A high turnover rate is devastating for companies and their teams.
You pour time and money into creating job descriptions, recruiting candidates, interviewing applicants and training new hires. So when an employee leaves, not only is it a setback for the colleagues who have come to rely on them, but it’s also an expensive loss for your company.
It makes sense, then, to do everything in your power to reduce turnover and improve retention in your organization.
Today, we’re going to talk about high turnover rate: what it is, how it can harm your company, and what you can do to fix it.
What is a high turnover rate?
Turnover rate refers to the number of workers that left (voluntarily and involuntarily) a company as a percentage of the total workforce. You can calculate your turnover rate by taking the number of employees who left your organization during a defined period (e.g., one month or one year) and dividing it by the average number of employees during that period.
What is considered a “high turnover rate” varies greatly by industry. To illustrate this: The average turnover rate across all industries for the United States, according to the Bureau of Labor Statistics, was 3.6% for February 2020. Government had the lowest turnover rate of 1.5%, while leisure and hospitality had the highest at 6.1%.
Is a high turnover rate always bad?
No, a high turnover rate doesn’t always mean there’s something wrong with your company. The number alone doesn’t necessarily tell the whole story.
It’s important to be aware of how your workforce demographic can skew your turnover rate: For example, the ADP Research Institute found that when you look at average monthly turnover by age, people nearing retirement (ages 56-65) had the lowest at 1.6%. But newbies to the workforce (26 and younger) had the highest at 8%.
So, if your business consists mostly of entry-level jobs filled by recent college grads, for instance, don’t be alarmed if your turnover rate is substantially higher than the national average.
That said, in general, you want to keep your turnover as low as possible.
How can a high turnover rate harm your company?
- It’s expensive. Think of all the money and time you spend on hiring just one candidate; there’s the recruitment agencies, job fairs, interviews, and then onboarding and training. The Work Institute estimates it costs $15,000 to lose a U.S. worker, with voluntary turnover costing American employers $617 billion in 2018 alone.
- It wastes time. Once you’ve hired a candidate, the real work has just begun. You now have to train them on how to do the job, and according to the 2012 Allied Workforce Mobility Survey, it takes an average of eight months for a new employee to reach full productivity. Every time someone leaves your company, you could be looking at several months just to get their replacement up to speed.
- It hurts morale. Seeing a coworker leave can put a dent in team morale, potentially causing more employees to follow suit. There’s even a term (“turnover contagion”) for how one separation can lead to a string of them.
What are some causes of a high turnover rate?
A Gallup study of more than 7,000 U.S. adults found that, at some point in their career, half had quit their job to get away from a bad manager. Bad managers are often a reflection of a poor hiring process. As Gallup CEO Jim Clifton writes in the opening of the State of the American Manager report:
“Organizations fail to choose the candidate with the right talent for the manager job a whopping 82% of the time. Virtually all companies try to fix bad managers with training. Nothing fixes a bad manager.”
This might sound startling, but we can break it down so it makes more sense. At F4S, we don’t think anyone is inherently doomed to be a ‘bad’ manager forever.
But if you hire someone for a leadership role whose motivations clash with those of their team, (and there is no awareness or coaching around this,) the conflict and low productivity can be difficult to fix with traditional ‘management training’. What’s really needed here is a people analytics tool that can identify blind spots and areas of friction, and dedicated coaching around these areas for the manager and their team.
No career development
People naturally want to grow and improve, so if someone feels stagnant at your organization, they’re less likely to stay. In the Work Institute’s 2019 Retention Report, more than 22 percent of employees said they quit their job because of career development—whether that’s because they lacked growth opportunities, weren’t able to get a promotion or wanted to return to school.
Burnout is caused by chronic work stress. It contributed to at least 50% of annual turnover for 15% of companies with more than 2,500 employees, according to a report by Kronos and Future Workplace. Their research identified the following top three causes of burnout:
- Unfair compensation
- Unreasonable workload
- Too much overtime/after-hours work
You know the old relationship advice “communication is key”? Well that applies to work relationships too. When a team member is unsure of what’s expected of them, or they feel like they’re not being heard, they’re not going to be able to perform at their best.
In fact, according to data from Dynamic Signal, 63% of workers have thought about quitting because poor communication got in the way of their work.
Lack of recognition and appreciation
It feels good to be appreciated, but many employees don’t feel the love—and that can send them packing. According to OC Tanner research, when leaders don’t recognize the accomplishments of their team members, employees are 74% less likely to stick around.
High direct-report-to-manager ratio
The ADP’s State of the Workforce Report found that, on average, teams with a manager who had a high number of direct reports tended to have higher turnover, though it was marginal and depended on the industry.
For example, in manufacturing, when managers had one to three direct reports, the direct reports’ turnover was 2%, but when managers had more than 15 direct reports, turnover was 2.6%.
Presumably, a higher span of control could mean that each employee gets less attention and recognition from the manager. This could negatively affect engagement and inhibit an individual’s career development. It could also overwhelm your managers.
For instance, if you want one of your managers to have a weekly 30-minute one-on-one meeting with each direct report, and that manager has 12 direct reports—that’s six hours a week of their time.
So what’s the ideal span of control? It depends. But according to data from HR platform Namely, teams led by managers with eight to 10 direct reports had the lowest turnover rates, regardless of company size.
