Reducing employee turnover

Turnover is a serious problem for business today.

Many companies are finding it more difficult to retain employees as the economy and job market improves. Baby boomers are also retiring in increasing numbers. The employment culture is changing as well. It is now common to change jobs every few years, rather than grow with one company throughout one’s employment life, as was the case with our fathers and mothers. Employees are also increasingly demanding a balance between work and family life.

3 happy female employeesTurnover costs for many organizations are very high and can significantly affect the financial performance of an organization. Direct costs include recruitment, selection and training of new people, with a phenomenal cost of time and expense. Indirect costs include increased workloads and overtime expenses for coworkers and reduced productivity associated with low employee morale.

Costs vary from organization to organization, some as low as a few hundred dollars to as high as four times the annual salary of the employee. This tool can help you calculate the cost of replacing an employee.

It has been estimated that, on average, it costs a company one-third of a new hire’s annual salary to replace an employee. At Missouri’s 2015 minimum wage of $7.65 an hour, the cost to replace just one employee is more than $5,000.

Causes. There are many potential causes for turnover. Area economic conditions and labor market conditions affect general turnover rates and can be very difficult to manage. However, certain causes associated with turnover in any specific job or organization can be managed. These include non-competitive compensation, high stress, working conditions, monotony, poor supervision, poor fit between employee and job, inadequate training, poor communications and organization practices.

Take these steps to develop a retention strategy:

  • Assess the current situation and measure the turnover rate in your company. Turnover is calculated by dividing the number of annual terminations by the average number of employees in the work force.
  • Measure the true cost of turnover.
  • Develop retention strategies and plan for expected turnover and a changing workforce culture. Employers must recognize that quality of work life is becoming more important to employees of all ages.

What initial steps can be taken to reduce turnover?

  • Hire the right people and continue to develop their careers. Does your company have ongoing career development, tuition reimbursement or skills training programs? An investment in upgrading the workforce is one of the best investments you will ever make when looking at long-term growth. Hiring people that are a good fit with your culture— meaning their values, principles and goals clearly match those of your company — and then training as necessary will go a long way toward ensuring employee loyalty and retention.
  • Develop an employee oriented culture. Most companies with low turnover rates are employee oriented. They solicit input and involvement from all employees and maintain a true open-door policy, avoiding closed-door meetings as much as possible. Employees are given the opportunity for advancement and not micro-managed. And rewards are critical. Employees must believe they have a voice and are recognized for their contribution. Remember that trust and loyalty are a two-way street. Does your company’s culture encourage open communication and employee input?
  • Develop an overall strategic compensation package. This should include not only base and variable pay scales, but long-term incentive compensation, bonus and gain-sharing plans, benefit plans to address health and welfare issues, non-cash rewards and perks, too. To be competitive in today’s labor market, most companies find it necessary to offer a standard benefit package, including health, dental and life insurance, vacation and leave policies, investment and retirement plans. Many small companies cannot afford such a complete package. But what more could be done cost effectively toward creating an employee-oriented work environment?
  • Explore creative options. Creativity in compensation and benefits can make quite a difference to the welfare of the employee. For instance, if employee welfare is a genuine concern, what about child care? How much employee absenteeism is attributable to not having a dependable babysitter? Although the costs and liabilities involved in providing onsite day care can be prohibitive, perhaps you could subsidize child care in some manner. Sometimes just negotiating rates for your employees with area child care providers could be helpful. Maybe some kind of a company match would be possible. Household chore assistance is another possibility being used by some companies.
  • Consider other options such as alternative work schedules, flextime, preventative health care and wellness programs such as fitness center memberships as possible cost-effective benefits. Perks or non-cash rewards to recognize exceptional performance can be critical. Service recognition, event tickets, trips and public recognition can send strong messages regarding company culture and values. Try to examine the issues and needs of your employees to develop creative programs to address these needs.

Although costs associated with some of these suggestions may seem prohibitive, as well they may be, you must evaluate the costs of current turnover, analyze the reasons for your individual organization and develop strategies that in the long term are less costly than continued turnover. Some of these suggestions may not be so costly in comparison.

A word of caution. Be fair and consistent in establishing compensation. Promote from within if possible. Attempt to avoid bringing new people on board at a higher rate than current employees. Policies to prevent discussion of wages simply do not work. Furthermore, such policies are in complete opposition to open-door communications.

Although many companies use contract employees to address fluctuations in business, working side by side with someone who is making twice the rate of pay without any commitment or loyalty to the company can be a real morale killer. Avoid this if at all possible.

If your company follows these steps and shows genuine concern for employee well-being, you may not have to pay the highest wages in town to have the lowest employee turnover rate.

– Willis Mushrush, University of Missouri Extension Howell County SBTDC business development specialist, PTAC procurement specialist