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Turning over a new leaf.

Turnover is a word with negative connotations. If you have a turnover in football or basketball, it means you lost the ball. Teams that have a lot of turnovers usually lose the game. In business, it has a similar meaning, except that instead of losing the ball to the other team, you lose your employees to other companies.

Furthermore, in business, it's often viewed as something driven by forces out of your control - like inclement weather. It's not something that you have or get; it's something you "experience." For example, if you say, "We experienced a lot of turnover on this project, and that's why we didn't complete it on time," the person on the other end of the conversation will solemnly nod his head as a gesture of total understanding for this terrible thing that has happened to you.

But is turnover really that bad? When you lose your employees to the competition, does your company lose the game? Or is turnover good? Are companies actually lucky if their staffs turn over frequently? The answer lies somewhere in between, but in my view, it's a lot closer to "turnover is good" than it is to "turnover is bad."

I do want to acknowledge that there are some key staff members whom you would prefer not to lose under any circumstances - good or bad. These are the men and women who really make things go. Without them life is miserable; the organization isn't as successful. I also feel very strongly that this list is dynamic, so that someone who is key today might not be key a year from now. Let me explain.

Six years ago, I hired a young MBA graduate who I thought would work with me for a long time. He was smart, motivated, hard-working and fun. When I moved to another company, I was eager to have him join me. We'd already worked together for three years, and I was ready for him to assume the controllership function, since he was on track to do so at our prior organization. But the two environments could not have been more different. The qualities that made him successful at the previous employer were not what we needed here. After one year, he left. Since we were close friends, the parting was very difficult, but necessary. He has since thrived in other organizations, and the employees who were given the opportunity to fill his function here have thrived as well.

I've seen the same thing happen to people within the same company. If they don't grow and adapt as the company changes, then sooner or later turnover is inevitable, or at least the need for it is. Many organizations will keep someone on board in a key position long after his or her usefulness has passed. Early in my career, I worked for one company that kept an executive around for a year after he had nothing to do. His main job was to synchronize the clocks in the office.

I realize it sounds brutal to suggest showing someone the door when that individual has outlived his or her usefulness at an organization. But if that doesn't happen, everyone else suffers. As I write this, I realize that one day some young punk accountant is going to say, "Falconi is a pain in the neck. He's got to go." That's why I'm saving as much as I can in my 401(k) plan.

If you accept the notion that you have to keep only a very few truly key people and that you must evaluate this list regularly, then the idea that turnover is good might begin to sound a little more palatable. However, some human resources person might say, "Turnover costs money. It costs a lot of money to run ads and train someone, too." To that, I have the following response. Yes, running ads costs money, but it's a cost I'll gladly pay, and here's why.

TASTES GREAT; LESS FILLING

* Turnover saves money. That's right, turnover saves more money than it costs, especially if your company is relatively stable. Suppose your accounting department has 20 people. When someone leaves, that person's work gets distributed to the remaining staff. As a result, one person (or more) moves up the ladder, so the job you advertise for replacement ultimately is lower down the chain. That position will be cheaper to fill than the one originally vacated.

As far as the cost of training goes, if you've been doing your job right, it should be negligible. By that, I mean you should be cross-training constantly and moving critical functions from one person to another, so that no one person is the key to the success of your operation. At my company, we self-administer our 401(k) plan; it's a huge job and one with a very low tolerance for error. I move the task around every six months so several people can do the day-to-day work. I can't suffer the embarrassment of having it come to a grinding halt if one person leaves.

* Turnover makes your company more cost competitive. If employees leave, you can replace them with cheaper ones. How often have you replaced someone with a new employee who is paid more than the person he or she replaced? Is a programmer with seven years' experience really that much more valuable than a programmer with three years of experience and a lot more hustle? I don't think so.

* Turnover infuses new ideas into the company. "That's just the way we do things around here. It's our culture." Who hasn't heard that? "Yeah, well, your culture stinks." Who hasn't thought that after hearing why you can't try something different? Organizations need turnover to get new people with different approaches for tackling problems.