When PayScale asked over 38,400 people why they left their job, the number one response was "I want higher pay." And according to data from Gusto, employees being paid the U.S. federal minimum wage of $7.25/hour had a 70% of leaving within a year; that percentage dropped as the hourly wage increased, with those earning $25/hour only being 31% likely to leave within a year. This hourly rate was also the point at which the effects of pay seemed to stabilize somewhat, leading Gusto researchers to conclude: "Pay becomes less of a contributing factor to turnover at around $25/hour."
Even so, wages may not be as big of a factor as we think. When researcher Alex Rubenstein and his colleagues conducted a meta-analysis of the causes of turnover, they found that, while many managers believe employees leave jobs for higher pay elsewhere, other factors are more important.
The study authors write, “Our results corroborate the notion that often, ‘employees quit bosses, not jobs,’ and that at least as much, turnover can be due to toxic work climates or feeling unsupported by the organization.”
How can I fix a high turnover rate?
Hire great managers
While it might not be entirely true that ‘nothing fixes a bad manager’ but it’s still incredibly important to hire the right one for the job. If you’re like many companies, your inclination is to find an existing employee who is high-performing, or one who’s been with your company for a while, and promote them to a managerial position as a reward. But based on four decades of research, Gallup calls that a “flawed strategy.”
Instead of focusing on performance or tenure, fill a managerial position with someone who has the right talents, which Gallup defines as “the natural capacity for excellence.”
To use a scientific framework to identify and amplify a worker’s hidden talents, sign up for our people analytics tool, F4S.
Provide opportunities for career development
To improve retention, provide opportunities for your employees to learn new skills, improve existing ones and explore new areas of research or expertise.
What kinds of career development opportunities can you provide? Here are some ideas:
- Continuing education
- Training programs
- Mentorship programs
For example, Publix offers tuition reimbursement for employees who have worked for at least six months. It’s no wonder Fortune magazine has named the grocery chain one of the best places to work for 22 consecutive years.
If you want employees to stay with your company, provide them with growth opportunities so they don’t go looking for them elsewhere.
Allow flexible or remote work
As the world grows more digital, remote and flexible work become more viable—and desirable—options. Allowing your team to set their own work hours or work remotely could boost retention. In one Stanford University study, a travel agency that allowed its employees to work from home saved $2,000 a year per employee, partially because the perk reduced turnover.
Remote work is such a desirable perk that many would take a pay cut just to get it. In a survey of more than 1,200 full-time workers, Owl Labs found that 34% were willing to take a 5% pay cut to be able to work remotely.
Show your appreciation
Want to help your employees feel valued, and therefore, stay longer? Show your appreciation for them.
A study by P&MM of more than 12,000 people found that workers who were formally recognized by a manager or peer stayed about 3.7 years longer than those who were not.
Some ideas for showing appreciation for employees:
- Performance bonuses
- Tenure awards
- Specific praise about their work
- Highlighting wins during a company meeting
Practice effective communication
Poor workplace communication leads to misunderstandings, unnecessary stress, and higher turnover. That’s why it’s all the more important to learn the principles of effective communication.
In particular, because managers with too many direct reports may have higher team turnover, one way to mitigate that is to establish regular one-on-ones between managers and their direct reports.
Provide sabbatical leave
Many workers quit because they’re burned out, so give your loyal employees an extended break to travel, research or just unwind. Companies typically award sabbaticals to employees after about five years of full-time work—all the more reason for an employee to stay longer.
If you want an idea of how other companies are implementing it, charity: water offers four to six weeks of paid sabbatical to employees after five years of service. And Vistaprint’s “VistaBreak” is granted to employees who serve five years or refer talent.
Offer competitive compensation—or a good reason for denying a raise.
As we saw earlier in this article, one of the top reasons workers quit is that they want higher pay. To avoid the cost of losing valuable employees, it’s worth it for your organization to do salary research and offer competitive compensation.
In the same vein, if someone asks for a raise and you must turn down their request, be prepared to give them a good reason. In a survey of more than 160,000 people, PayScale found that workers who were denied a pay raise and were not provided any rationale, or did not believe the rationale given to them, were more likely to plan to quit.
Seventy-one percent of respondents who were denied a raise and were not given the reasoning behind it said they planned on looking for new jobs in the next six months, compared to 57% of respondents who were denied a raise but were given rationale that they believed.
Conduct effective exit interviews.
Let’s face it, no matter how you slice it, exit interviews are awkward. It's a stretch to think that every employee who resigns is going to feel 100% comfortable telling you the real reasons behind it; they don’t want to bad-mouth their employer, especially if that will harm their future chances at getting a job.
Even so, the purpose of an exit interview is to gain feedback from your departing employee that you can use to improve your company and reduce turnover. To put them at ease, give them advance notice of the exit interview and familiarize them with the process.
It also helps to have a neutral party conduct the interview, such as someone in HR, rather than their direct supervisor. If the departing employee’s reasons for leaving have to do with management, they’re probably not going to want to admit that to their supervisor in case it ruins their chances of getting a good reference.
Turn down your turnover rate
As you can see, failing to retain employees can waste time and money and hurt team morale. While not always bad, a high turnover rate can be a sign of trouble in your company. Thankfully, many causes of high turnover—from bad management to poor communication to chronically stressed employees—can be ameliorated.
Use these strategies to strengthen your organization now so that your employees will be excited to come to work every day—and stay for many years to come.