Retaining talent is one of the biggest challenges companies face. Rapid turnover isn’t only expensive but also heavily impacts workplace morale. How can businesses keep employees from leaving?
Employee turnover is frankly inevitable. There are numerous reasons why employees leave, such as resigning, retiring, or transferring locations. So, many may consider employee departure a natural part of any company’s life.
However, problems arise when departures become frequent and rapid. This scenario may significantly impact the business’s revenue and performance. Additionally, the constant stream of colleagues entering and leaving the workplace can hurt a company’s ability to build a harmonious employee environment.
An organization suffering from high turnover must identify the problem at its roots, especially as the world faces labor shortages due to back-to-back economic downturns. Doing so helps retain top talent and—by extension—boosts operations, revenue, and morale.
This article will delve deeper into employee turnover, why it happens, how it impacts businesses, and ways to manage and keep the best employees from departing. But first, what does employee turnover indicate?
What is employee turnover?
Employee turnover is the rate at which workers leave an organization over a certain period, including those who leave voluntarily and whom the employer terminates.
You may calculate turnover rates using the following formula:
(annual average number of employees ÷ number of employee departures) x 100 = turnover rate as %
Firstly, divide the number of staff who left in a month, quarter, or year by the total number of employees within the same period. Then, multiply the quotient by 100 to get the final turnover percentage. Businesses often use turnover rates to strategize their preparations for voluntary termination. Still, an even better use for this formula is to help minimize the frequency of departures altogether.
Companies should generally aim for a rate of 10%. But the ideal figure dramatically depends on the industry. Some may even experience a 20% rate that doesn’t negatively impact any business or workplace operation. In fact, annual turnover among retail industries has sat around 60% for a long time.
How does employee turnover impact businesses?
Employee turnover impacts business by heavily increasing costs and stunting staff productivity. The constant need to hire and train new workers disrupts normal operations, which can effectively cripple an organization. Here’s how it can specifically do so.
Gallup estimates the cost of replacing each worker can reach up to twice their annual salary. These expenses may include hiring costs, interviews, application processing, training labor, and subsequent loss in sales and productivity. Also, each terminated employee must receive a severance package—an expense with zero returns.
Companies may also need to provide sizeable remuneration and benefits to retain employees in a high-turnover environment. This need can significantly impact its financial standing, especially if attrition shows no signs of slowing down.
High turnover affects the workplace’s morale by making it feel insecure and unstable. In turn, workers may feel demotivated, influencing their productivity as they become less engaged in their work.
Moreover, replacing employees costs valuable time and effort from the workforce. Managers spend more time training new employees and familiarizing them with the workplace and business operations, keeping them from more productive tasks.
Workers left behind may become overworked due to the increased workload and responsibilities resulting from sudden employee departure. Even if the company manages to hire recruits, their lack of training means they can’t fully take over backlogged tasks.
On the same note, new employees can also suffer from low morale and overworking as the workplace pressures them to learn about their new job immediately. This environment may result in even higher employee retention rates as they find their tasks too stressful to manage.
Poor service quality
Disruption in daily operations due to employee retention problems makes it difficult for businesses to maintain consistent service quality, especially for industries where it is essential. New hires may mostly be unfamiliar with the company’s policies and operations. In effect, they may deliver subpar services.
The same problem may occur in organizations such as banks, salons, and B2B services, where building client relationships is critical. Employees who have built client rapport and departed the business may take their established customer relationships with them. This case may negatively impact the company’s quality of personalized service.
Damage to company reputation
As mentioned, high turnover makes it difficult for companies to provide consistent service quality. This inconsistency may lead to customer dissatisfaction, which the public—including company shareholders—may interpret as a sign of instability.
It may also impact loyalty and engagement with the brand. High turnover rates may make attracting new customers, investors, and top talent challenging. Moreover, high attrition can indicate poor management practices, causing current and potential clients to doubt the company’s ability to deliver good services.
Why do employees leave?
Employees depart companies for several reasons—resigning, transferring locations, retiring, and the like. However, fast turnover often occurs less because of career shifts and more due to internal organizational issues.
Before addressing problems, it’s essential to understand why they exist in the first place. Only then can you identify ways to deal with high attrition and ensure it doesn’t grow and cripple your company.
Toxic company culture
A toxic company culture demoralizes employees, causing them to act hostile toward each other. This kind of workplace fosters dishonesty, lack of trust, and resentment, leaving workers unable to remain productive and severely reducing the company’s productivity.
Even worse, some employees may experience discrimination and harassment, which can drive them to look for an organization with better work culture and environment.
People primarily work to get paid. In other words, providing low remuneration can drive top talent away. Employees receiving unfair salaries may also struggle to make ends meet, leading to financial stress and demotivation. In turn, they may not perform at the top of their game, negatively affecting the entire workplace’s morale.
A poor relationship between employees and management can encourage the former to look for better employers elsewhere. Workers may also feel unsupported when leaders fail to provide adequate training and supervision.
On the flip side, some leaders tend to micromanage their subordinates. They may also smother creativity, innovation, and freedom that can otherwise contribute to the company’s growth when properly nurtured.
No work-life balance
A workplace with no work-life balance almost always results in burnout as employees sacrifice personal time for their job. They may feel exhausted even with adequate rest. The overlap between work and personal time may worsen their physical and mental health.
