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Employee Turnover is Detrimental to Profitability

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A telecommunications company recently calculated the cost in replacing an operator. After considering the exit interview, administrative activities, replacement and training costs of education, and coaching, the cost exceeded $6K. In addition, there were indirect costs associated with employee turnover including increased workloads and strains as coworkers pick up the slack until new employees are hired and trained.

Additionally, an organization’s reputation becomes somewhat tarnished as others hear and observe revolving-door turnovers. The January 24, 2001 issue of the Wall Street Journal reported “…labor turnover is one of the most significant causes of declining productivity and sagging morale.” Understanding the cause of employee turnover is the first step in being able to control and manage the most costly problem to organizations.

New Hiring/Training Strategies
Successful football coaches have long extolled the virtues of selecting the right players (employees), inspiring them to win, and showing them you (as manager) care about them. Many business organizations are now realizing this. New retention strategies include offering new hires retention bonuses payable after 6, 12, and 24 months instead of signing bonuses. Additionally, a strong orientation/training program has proven to positively impact retention. One local hospital discusses with new employees how they fit into the treatment program providing employees an opportunity to see the significance of their contributions. Aventis Pharmaceuticals show new hires a video that reinforces the role of employees in making people’s lives better. The video features patients who have benefited from the company’s allergy medications discussing how much those medications helped them. In a radically different industry, Harley Davidson puts up large, full-color posters of Harley owners standing beside their motorcycles, to remind employees of the important role they play in customer satisfaction. Taco, Inc. (a heating and cooling equipment manufacturer in Cranston, R.I.) knows the benefits of providing employees training opportunities. They have an annual turnover rate of less than one percent, while revenues have increased at a steady 15-20 percent annually since opening their employee- learning center. IBM set up internal career center where employees can attend lunch-and-learn seminars and other subjects relating to career opportunity and growth. Microsoft created an electronic campus for employees providing professional development resources. Ernst and Young, Price Waterhouse and Hewlett Packard provide a highly structured online mentoring program that has resulted in significant reduction of employee turnover.

Work/Life Balance
Larger companies are finding they are losing top-notch talent to start-ups, because the latter tend to offer more autonomy and flexibility in day-to-day work. Flexibility in work arrangements is also an important factor in retaining employees. In a survey conducted by Wirthlin Worldwide, 75% of the respondents stated that they must take some company time at least once a month to tend to personal needs. Of the group surveyed, 40% responded that they take work home or work overtime at least once a week. Understanding work-life balance is important even in places such as fast-food restaurants. One example relates to Steve Bigari who owns nine McDonald’s restaurants in Colorado Springs. He implemented “McFamily Benefits” to reduce turnover in a 300% turnover industry. His benefit plan offers access to transportation, education, health care, housing, childcare, and even stock options. He’s able to offer these programs because of collaboration with state, nonprofit and private agencies. All employees qualify after 90 days. The idea behind Bigari’s plan is to build a trusting relationship between employee and employer and to get them the benefits they need. His retention statistics reflect his efforts are working.

Poor Managerial Coaching
A good manager can make even the worst of working conditions tolerable, and a bad manager can make the best company one of the worst. The manager’s style creates a certain type of relationship with employees. If that relationship is a poor one, it can drive employees away from the workplace. The January 24, 2001 issue of the Wall Street Journal cites an example of an engineer who was a poor manager. The engineer was a micromanager, and did not provide employees the opportunity to grow and flourish. His team finally ground to a halt in productivity. The CEO recognized this and reassigned the engineer to a project that utilized his individualism. The employees were given a new manager and of course, production improved.

If your employee turnover is high, find out why. Retention should be an evaluated competency at every level of the organization. Until there is accountability or negative consequences from high turnover, don’t expect it to stop.

Freda Turner teaches at the University of Phoenix and Embry-Riddle Aeronautical University in Daytona Beach, Florida. She may be reached at fturner@email.uophx.edu.

Employee Turnover is Detrimental to Profitability
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