Lets take two successful, well-known companies: one has a staff turnover of more than 50% per year; the others is about a tenth of that. Your first reaction is probably: Bloody hell number ones got a problem hasnt it? But the answer is: Not really. Number one, you see, is Pizza Hut and this figure takes into account the vast number of casual workers the company employs. The second business is the technology company, 3M, whose smorgasbord of opportunities means that people tend to stay put.
These figures illustrate an important point about turnover or churn: there is no overall right level and what works for any given company will depend on any number of factors, both internal and external. If you look at IT, says Victoria Power, a senior consultant at the Hay Group, around the year 2000 turnover was very high. Another area is sales that tends to be very rapid too. In sales you recruit people very cheaply, you put a lot in, but then you get a return very quickly. So that rate of burn is acceptable. But there are other areas where leaving after five years is considered pretty early.
Typical turnover rates, says Towers Perrins Chris Charman, are about 15% for the public sector and 20% for the private sector. But, he adds: A high figure may be more acceptable to an organisation among its lower-skilled, easily replaceable labour. The same figure would be worrying if it applied to senior managers or highly skilled staff.
This is a point that chimes with the Pizza Hut figure. The headline number of 50% (actually pretty low for the
sector) masks a host of things. Explains Sue Whitely, Pizza Hut UKs organisational development manager: Most of this comes from the fact that we rely heavily on students and young people. For them it is a part-time, temporary role. If you look at restaurant managers the figure is 12.5%. And, she says, even this respectable figure bears further scrutiny. In the US, the company looked at how long a manager had to be in place to have a significant impact on a restaurants profitability. The answer was a minimum of one year. So, says, Whitely, this is sacrosanct and something the company takes into account even when moving people around internally. They are trying to improve dispatch rider retention too, she adds, which can be rather difficult, say, in December.
At the other end of the scale are businesses like 3M. Our turnover [5% to 6%], says Jeff Skinner, UK general manager for human resources, is at the low end of normal. From what we do, I cant see why a thriving business would want to aim for a higher figure than that. But what about new
blood? The aim ought to be
sufficient business growth so that new jobs equal new blood, says Skinner. His ideal turnover rate would be nil, but, more pragmatically, he adds: If you were growing at 10% per year, making 5% productivity improve-ments and creating 5% more jobs, that would be nice and sustainable.
For all this, Skinner does concede, that there are good and
bad reasons for levels of turnover. One such factor in businesses that kept people sticking around for the long haul is pensions. He says that the old defined benefit schemes were like handcuffs. You kept people because they couldnt afford to leave. The way for me to keep people is to have a supportive and positive culture. Skinner clearly means what he says: in total, he has been with 3M for 22 years.
Of course the main reason to try and get turnover rates down is that there are a high costs associated with replacing staff. First and foremost there is the obvious one of recruiting new people everything from advertising to the manhours spent interviewing. Then there is the cost of training it usually takes several months either side of a departure as one person winds down and another starts up. Finally, there may be intangibles such as the value of the individuals networks and non-specific knowledge, which are practically impossible to quantify. Research done by the CIPD suggests that the cost of replacing someone on 20,000 a year is typically 12,500. It also takes time further CIPD research for 2002 showed that it took on average 13.8 weeks to fill a professional vacancy.
Power has done a number of studies on what improves staff retention. She says there are usually a variety of factors, both internal and external. What may be causing people to leave is often far from obvious. She cites an example of an engineering business that was recruiting graduates, a number of whom would quit the moment they qualified. The problem for many of them, she says, was a lifestyle issue. By the time they qualified they would be thinking about buying property and settling down. But prices might have been very high or long hours might have made it very difficult to actually look for flats or houses, she explains. A couple of ways to reduce this would be to provide loans or allow more flexible working patterns.
Another factor is an organisations size. In a big company, there are often a number of routes for career progression, but in a small or medium-sized business this may not be the case. We see a lot of organisations with comfortable but somewhat demotivated people. The reason for this is the size of business they work in they will never get the top job until the boss leaves. But there are 10 people possibly all very good in the same position.
Some companies try and compensate for this by creating new layers of management. Perhaps you have someone leading a team with a lot of qualified people. So why not have a deputy team leader and perhaps a senior team member? You wind up in a situation where lots of people are as capable as the boss. Its not very helpful. In this case you should create new career paths. Or just say to employees: I accept that you want to leave and leave the door open. For these reasons, a higher turnover rate may be more acceptable in a small organisation than it is in a larger one.
Equally there can be large businesses that do not take advantage of their size. Exactly the same problem can occur when even the biggest company fails to allow movement between its different parts and functions.
Part of the problem, says Stephen Bevan, deputy director of research at The Work Foundation, is that companies often just dont know. All the skills that went into workforce planning have disappeared. Companies believe that the pace of change is such that theres no point. But its important for organisations to get a good handle on it. Most dont have a clue beyond the headline rate. Nor, he adds, does an unhealthy obsession with benchmarking help: I remember one organisation called us and said that they had a 10% turnover and the average was 12%, so they were OK. I asked what it had been the previous year. It was five. Clearly for turnover to have doubled in a year something wasnt right.
There are also occasions where the reverse of the normal problem is happening that is, turnover is ultra-low or even non-existent. Rather than being a company-wide problem, this will often occur in pockets within businesses. For instance, an employee or a team may have become so good at their job(s), that their boss cannot bear too lose them or even promote them. And while this may be rather flattering, in the longer run it will result in stagnation and demotivation.
Perhaps surprisingly, pay is rarely the reason for staff attrition. Explains Power: Ive asked large numbers of people why they left. The personnel department will usually say it was because they wanted more money. But if you ask the person theyll say that they left because of the climate and how they were treated. Feeling valued and a sense of worth is more important than many realise. The best advice one can give an organisation is not to assume that turnover is about pay but to try to listen to employees, says Towers Perrins Charman. It is not that people dont listen: its just not top of their lists.
If its not money then what is it? Usually, its the boss. Bevan says that 4,000 studies have been done since 1945 on why people resign: Most of these reasons are ones that their line managers directly control. Power takes a similar line: The single most important factor is good leadership. If your boss is inspiring, youre likely to stay. So, if youre an HR director worried about your turnover rate, you should probably be looking at your managers and individual teams. And, even if your turnover rate is right, well you should probably be looking around anyway. A 7% headline figure could mask four teams at 1% and one at 30%.
