Why Turnover Is The Most Misunderstood Metric In HR



(Transcription from the OutMatch Webinar series)

Today’s feature speakers, Courtney Gear, and Nikki Cunningham. Both are senior counselors and experts here at OutMatch, and they are with us today because they eat, drink, and sleep industrial-organizational psychology. With over a decade of experience in helping companies match the right people with the right roles, Nikki and Courtney are an excellent resource as they discuss today’s topic, which of course is turnover. So I am going to send over controls to you Courtney. And you can take it away.

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Agenda- shifting your mindset & debunking myths, defining and measuring turnover, understanding key drivers, and exploring strategies to impact retention

Courtney Gear

How to reduce turnover is probably one of the most common questions we get asked and we often find that our clients misunderstand how to actually measure turnover, and furthermore what are the most impactful strategies to actually reduce it. Today we want to share with you many of the lessons we’ve learned along the way.

We’re going to start off shifting your mindset, rethinking turnover and debunking some common myths. Then we really want to define turnover on our terms and explain how to accurately measure it. We’ll then walk through some of the key drivers to turnover, and help you understand what you should actually be looking for and finally we’ll explore strategies to impact retention, and discuss some new ways to practically retain your existing talent.

Impact of Turnover

Nikki Cunningham

When we think about the impact of turnover we know a lot of people have fairly negative reactions to it. We’ve heard the statistics; we know it has a huge impact on organizations. There are training costs, hiring costs, costs associated with lost productivity, and even an impact on team morale and engagement. In fact, according to a 2015 study by SHRM, employers will actually need to spend the equivalent of six to nine months of employee’s salary in order to find and train their replacement. If you do the math that actually means for an employee’s salary that is $60,000 a year, will actually cost the company anywhere from $30,000 -$45,000 to hire and train a replacement.

The Center for America Progress did another study and noted the cost of losing an employee could cost anywhere from 16% of their salary for hourly employees and up to 213% for unsalaried employees for a highly trained position. I’m sure this isn’t surprising or new information to anyone on the call. However, although you know how important retention is, many companies still don’t know what to do when it comes to how to reduce it.

Turnover Myths

Courtney Gear

So today, you know our goal really is to challenge some of those traditional views of turnover and to debunk some of the myths that are out there today. So the first thing that we’re going to talk about is the fact that turnover is not actually always a bad thing. And low turnover or higher retention is not always good. So really today our objective is to shift that mindset, your own personal mindset as well as the mindset within your organization and then talk a little more about how you should be classifying turnover. And what you can really do about that unwanted turnover that has a huge impact on your organization.

Hopefully today you walk away with strategies that you can apply as well as gain a different mindset or perspective on what turnover really means within your organization.

Turnover Is NOT Always Bad

Nikki Cunningham

So the first thing that I want to dive a little bit deeper in today, is the fact that turnover is not always bad. While we know that turnover is expensive as Courtney talked about earlier, let’s consider the costs of retaining a toxic employee. I want you all to think about somebody that was incredibly unhappy in their role; perhaps somebody that bullied others, or was overly opinionated. Think about that person and the impact that they had on you personally as well as the impact that they had on the team.

According to a study by the Rotterdam School of Management, “A single negative employee can cause a 30-40% drop in a team’s overall performance.” That is a huge number. And that damage is not only a contagious attitude, but also it manifests in team performance. There is essentially this ripple effect that happens. One negative team member causes others to feel angry or uncomfortable, ultimately impacting the performance and engagement and the bottom line.

As a leader it can be really difficult to deal with these types of employees because oftentimes they are not necessarily low performers, they can actually be strong performers. You really have to think about the long-term impact and the broader impact that that toxic employee is having on the team.

Furthermore, that individual can seriously hurt your reputation as a leader. Your team needs to feel protected; they need to feel like everyone is being held to the same standards. So when there’s somebody on that team that is able to engage in his own types of behaviors and not have anything happen just because he’s a strong performer, that sends a very specific message to the rest of the team and even the organization. So just another thing to keep in mind as you think about why you know it might be good in that circumstance that that person decides to exit the organization.

It’s not only measured in that emotional impact, but it can cost your company money too. Again, even if that’s one of your star top performers, when you start to consider the impact of lost work hours because the people either talking about them or gossiping with them, all of that likely outweighs the contribution and negatively impacts that bottom line.

A report that we found when we were preparing done by Harvard Business School actually estimated that keeping a toxic worker on the payroll can cost an average of more than $12,000 a year. Which is more than double the increased annual productivity that a good employee can provide.

So certainly something to keep in mind as you think about your turnover numbers and what might be you know the number of people that are leaving the organization that are all in that toxic category.

