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Managing staff turnover and retention.

[check] This checklist is designed to help the manager analyse, understand and manage staff turnover.

Labour turnover fluctuates with the economic cycle so that during a recession, labour turnover often falls. One advantage of this, a reduction in recruitment costs, can obscure underlying problems such as the retention of dissatisfied staff who would like to move on or the inability of the organisation to bring in fresh blood. In a time of low turnover, therefore, it is important to manage the symptoms of turnover, even if they do not result in turnover itself.

Some labour turnover is inevitable and even desirable, particularly in today's flatter organisations. Some turnover may be beneficial, for example because there are few promotion opportunities, or because the organisation prefers to have a regular injection of new talent with fresh minds and enthusiasms, and knowledge and experience of up-to-date developments. Unnecessary turnover, however, is expensive in terms of recruitment costs, production and service inefficiencies and lower staff morale. You need to assess how much turnover you want (or are prepared to accept) and of what kind, examine why it happens and consider what you can do to motivate and retain staff.


Turnover can be viewed as a whole or, more helpfully, classified in three ways:

* Employer controlled: dismissals, redundancies and early retirements.

* Employee led: dissatisfaction of varying kinds.

* Employer and employee uncontrolled: long-term sickness, normal retirement, maternity leave and death in service.

Advantages of managing staff turnover

It leads to:

* more effective recruitment

* a reduction in costs

* better staff morale

* an improved knowledge of the labour market as a whole.

* more constructive development of the organisation's knowledge base.

Action checklist

1. Establish the extent of the problem

Consider using one or more of the measurement techniques commonly used by employers:

a. The global turnover rate, otherwise known as the crude wastage index, is the most frequently used measure. It is calculated as follows:

Leavers in year/Average number employed in year X 100

The advantage of this measure is that, as it is widely used, comparisons can be made between companies. It has severe limitations, however, in that it includes all leavers, ignoring factors such as their reason for leaving, department in which they worked, age and length of service. This technique may leave you with an imbalanced workforce, with, for example, all employees over 50 or under 30.

b. The stability index is a frequently used additional measure, usually calculated in this way. Staff with one year's service or more/Total staff one year ago X 100

c. Cohort analysis takes an homogeneous group of employees who joined at the same time and tracks the way the group behaves over a period. The rate of leaving of this cohort can be plotted as a wastage curve.

d. The Census Analysis method takes a snapshot of the total situation, rather than examining one group over a period. Leavers are studied in groups according to length of service and then plotted as a proportion of total staff in that group.

e. Computer models for employment forecasting are used only in large firms and latterly have been less popular.

2. Benchmark your organisation against others

One way of judging whether your turnover rates are reasonable is to compare them against national, regional or industry figures. The best regular sources of statistics are the surveys conducted by IFF Research Ltd, the Confederation of British Industry, and the Chartered Institute of Personnel and Development. Employers can also turn to periodic studies of turnover in a particular sector. Some companies belong to informal employer networks where they exchange information on various personnel topics. If you trade statistics make sure that you are clear on other firms' definitions, and that like is compared with like.

Monitor labour market trends to assess how these will affect your organisation. These include demographic factors, the number of women, ethnic minorities and graduates in the workforce, and labour mobility.

3. Work out why turnover takes place

Although external forces may influence turnover, such as short supply of some occupational groups, internal factors are usually more significant. Study the work of the motivation theorists. Maslow argued that people have a hierarchy of needs ranging from physical needs to self-fulfilment; Herzberg distinguished between two sets of factors: hygiene and motivation; McGregor proposed that bosses tend to treat subordinates according to their own prejudices - that employees need to be rules and controlled (Theory X), or that, given the opportunity, all employees can make a significant contribution if encouraged (Theory Y).

It is important to study physical or hygiene factors such as pay and working conditions, but other issues are just as important (some would argue more important) in determining people's attitude towards their employment. Motivation factors include:

* working for an efficient boss

* thinking for yourself

* seeing the end result of work and gaining a sense of achievement

* being assigned interesting and challenging work

* being informed, listened to, and respected

* being recognised for efforts

* having opportunities for development

* working with good and supportive colleagues.

It is worth bearing in mind however, that organisations may appear to be following two apparently opposing directions: requiring more commitment and involvement of staff, whilst also bent on cost reduction, which may include getting rid of staff. In such conditions it could be argued that while motivation factors may have come to the fore, there is a danger that the more fundamental hygiene factors or safety needs of employees are neglected.

4. Ask them why they leave

Consider conducting an exit interview with leavers or giving them a questionnaire to complete. Both must be structured carefully and must not be relied on as the only ways of collecting data. The trends behind involuntary turnover should not be ignored. For example, a rise in health-related departures may give rise to concerns about health and safety at work.

5. Assess the effects of turnover

The most obvious impact of turnover is that of increased costs. These fall into four tangible categories:

* separation costs

* temporary replacement costs

* recruitment and selection costs

* induction and training costs.

Turnover can be self-perpetuating in that it affects the morale of those who stay. Gauge employees' reactions through employee attitude surveys. Turnover also causes inefficiencies, not least because of the disruption caused by resignations.

There is a further, more intangible, category - that of the skills and knowledge which are lost to the organisation when an employee leaves. Difficult to quantify and assess, this again has implications for information-sharing as well as effective motivation.

6. Implement retention strategies

Take steps to:

* ensure pay rates are competitive

* offer a wider choice of benefits, for example, sabbaticals, career breaks, childcare and eldercare arrangements

* review recruitment literature to ensure it gives an accurate picture of the organisation and look at the quality of induction and training offered

* improve job design and introduce flexible working practices such as job sharing, flexitime, and teleworking

* develop equal opportunities policies

* promote career progression opportunities, such as dual career ladders for technical and managerial staff

* improve the quality of supervision and management.

Dos and Don'ts for managing staff turnover


* Distinguish between different types of turnover.

* Monitor the external labour market.

* Understand the difference between hygiene and motivation factors, but make sure that you take account of both.

* Allocate clear responsibilities for staff development.


* Measure and benchmark without knowing what you want to achieve.

* Throw money at the problem without knowing what the problem really is.

* Be misled by global turnover rates.

Useful reading


Recruitment retention and turnover 2004: a survey of UK and Ireland Chartered Institute of Personnel and Development London, 2004

Staff retention in a week, 2nd ed, Sue Browell Chartered Management Institute London, Hodder and Stoughton, 2003

Employee retention handbook, Stephen Taylor Chartered Institute of Personnel and Development London, 2002

The talent edge : a behavioral approach to hiring developing and keeping top performers, David S Cohen Toronto, Canada John Wiley, 2001

Journal articles

Benchmarking labour turnover 2005 part 2, Neil Rankin IRS Employment Review 25 Feb no 818 2005

Benchmarking labour turnover 2005 part 1, Neil Rankin IRS Employment Review 11 Feb no 817 2005

Useful addresses

Chartered Institute of Personnel and Development, 35 Camp Road, London SW19 4UX

Tel: 020 8971 9000

Confederation of British Industry, 103 New Oxford Street, London WC1A 1DU

Tel: 020 7379 7400

Chartered Management Institute, Cottingham Road, Corby, Northants NN17 1TT

Tel: 01536 204222

Thought starters

* Do you monitor turnover?

* Do you carry out exit interviews?

* Is turnover cyclical, seasonal or departmentalised?

* Do you benchmark salaries against those of comparable organisations?
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Title Annotation:Checklist 037
Publication:Chartered Management Institute: Checklists: People Management
Geographic Code:4EUUK
Date:Oct 1, 2005
Previous Article:Conducting a performance appraisal.
Next Article:Leading from the middle.

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