement in communication between employers and employees can reduce turnover. The maintenance of a turnover reporting procedure will quickly notify management when better communications may help to retain employees.
Turnover tends to bear an inverse relationship to unemployment nationally. Environmental factors, both inside and outside the company, play a major role. When the newspapers advertise many positions available, employees are more likely to seek other jobs. When they learn that positions are difficult to obtain, the internal desire for security deters them.
Factors within the company also create variables. Change in product, method of production, or supervision can upset the "apple cart." Whereas one day an individual may feel at ease and secure in his position, changes in the company environment can create an unstable condition, as the employee sees it. Employees become concerned with the possible affect these changes may have upon their capability of either performing or holding the job. A small question mark in the employee's mind can ultimately lead to the decision to terminate. So it can be seen that to attempt to determine what is creating turnover at a given moment in time, we must consider not only the national employment picture and the company environment, but also the individual factors involved.
Turnover may not be perceived as a problem in the vein that a 10 percent rejection of parts might be. Turnover is continually pushed aside in order to make the other decisions considered more necessary in the business operation.
This is not to say that turnover of an individual company should take priority. But unless records are kept and causes are determined, the question of where to place this management problem in the priority system is difficult to determine. Of course, in emergency situations, where sales have dropped by an enormous amount, turnover would probably not be given precedence. Yet it should be kept in mind that time devoted to turnover study can mean reduced costs and the solving of some other related problems. For instance, when the turnover in a particular department is excessive the quality of work often is adversely affected. By lowering the turnover, it is possible to increase quality capability. Too often, organizations become overly concerned with the daily decision-making process and fail to take into account the long-term consequences and costs of employee termination and replacement.
None of the above reasons for management's inattention to its turnover problem should be viewed as an excuse for inaction. Although some turnover control programs are highly detailed and involved, it is possible to keep such programs simple. Later chapters of this publication will detail how to establish a workable, low-cost turnover control program.
Turnover records, as such, can be maintained with very little expenditure of labor effort if management concerns itself with the problem. Until the company determines that it has a problem and wishes to do something about it, the decision of extent of control must be delayed.
The assumption that turnover is an ever-present problem with most companies would lead one to believe that all companies should have some kind of turnover control procedure. These programs, of course, would be of varying sophistication, depending on needs. The over-all approach to a definitive study could be made following the determination of how great the problem is to an individual company. In view of these general considerations, analysis of employee turnover is a vital part of the management process. The obtaining and recording of costs, number of people leaving, types of employees who are terminating, why they are separating from the company, are all indicative factors to management of its quality of operations. Without this analysis, management is overlooking one of the most important factors of production with which it must cope.
>> CONTINUED IN TURNOVER: SECTION II