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Managing staff turnover and retention.

Introduction

Managing staff turnover to improve retention can lead to better recruitment, lower costs, improved morale and a better knowledge base. Some staff turnover is inevitable and beneficial, but too much is costly, especially in terms of recruitment and training resources.

Turnover fluctuates with economic cycles and during a recession, for example, often falls. This may disguise underlying problems (such as dissatisfied staff or lack of new talent), so it is important to manage underlying factors relating to turnover, even though turnover itself may not always be a problem.

Better management of employee turnover involves assessing the amount and types of turnover that are acceptable within your industry, exploring possible reasons for turnover, and considering what you can do to retain more staff. This checklist aims to help managers to better understand and manage staff turnover.

National Occupational Standards for Management and Leadership

This checklist has relevance to the following standards:

D: Working with people, unit 3

Definition

Turnover can be viewed as a whole, as the number of employees who leave within a given period or, more helpfully, it can be classified in three ways:

* employer controlled (dismissals, redundancies and early retirements)

* employee led (due to dissatisfaction of varying kinds)

* employer and employee uncontrolled (maternity leave, retirement, etc.).

Retention involves managing in ways which encourage staff to remain in employment with the organisation.

Action checklist

1. Establish the extent of the problem

Consider using one or more of the measurement techniques below:

a. The global turnover rate for an organisation, 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 it is widely used, so comparisons can be made between companies. It has severe limitations, however, in including all leavers, and ignoring reasons for leaving, department in which they worked, age, and length of service. Relying on 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 a 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 information on various personnel topics is exchanged. If you trade turnover statistics, make sure that you are clear on other firms' definitions, so that like is compared with like.

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

3. Work out why turnover takes place

External forces influencing turnover may include short supplies of some occupational groups, but internal factors are usually more significant. The work of motivation theorists is worth consideration. Expectancy Theory, for example, calculates motivation in terms of the effects of individual employees' expectations and preferred outcomes, with expectancy (as defined by Vroom) meaning momentary beliefs concerning the likelihood of particular acts being followed by particular outcomes; Maslow's 'hierarchy of needs' theory argued that people's needs range from physical needs to self-actualisation; Herzberg distinguished between hygiene and motivation factors; and McGregor proposed that bosses tend to treat subordinates according to their own prejudices--that employees need to be directed 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 attitudes towards their employment. Motivation factors vary with individuals, but may 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

* feeling valued.

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, while being simultaneously bent on cost reduction, which may include getting rid of staff. In such conditions it could be argued that, though 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 employees why they leave

Consider conducting an exit interview with leavers, or giving them a questionnaire to complete. Which ever approach is taken, structure it carefully, and do not rely on it as the only way 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.

Managers should avoid

* failing to monitor labour turnover

* being misled by global turnover rates

* spending money on retention without first exploring possible reasons for turnover

* neglecting to consider more flexible hours, and other work-life balance considerations which may encourage more staff to remain with the organisation.

Additional resources

Books

Workforce crisis: how to beat the coming shortage of skills and talent, Ken Dychtwald, Tamara J. Erickson and Robert Morison

Boston, Mass.: Harvard Business School Press, 2006

The 7 hidden reasons employees leave: how to recognize the subtle signs and act before it's too late, Leigh Branham

New York, NY: AMACOM, 2005

Recruitment retention and turnover 2004: a survey of UK and Ireland,

London: Chartered Institute of Personnel and Development, 2004

Staff retention in a week, 2nd ed, Sue Browell

Chartered Management Institute London: Hodder and Stoughton, 2003

This is a selection of books available for loan to members from the Management Information Centre. More information at: www.managers.org.uk/mic

Journal articles

Benchmarking labour turnover 2006 part 1, Neil Rankin

IRS Employment Review, 17 Feb no 841, 2006, pp 38-48

Benchmarking labour turnover 2006 part 2, Neil Rankin

IRS Employment Review, 3 March, no 842, 2006, pp. 42-48

This is a selection of journal articles available from the Management Information Centre. More information at: www.managers.org.uk/mic

Related checklists

Introducing Flexible Working into your Organisation (026)

Managing a Secondment (044)

The Psychological Contract (161)

Work-Life Balance (193)

Organisations

Chartered Institute of Personnel and Development (CIPD)

151 The Broadway, London, SW19 1JQ

Tel: 020 8971 9000 www.cipd.co.uk

Confederation of British Industry

103 New Oxford Street, London WC1A 1DU

Tel: 020 7379 7400 www.cbi.org.uk

IFF Research Ltd

16 Chart Street, London N1 6DD

Tel: 020 7250 3035 www.iffresearch.com
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Title Annotation:Checklist 037
Publication:Chartered Management Institute: Checklists: People Management
Geographic Code:4EUUK
Date:Jun 1, 2006
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