Staff turnover: are employers managing it correctly?

Staff turnover is a notoriously complex issue for HR professionals to tackle. Gone are the days when employers could simply sack the bottom 10% performing managers. Making sure the best staff stay at the organisation while keeping churn at an efficient rate creates a series of challenges for employers – especially when many are leaving of their own accord. Daniel Thomas reports.

New IRS research, based on a survey of 269 employers, shows the median voluntary resignation rate in the UK was 8.6% in 2009 (the median falls at the exact midpoint in the range of resignation rates, thereby reducing the impact of exceptionally high or low figures).

The highest voluntary resignation rate was experienced by private sector services employers – 9% compared to 6% in manufacturing and production and 8.4% in the public sector.

Employers in the dark over cost of turnover

Fewer than one in 10 (8.2%) of the respondents to the IRS survey were able to put a figure on the financial impact of staff turnover. The average cost of labour turnover, from those employers who could provide costs, was £544 per employee a year for 2009. When based on the median measure, the financial impact is lower, at £259 per head. The Chartered Institute of Personnel and Development pegs the average recruitment cost of filling a vacancy at £4,000 per employee, rising to £6,125 when organisations are also calculating the associated labour turnover costs. The IRS survey figures seem low in comparison – because most employers do not compute the range of direct and indirect effects of staff turnover in financial terms. Among the employers able to provide an estimate for their labour turnover costs, the majority counted nothing more than the recruitment budget involved in finding replacement staff. Just 38% included the costs of administering leavers, such as amending staff records and sending letters to leavers, while one-third (33%) counted overtime costs for other staff covering posts. Fewer than three in 10 (29%) calculated the fees/wages of temporary staff covering for vacant posts or calculated the more indirect financial impact of reduced performance, service levels and output.

Noelle Murphy, employment relations editor at XpertHR, says it is not unusual for voluntary resignation rates to be lower in the public sector regardless of the economic climate, pointing to the IRS survey in 2007 – before the recession had arrived – that showed that the rate for the private sector was 15.6%, compared to 11.8% for the public sector.

Factors

“Staff retention may be higher in parts of the public sector because of factors such as the commitment employees may have to the public service they are providing, as well as the good pension scheme provision that has historically been provided by many employers in that sector,” she says.

Mike Emmott, employee relations adviser at the Chartered Institute of Personnel and Development, agrees. He says: “People sometimes feel trapped in the public sector, because of issues such as pensions. And many employees in the NHS and the Civil Service do not feel confident their skills are transferable.”

More than half (53%) of the employers surveyed by IRS said the challenging economic situation had influenced their 2009 staff turnover rates. Almost two-thirds (64.4%) of this group indicated their organisations’ voluntary resignation rate had fallen during 2009, compared to 10% in the 2008 survey.

A recession can have a conflicting impact on employers’ labour turnover rates, according to Murphy.

“On the one hand, restructuring and redundancies can increase the total staff turnover rate but, conversely, voluntary resignation rates can decline as the jobs market tightens and employees feel less able to seek new employment opportunities,” she says.

Balancing act

Achieving a balance between retaining staff and keeping the organisation nimble is difficult, Emmott admits, but he says there are some steps employers can take. “Employers need to benchmark what their competitors are doing, and also look at who exactly is leaving,” he advises.

He’s also at pains to point out that very low turnover isn’t an absolute good. “It affects promotion chances and means you can become staid,” he says.

Stuart Duff, head of development at business psychologists Pearn Kandola, agrees low staff turnover can create problems for organisations in the longer term, if staff stay for the wrong reasons.

“This is easily highlighted by the ‘talent paradox’ in which the most ambitious and driven employees – often rated as the most talented and earmarked as future leaders – are more likely to take the risk of leaving to join another organisation to further their careers,” he says.

Case study: how Greggs keeps its staff

Noreen Harrison, group people manager at high-street bakery chain Greggs, believes getting recruitment right is the key to a healthy retention rate. “If you get it right at the recruitment stage, the likelihood of people wanting to leave is reduced,” she says. “We give retention the same amount of focus as recruitment.” Greggs has researched the views of new starters and leavers, using surveys developed by consultancy TalentDrain. When the two surveys were analysed together to find commonalities, the results showed that vertical relationships were a main reason for staying or leaving. “People often don’t leave businesses; they leave managers,” says Harrison. “Line managers lie at the heart of how we manage people. The right solutions need to be found and implemented by line managers and HR working in partnership. The surveys also told us people need to feel they are treated fairly and are respected. It’s often the small things that matter and, sadly, they can get overlooked.”

“On the other hand, those who stay may be less open to change and more sensitive to risk. This could, by the very nature of staff turn-over, leave an organisation with staff who are perhaps less ambitious, less leader-like, or less inclined to actively manage their career.”

High turnover also brings its own risks, creating an atmosphere of ‘who is next?’ and ‘should I start looking elsewhere?’ warns Duff. “Those who remain will be wary of where the axe might fall next, and alert to signs of further cutbacks. This can clearly lower morale, particularly if staff begin to share their concerns and speculate, rather than rely on objective facts,” he says.

For Liz McGivern, director of HR at Red Carnation Hotels, which has a staff turn-over of 29% – compared to the hospitality average of 64% – good retention comes from management listening to employees and devising benefits and initiatives that are important to them.

She says: “We work hard to create an atmosphere in our hotels where people feel that anything is possible and that we are going to help them fulfil their potential.”

Top tips on managing turnover

• Understand why employees leave. All organisations should conduct a confidential face-to-face exit interview with an HR manager (rather than the line manager).
  
• Benchmark your organisation against current industry standards and geographical location. If you work in a call centre environment, you will have a much higher turnover rate than a professional services firm. Context and location are key.
  
• Set clear promotion and development guidelines that are transparent and fair. If an employee feels they cannot progress in their role, and has no control over career development, after a certain period of time they will begin to look externally for a new position.
  
• Develop effective workplace policies and nurture a positive culture. Polices on grievance, bullying and harassment should be communicated to staff in an environment where employees feel confident about reporting problems.
  
• Invest in people management training for line managers. This will enable them to not only support and reward staff effectively, but also intervene before small problems or escalating workloads become a reason for leaving.

Source: Graham Paul, partner, employment law team, Dundas & Wilson