The other thing think about is that higher retention is not always good. Oftentimes people assume that higher retention equals high engagement. And that isn’t always the case. Lower turnover can actually be a sign of complacency and lower employee motivation just as easily as it can be a sign of high engagement. And high turnover doesn’t necessarily mean low levels of engagement. Some disengaged employees will leave the organization, but not all. We actually found research that shows 28% percent of retained employees exhibit lower levels of engagement, compared to those who turnover. So maybe more than a quarter of current employees are more disengaged than employees who left voluntarily.

On the flip side, no or low turnover is not necessarily good. If the employees aren’t leaving this could be due to a number of market constraints, such as employment opportunities within the region, or it could be more organizationally driven. For example, some employees are financially invested in the organization. And they will stay because it’s harder for them to leave and it causes them strain on their finances.

Some companies have a negative or weak reputation that they don’t attract recruiters the way that a household name company would. And you notice that some of these employees that are staying in their role are not necessarily engaged. They’re staying because they don’t really have any other options. They don’t have the skills to move onto another role. So just some things to think about as you’re evaluating your retention and overall engagement.

Again, retention doesn’t equal engagement. We know that retention is important. We know it’s important for you all to measure it. And make an impact on it. Studies by SHRM from 2015 have shown that turnover is the biggest challenge that HR professionals are facing toady and certainly that message is loud and clear from our clients. However, the traditional form of turnover measurement doesn’t encompass all of the factors. And measuring voluntary and involuntary turnover is certainly a common practice today, but we think it’s important to go a step further, and really understand how much-unwanted turnover is occurring in your organization.

Courtney is going to talk a little bit more about that and how you can classify turnover and use that as you filled out your retention strategies.

Redefining Turnover

Courtney Gear

Let’s redefine turnover. First of all, I want everyone to imagine that someone on your team comes to you today and says that “I want to talk to you about something: I’ve decided to leave the company.” They then, of course, start telling you the reasons. What’s your immediate emotional reaction? Specifically, do you feel regret? And have you thought about the impact that this is going to have on your business? Your response to these initial questions is actually what is going to classify the type of turnover your experiencing.

So depending on your company’s retention strategy, you may want to reconsider the way you classify turnover. Oftentimes companies consider turnover, all turnover as equal. But in reality, there are actually different types. So far clients have started to classify turnover in three big buckets: desirable, ok, and regrettable.

Desirable turnover would be perhaps with a bottom performer or even a toxic employee. And instead of having to actually have a performance management discussion, they leave on their own. Ok turnover would involve losing an employee in a non-hard to sell job, with a short learning curve. Or, perhaps even a contractor in a short-term position that you knew would leave eventually. And then finally, there’s regrettable turnover. This would be losing a top performer to a direct competitor or even a high potential due to lack of development opportunities.

Why it’s important to measure each of these types of turnover and benchmark your turnover to other organizations in your industry, the fact that it leads to regrettable turnover are often within a manager’s control. The focus for measurement should really be on how to decrease regrettable turnover.

Now, while its important to separate out the types of turnover we also want to understand what are some of the root causes of why people are leaving in the first place. So what may actually be pushing them away? Ask yourself the simple question, “why is the turnover happening”, regardless of the type. Is it an attraction to a new job or experience? Perhaps is it dissatisfaction with their current job.

We know some change is good, new employees bring new ideas, but oftentimes there’s something deeper going that you really need to address, and perhaps even make changes. Maybe you have a really poorly trained manager that doesn’t really cultivate their team. Or even a toxic employee that others are afraid of. Whatever the reason is, and what’s really going on, ask the questions and dig deeper: do you understand what’s really happening?

Key Drivers of Regrettable Turnover

Courtney Gear

Let’s talk about the potential drivers to Regrettable Turnover. There are a few primary drivers when we think about Regrettable Turnover. As we mentioned earlier, oftentimes our assumption is that people leave a job because of pay, which may, as a hiring manager be something that is out of your control, and hard for you to influence. However, we actually know through extensive research that salary and benefits are not the primary reason that people leave. In fact, there are many reasons why people leave that are actually within your control.

Some of those reasons might be the job or organizational fit, perhaps their relationship with their manager, or development opportunities. All of these things can have a significant impact on overall engagement and commitment to stay within the organization. Next Nikki is going to dig deeper into a few of these areas and help you understand what you can actually do to positively impact these drivers.

Job and Organizational Fit

Nikki Cunningham

What are some of these areas that are really within your control, as well as the control of your management team, to really make an impact. We know that there are so many factors that lead to turnover. And to talk about all of them would probably take us a full day, so we really want to target some of those areas that you’re really going to make an impact.

