Does turnover matter? Absolutely—even during times when the job market is tight and people are strongly motivated to stay with their current employer. At such times, it would be shortsighted to ignore retention management. That’s because even high unemployment
rates have little impact on the turnover of top-performing employees or those with in-demand skills. Thus, organizations that ignore retention may inadvertently plant the seeds for losing these highly marketable workers. Moreover, businesses everywhere are facing impending shortages of
overall talent as well as a dearth of employees with the specialized competencies companies need to stay ahead of the competition.
Organizations that systematically manage retention—in good times and bad—will stand a greater chance of weathering such shortages.
Turnover matters for three key reasons: (1) it is costly; (2) it affects a business’s performance; (3) it may become increasingly difficult to manage.
Turnover is costly
Employee departures cost a company time, money, and other resources. Research suggests that direct replacement costs can reach as high as 50%-60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary. Examples include turnover costs of $102,000 for a journeyman machinist, $133,000 for an HR manager at an automotive manufacturer, and $150,000 for an accounting professional. If these estimates strike you as high, keep in mind that in addition to the obvious direct costs associated with turnover (such as accrued paid time off and replacement expenses), there are numerous other costs. Clearly, turnover costs can have an alarming impact. One study estimated that turnover-related costs represent more than 12% of pre-tax income for the average company and nearly 40% for companies at the 75th percentile for turnover rate.
Turnover Is Tougher on Small Organizations
The loss of key employees can have a particularly damaging impact on small organizations:
- Departing workers are more likely to be the only ones possessing a particular skill or knowledge set.
- A small company’s culture suffers a more serious blow when an essential person leaves.
- There is a smaller internal pool of workers to cover the lost employee’s work and provide a replacement.
- The organization may have fewer resources available to cover replacement costs.