Lack of personal time also decreases job satisfaction. Workers may feel increasingly frustrated about their job, encouraging them to look for other employment opportunities. They may resort to looking for another company that can better provide a balance for their personal and work lives.
Limited career advancement opportunities
Employers who provide little to no advancement opportunities can make employees feel like they aren’t making any progress in their careers. They may not find enough reason to improve and grow bored with their work. This situation can entice them to look for new challenges and opportunities elsewhere.
Failure to invest in employee development may demonstrate a lack of support for growth, negatively reflecting the company’s work culture. Moreover, this environment may also repel talents driven to grow and succeed with their prospective company.
5 ways to improve employee retention
Solving high turnovers doesn’t just end with knowing its effects and reasons. You must also take proactive approaches to retain talent by fostering a more stable and productive organization. With that, here are a few ways to improve employee retention.
#1 Improve communication and transparency
Employees need to feel involved in company operations, which can be as simple as receiving information on any developments and decisions that affect them.
So, being transparent about company goals, strategies, and challenges is best. By being transparent, you can help the staff realize their contributions to the organization’s success. In turn, they’re more likely to trust and have confidence in the management and obtain a stronger sense of purpose in the company.
Open communication also helps address concerns and conflicts within the workplace. For instance, you may facilitate group meetings to allow workers to express opinions toward management and their colleagues. You can also regularly check with employees to collect feedback or ask how they’re doing.
These efforts can ultimately lead to improved workplace relationships, especially between the management and rank-and-file employees. This way, you can effectively build a more positive work environment.
#2 Invest in employee development
Give employees a clear career trajectory by helping them understand their roles and responsibilities. You can also consider informing your employees about the company’s advancement opportunities and how you can help them achieve their goals. Then, you can start investing in employee development to help staff advance in their respective careers.
For instance, you can provide relevant training programs to improve your staff’s skills and knowledge in their field. Doing so helps them improve their performance and work quality. The company’s leading experts can also facilitate mentoring activities to provide career guidance and advice from seasoned industry professionals.
These efforts can increase job satisfaction and engage employees with their work. LinkedIn reports that companies rated highly on employee training saw 53% lower attrition than those with poor employee development. Moreover, providing career development opportunities instills a sense of job security among workers since it demonstrates the company’s commitment to its employees.
#3 Foster a positive work culture
Promoting a positive work culture and environment can encourage valuable workers to stay with the organization. According to FlexJobs, toxic company culture is why 62% of employees quit their jobs. This number emphasizes the necessity to improve morale and increase job satisfaction in retaining top talent.
A positive work culture supports work-life balance by encouraging employees to take time off when needed. This support entails refraining from contacting employees during weekends and leaves. Employees must be able to set boundaries—such as placing work devices and emails on Do Not Disturb—during their time offs, letting them enjoy their downtime.
Positive work culture also gives credit to whom it’s due. Recognizing employees for their valuable contributions and accomplishments establishes that the company values and appreciates their hard work. A simple “congratulations” can motivate employees to do even better, increasing productivity as they strive to deliver higher-quality work.
#4 Provide competitive compensation and benefits
Your company’s compensation and benefits can make or break its relationship with your employees. After all, money is one of the main reasons people work. Uncompetitive remuneration may encourage top talent to seek better pastures in another company that will provide better compensation for their hard work. So, consider prioritizing improving salaries and benefits to boost employee retention.
Providing employees with a reasonable amount of paid time off is a great start, as it promotes work-life balance. Moreover, you can give performance-based compensation, such as bonuses or commissions, to reward top-performing employees. Doing so can create healthy competition in the workplace that further engages the team.
You may also offer retirement plans, like 401(k) or IRA, to support their financial security upon retirement. Doing so won’t just demonstrate the company’s dedication to their employees’ well-being. It will also promote job security as it lets staff know that their management plans to keep them for the long term.
Lastly, improving compensation and benefits packages can also attract new prospective employees. In turn, the company will always have a portfolio of highly qualified talents ready to be a part of its workforce.
#5 Regularly solicit employee feedback
When the turnover rate is high, it most likely means that the company is doing something wrong in some regard. However, there may be instances when problems aren’t evident at first glance. You may overlook these issues, which prevents you from developing an effective solution. More often than not, the only way for you to be aware of organizational problems is through employee feedback.
Employees sometimes hesitate to provide feedback due to fears of retaliation from their colleagues and management. So, ensure you have open and safe communication channels. An environment fostering communication where employees are comfortable sharing their company-related opinions is critical to identifying problems in the workplace.
For instance, you may facilitate employee surveys, focus groups, and one-on-one meetings to provide workers with a safe space to air their thoughts.
Most importantly, it’s best to acknowledge and promptly act on feedback to address issues immediately. As discussed, high attrition rapidly deteriorates performance. So, taking measures to slow it down as soon as possible using employee feedback as a basis for change is critical to the company’s survival.
Keeping employees with the company
Fast employee turnover is nothing but bad news. Regular departures significantly impact the company’s revenue and performance while destabilizing the workplace from within. It also indicates poor management, which can turn away future employees and customers.
Ultimately, the fast turnovers may lead to the business’s downfall. So, take measures to reduce employee turnover—the methods discussed all boil down to a central idea: value your employees. Listen to their feedback, help their careers flourish, and make the company a worthwhile place to be. In turn, your employees can thrive in their careers and take the business to new heights.
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