Definitions

employee turnover

Turnover (employment)

See turnover for other uses of the term.

Turnover, in a human resources context refers to the characteristic of a given company or industry, relative to rate at which an employer gains and loses staff.

If an employer is said to have a high turnover, it most often means that employees of that company have a shorter tenure than those of other companies in that same industry. Similarly, if the average tenure of employees in a particular sector is lower than that in other sectors, that sector can be said to have a relatively high turnover.

In the U.S., for the period 2001-2006, the annual turnover rate for all industry sectors averaged 39.6%, as compared to the Leisure and Hospitality sector which averaged 74.6%.

Costs

When accounting for the costs (both real costs, such as time taken to select and recruit a replacement, and also opportunity costs, such as lost productivity), the cost of employee turnover to for-profit organizations has been estimated to be up to 150% of the employees' remuneration package (Schlesinger and Heskett, 1991). There are both direct and indirect costs. Direct cost relate to the leaving costs, replacement costs and transitions costs, while indirect costs relate to the loss of production, reduced performance levels, unnecessary overtime and low morale.

Internal vs. external turnover

Like recruitment, turnover can be classed as 'internal' or external . Internal turnover involves employees leaving their current position, and taking a new position with the same organization. Both positive (such as increased morale from the change of task and supervisor) and negative (such as project/relational disruption, or the Peter Principle) effects of internal turnover exist, and thus this form of turnover may be as important to monitor as its external counterpart. Internal turnover might be moderated and controlled by typical HR mechanisms, such as an internal recruitment policy or formal succession planning.

Skilled vs. unskilled employees

Unskilled positions often have high turnover, and employees can generally be replaced without the organisation or business incurring any loss of performance. The ease of replacing these employees provides little incentive to employers to offer generous employment contracts: conversely, contracts may strongly favour the employer and lead to increased turnover as employees seek, and eventually find, more favourable employment.

However, high turnover rates of skilled professionals can pose as a risk to the business or organisation, due to the intellectual property (such as skills, training, and knowledge) lost. Notably, given the natural specialisation of skilled professionals, these employees are likely to be re-employed within the same industry by a competitor . Therefore, turnover of these individuals incurs both replacement costs to the organisation, as well as resulting in a competitive disadvantage to the business.

Voluntary vs. involuntary turnover

Practitioners can differentiate between instances of voluntary turnover, initiated at the choice of the employee, and those involuntary instances where the employee has no choice in their termination (such as long term sickness, death, moving overseas, or employer-initiated termination).

Typically, the characteristics of employees who engage in involuntary turnover are no different from job stayers . However, voluntary turnover can be predicted (and in turn, controlled) by the construct of turnover intent.

Causes of high or low turnover

High turnover often means that employees are unhappy with the work or compensation, but it can also indicate unsafe or unhealthy conditions, or that too few employees give satisfactory performance (due to unrealistic expectations or poor candidate screening). Low turnover indicates that none of the above is true: employees are satisfied, healthy and safe, and their performance is satisfactory to the employer.

Many psychological and management theories exist regarding the types of job content which is intrinsically satisfying to employees and which, in turn, should minimise external voluntary turnover. Examples include Hertzberg's Two factor theory, McClelland's Theory of Needs, and Hackman & Oldham's Job Characteristics Model

Investments

Alternatively, low turnover may indicate the presence of employee 'investments' (also known 'side bets') in their position: certain benefits may be enjoyed while the employee remains employed with the organisation, which would be lost upon resignation (e.g. health insurance, discounted home loans, redundancy packages, etc). Such employees would be expected to demonstrate lower intent to leave than if such 'side bets' were not present.

Calculation

One typical method of calculating the turnover rate of a company is to divide the number of employees who have left the organization within a year, by total number of employees who work for that company in the same year.

References

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