The first thing that we wanted to call out was the job and organizational fits, and this is something that we hear through our client base all the time, really leads to the first of all dissatisfactions in the role. About 35% of American workers actually quit within the first six months; this is based on research that was done on Quantum Workspace.

You might be asking yourself, “Why, does that happen?” Many many workers have an unrealistic expectation about the job or the workplace, and then in some cases, they can be mislead during the interview process. The part of these unrealistic expectations is a result of misconception among employers about whether or not someone is really a good fit. It’s hard for employers to determine whether someone is going to be a good fit for the role.

I’m sure many of you use structured interviews, and we do everything we can to be objective and if that thing does fit, but its a challenge. It’s something that at OutMatch we’re passionate about, and we’re constantly researching to figure out what is the best way to measure that fit.

Sometimes in terms of what happens in the process, or where that process sometimes falls apart is the fact that we need to hire people quickly. There’s a lot of competition out there for your talent. So you have to move quickly and you have to have efficient processes. Sometimes, we’re in a too big of a hurry to hire, and we’re just looking for warm bodies to get in the role. We don’t give people the realistic job preview that they really need to be able to make a decision to whether or not they are going to be a good fit for the role.

Often we have a misconception that anybody can do lower level, hourly positions well. You could train people, but certainly, we found that through research that isn’t the case. There are certain innate factors that are going to lead to success and potentially retention in that role.

With regards to expectations settings, again, oftentimes we’re just in too big of a hurry. Sometimes we oversell the job or the company, in fear that the candidate won’t consider the job or the company as they are. The result is that once that candidate joins the organization and is really engrained in the role, they start to realize that it may not be what they had in mind, and they may not be a strong fit, which can often lead to that turnover that happens during the first six months.

So how do we break this cycle? In order to really get people in the door that will have a strong fit for your organization and your culture, the first place that you need to start is just defining success and what it means to be successful in your organization. What are those unique factors that lead to success in your company? Once you really understand and clearly define what differentiates those performers from bottom performers and use this information to select people that are likely to succeed and be happy in this role that’s where you really begin to see the impact.

Once you have that foundational information, you can use that information in a variety of different methods throughout your selection process. I’m sure many of you are using some type of reference checking, or personality assessment or again structured interviews. It’s really important that however you define success, those hiring tools are reflective of what success looks like and actively measures that information. In addition to assessing that overall job and organizational fit, these tools again also serve as a way to provide that realistic job preview. And certain roles are positioned may be more critical to give them an opportunity, a real day in the life perspective.

For instance, I’m working with a large airline right now on a flight attendant survey, and what we’re finding is that flight attendants have a certain expectation about that role. They get into the industry because of the lifestyle that they think the flight attendant position provides them with. But the reality is there’s a lot of work that goes into that role and oftentimes that isn’t highlighted as much as it could be. So with them what we’re really focusing in on is how do we actually have them experience what it’s like to have them deal with an extremely disgruntled passenger. Through a video assessment process, they actually have to demonstrate how they would handle this. Again we’re assessing that job fit, and whether or not they have that skill set, but also giving them the opportunity to see what it would actually be like day in and day out to deal with the things that they are going to have to. That’s one example on how you can integrate that into your selection or hiring tool.

By ensuring that you have the right people in the right roles is critical and can have a major impact in whether or not they ultimately decide to stay with the organization. We’ve also seen some major success with Chili’s; we have case studies on our website. After they implemented a job fit survey they’ve actually seen a reduction in their management turnover by 10% and hourly they’ve seen a reduction by 30%. Which translated to $21m over a year. Obviously that’s a huge number. They’ve now invested that into their leadership development to really ensure they have the right managers in place.

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Employee/Manager Relationship

Nikki Cunningham

This brings me to the next area that I really want to highlight here. The employee/ manager relationship, we’ve all heard the stats about this. One of the major reason people stay or leave their jobs is based on their relationship with their boss. We know how important that role is, to the overall engagement of the team, and it makes it even more critical to assess your internal management bench tray. So ensuring that you have the right managers in place, and then are preparing them to make transitions is critical.

Transitions really are danger zones, and according to research that we found by Harvard Business Review, 40% of those high potential promotions fail. You might be wondering how does that happen to these are high potentials? There’s a variety of factors that can lead to that, but one of the major areas and where we see this happening with our client is that success is incredibly different from one level of management to another. So from that individual contributor role to management role, that initial transition is a huge one, and you know, it comes with very unique challenges. When they move up from managing individual contributors to managing managers, it’s a different skill set that is required.

