Smart HR: What Causes Turnover?

I’m asked this question a lot.  Let’s examine some of the issues surrounding attrition.

Turnover is the result of only two things; unfortunately, they are big pillars and many factors go into them.  The first is a poor company culture; the second is a poor total rewards package (TR).  Yes, if both of these exist, then attrition will be of a greater magnitude.  That’s it. Now, it’s true that many employees leave their jobs because of a sour relationship they have with their immediate boss.  However, that element falls under the broader umbrella of poor company culture.

Did you know that turnover is very costly to an organization, irrespective of the root cause?  Let’s say that a $100,000 a year manager leaves the organization.  The replacement cost is $150,000.  That’s correct, 150% is the figure that we, in the world of recruiting, human resources (HR) and talent management, use to demonstrate real dollar losses.  That does not include the cost of a severance package for the separated employee or the relocation package for the new hire.

Let’s dig deeper into poor company culture for a moment.  A company’s culture is its personality.  That changes just a little bit every time someone joins the company and every time someone leaves.  For better or worse, it happens.  A poor culture makes it hard to retain employees.  Culture is driven from the top down, and often reflects the CEO’s leadership style.

Here are a few examples of how a culture fails an organization.  Note they are largely related to leadership.

  1. Senior executives who have severe management deficits, such as disregarding the needs of employees, sub-standard communication/decision making skills, not willing to take an appropriate risk, the unwillingness or lack of understanding about what it takes to be innovative, and not understanding the ROI of talent (employee) development.
  2. Ignoring employees, and subsequently, survey responses.  Why conduct the survey if you are not willing to resolve problems?
  3. Organizations with owners, chairman, and CEOs who are greedy, selfish and uncaring.
  4. Companies that cannot change despite seeing the obvious warning signs.
  5. Organizations that recruit or hire friends or relatives who don’t have the job competencies and then promote those individuals into management or leadership roles.
  6. Companies who don’t provide leadership training for newly promoted managers or those who need it.
  7. Treating employees without dignity or thinking of them as a commodity.
  8. Using ineffective HR practices, related to recruitment, training and performance management procedures.
  9. Companies who don’t understand what values can do for them or those who have values and don’t incorporate them.

There are more, but these give you the idea, and if you have a poor culture, word gets around.  I cannot emphasize values enough.  What most companies don’t understand is that they need to drive their culture with their values.  Otherwise, the culture emerges in a haphazard way.  Don’t let that happen.  Own your culture and create it to be what you want it to be.  Otherwise it will run amuck.  Someone needs to own the culture, and often that falls to either HR or if the company is large enough, to someone who works in an organizational development (OD) department or has that responsibility.

Now let’s focus on total rewards (TR) for a moment.  Here are some sure fire ways to let employees know that you really don’t care about them:

  1. Have a below average benefits package.  When an organization makes an employee work for 60-90 days before being eligible for health care insurance, 401(k)’s, etc., what signal has been sent?  You’ve conveyed that employees are not an asset.  It also says that the company is cheap.
  2. Organizations that don’t have a compensation model or compensation bands are playing with fire.  We see this more in privately held, family owned companies, or smaller companies or business units.  When employees have the same last name as the owner, often they have different salaries/benefits than non-related employees.  Nepotism will always trump performance.  Without a fair compensation model, managers and leaders can provide a bonus for selected individuals.  This, of course, causes inequity, which is a great way to promote turnover.  It’s especially disconcerting when family members get bonuses or pay raises and the rest of the company does not.  Think it doesn’t happen?  You bet it does.
  3. Don’t give cost of living allowances (COLA) or pay raises on a regular basis.  I realize the state of the economy, however, asking or demanding employees to work for the same salary for 2-3 years will only get you disgruntled employees, and maybe a union if you have hourly employees who are not unionized.  Salary surveys are important.  Conduct them.  Otherwise, your pay scale will be inaccurate and you will lose talented employees.  Moreover, recruiting for replacement employees at a salary level that is below the existing standard becomes very difficult to do.  And, you will not attract top talent.  If you’ve ever wondered what mediocrity does for an organization, merely search for it on the Internet.  Being cheap and/or being mediocre will kill you.  Word gets around.
  4. Don’t give severance packages.  It’s okay to fire or down size someone in a non-humane way.  And, it’s hard to enforce a non-compete.  Word gets around.
  5. Make the bonus or equity disbursements subjective.  That’s a great way to show respect for the people in your organization.
  6. Don’t involve managers and leaders in the goal setting process.  Just set financial and other business objectives and expect the business unit, department or subsidiary to comply.  This one can fit in either category, TR or culture.

The war for talent is coming and by some estimates, it’s here.  By that I mean it will become more difficult to find the right employees with the skill sets you need.  And when you do find them, you will pay a premium to get them and keep them.  The first sign of this corporate war will be when the front end of the baby boomers begin to retire en masse.  Some already have, but others have delayed their retirement due to the slow recovering economy.  But that delay may only be for a year or two to make up for losses in their retirement vehicle.

In sum, use common sense.  Walk around and let your employees know you care about them.  Learn to listen and spend time with them.  Use the Golden rule.  Do what’s right, and don’t be afraid to fight for the resources your employees need with top management.  Create a culture that is fun and a great place to work.  Take employees out for an afternoon of bowling, laser tag or something fun that strengthens the team.  Every now and then give someone a nice reward such as the day or afternoon off.  On average, when an employee is treated the right way, he or she will tell 3-4 people.  But if they are mistreated, they will tell everyone.  Bad news travels at 10 times the speed of good news.  Word gets around.

Read Part 1 of the Buzz Smart HR Series: Employee Motivation & Team Morale

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Jed Friend
Jed Friend holds a Ph.D. in the area of Industrial-Organizational psychology and works in the field of talent management. LinkedIn Profile
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