When my company originally hired me, it was entangled in an audit with the government that was holding up the payment of a lot of money - just how much, nobody knew. The company was trying to find source documents to support every single cost. An entire room was filled with boxes and boxes of backup. The audit had been going on for a couple of years, with no end in sight. I suggested to the auditor that we forget all the boxes and instead use summary cost data that had been developed for other reports. The auditor loved it (he was almost as eager to get out of the room with the boxes as we were eager to get rid of him ... almost). Within 60 days, the company had an extra million in its coffers. The problem simply required a different approach.

* Turnover creates opportunities for staff and can actually help morale. I've hired several go-getters in my career who, after spending three or four years with me, went on to new jobs making significantly more money. While these were key staff members I didn't want to lose, I didn't view their departures as failures; I viewed them as successes. They worked hard for me for several years and then were able to take that experience and parlay it into an even better opportunity. Other employees see that and realize it can happen to them, too. I use these successes to help me recruit, and I think they've been a big selling point.

If you're finally convinced that turnover is desirable and even necessary for a healthy corporation, how do you insure the desired level of turnover?

THE CASE OF THE CAR WASH

First, don't offer benefits that are superior to the competition's. Benefits don't discriminate between good performers and bad performers. Everybody gets them, so why spend money on something everybody gets? Twice I've worked for companies that offered bonuses to the entire staff. At one company, the bonuses were relatively small; the maximum was $1,000. At the other company, the bonuses were much bigger. In both companies, they were viewed as entitlements. They didn't make people work harder. They did encourage employees to stay with the company because their total compensation was higher than it would have been with a competitor.

While I favor bonuses, I don't think everybody should get them - only deserving employees. These are the people who go above and beyond the call of duty, the men and women you have to keep, not the employees who just do their jobs. Give those keepers big, fat bonuses, and give the other guys nothing, zilch, nada.

Second, never give employees annual raises just for staying with the company for another year. If their responsibilities don't change, then why should they get a pay increase? The best example of why you shouldn't give automatic raises comes from my father. His employer, an auto dealership, had an employee who washed cars after they were serviced. He'd been with the company for many years and every year had gotten a small increase. His salary was up to $40,000. When a new manager took over, the employee was fired.

Now, who's the bad guy? The new manager who fired the overpaid car washer or all the previous gutless supervisors who failed to look that employee in the eye and tell him he wasn't getting any more money to wash cars, and that maybe he should acquire some other skills or assume some other responsibilities to earn more money? If you pay people more money than they can get somewhere else for doing what they do, they won't leave, and your organization won't have all those benefits of turnover.

Third, encourage people to leave. "George, you've worked for us now for two years. How do you feel about the job?" Most people aren't happy about where they are, and they'll let you in on their petty gripes. Once you've heard them, you might say, "While I appreciate your perspective, I'm not sure that whatever it is you're whining about is ever going to change. So, you may want to consider whether this is the best environment for you." Trust me, most people will start looking for a new job after this conversation.

Fourth, fire employees who don't take the above encouragement to heart fast enough. Set tough standards and live by them. Tell those substandard, overpaid employees to go get a job working for another organization, in one of those big buildings where the employees pour out of work at the stroke of 4:00 p.m. as if their offices had just been attacked by an alien life-form. Do the dastardly deed, and the rest of your staff will respect you in the morning. Not only that, I guarantee you will keep their attention during your weekly staff meetings for at least the next year.

If you can't light a fire under deadwood employees, yet still can't bring yourself to fire them outright, then find jobs for them outside your company. Turn those annoying calls from headhunters to your advantage and refer the underachievers on your staff for other positions. I've done it a couple of times.

Summing up, I'm reminded of a conversation I had with the human resources director shortly after I started about some incumbent staff members who clearly needed to start new careers. "They'll never leave," the director told me. "They've been here forever, and they make too much money." Never, never, never, say never.

Mr. Falconi is CFO of a defense contractor in northern Virginia.
COPYRIGHT 1996 Financial Executives International
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1996, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:employee turnover
Author:Falconi, Robert R.
Publication:Financial Executive
Date:May 1, 1996
Words:1895
Previous Article:Put your assets to work.
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