There are these constant shifts in demands and responsibilities, and oftentimes leaders and managers are not prepared to make those transitions. If you think about your retention strategy, thinking about you management is key. Thinking about their current strengths, their current gaps are absolutely critical. If you haven’t read The Leadership Pipeline Book, I definitely recommend checking that out, and considering that for your leaders. That really highlights what those unique challenges are and how you can build your skills set in each one of those areas.

Again, although we know that there are many factors that lead to turnover, remember that your management is critical to that overall retention, especially the regrettable turnover that we’re talking about today. Consider the strategies or tools that will really help you determine if you have the right managers in the role, as well as development initiative to increase their capabilities, and prepare them to be effective managers at that next level.

Employee Growth and Development

Courtney Gear

Now, I want to switch gears and talk more about the employee growth and development, and how you can possibly impact your team. The primary drivers of regrettable turnover are actually lack of employment opportunities. According to a 2015 employee engagement report, only 25% of workers feel as if they have ample opportunities for development at their organizations. I’m sure we’ve all had that employee that left because they didn’t see any potential for growth. The thing is you can actually impact this.

Oftentimes things that pull employees away from an organization are out of your control. But when it comes to employee development, this is absolutely within your control. One of the first things to consider is assessing your current bench strength. To provide development opportunities you first need to understand whom you have in your current pool. By identifying who your high potentials are, who are you solid consistent performers, and where you have gaps to fill, will help you understand what that bench strength looks like.

You then want to communicate to your employees, so that they understand how you plan to approach their development. Oftentimes companies keep their high potential list confidential, but if you never tell a high potential they’ve been identified, how else will they know? Communicating those plans will actually show you’re making the investment in their development, and that you have a long term plan for them to stay with the company. When that high potential gets an opportunity outside of the organization your investment is absolutely going to be a factor they’re considering before making a change.

In addition to identifying whom your strongest performers are, you should also consider retention strategy for those employees. So by not only asking them where they see themselves going, but also what their goals are, this will tell you a lot about where they see themselves in the next five years. Your top performers are often you biggest flight risks, so being proactive in retaining them is going to make a huge difference in terms of retention.

In addition to communicating the plan to these employees, you also want to consider how you’re going to go about developing them. Tools such as personality surveys system developer report can really help employees understand what their innate concise (?) [00:27:18] are and the potential they have for the potential role. You can then start to formulate a development plan to address any gap areas before they can move up.

360 Surveys are another way employees can receive feedback from multiple sources and understand how they are being received in the workplace. For some organizations, without frequent position turnover, it can be difficult to offer a promotion to the next level. You may be thinking, “I want to offer these opportunities to my employees but I don’t really have a position available.” Consider the idea of promoting a career lattice instead of a latter mindset at your organization.

So many employees focus on career ladders, which means upward movements in roles, but in reality, lateral or sideways movement organization are actually a great way for employees to explore multiple career paths, and develop new skills. By identifying stretch assignments, cross-training opportunities, or even management opportunities, these can all be ways to offer development and movement without an official permission. If you have ambitious employees that desire growth it’s important recognize that that and get creative. Lateral knowledge across an organization can be just as important as a vertical move up.

Finally, simulations are another way organizations can give the individual a taste of what’s expected in the next role. Simulations are designed to push individuals out of their comfort zone. And get a real day in the life understanding of what other roles are required. Furthermore, they can help an organization understand where an employee’s at in terms of readiness. Perhaps they need another six or 12 months of targeted development, and that’s ok, it’s just important for you to know those things as a manager.

Summary

Nikki Cunningham

So, in summary, we want to touch on a few final things. First of all remember all turnover is not the same, and therefore should not be measured equally. Focus on measuring your regrettable turnover, and hold your managers accountable for what they can actually control.

By shifting your mindset and that of your organization, you can really start to understand whom you’re actually losing and whether or not those losses are regrettable ones. If you determine you are losing good people, those regrettable losses, then shift your focus to retention strategies, and how to reduce that regrettable turnover by evaluating job fit, providing manager training, and opportunities for employee development. Focus on what success looks like for that role, and then work backward to put tools in place to identify the right person. Consider training managers that can adequately develop their teams to strengthen performance.

And finally, if you think that you already have the right persona in the role, assess your bench strength, and then consider what development opportunities you’re offering and whether they’re enough. Also, don’t forget to communicate your plan to employees so they know you’re investing in them, and that will further develop a culture of development.

And just to add to that, you know we do a lot of work with American Airlines, they’re one of our biggest clients. We do a lot on the leadership development side, so I wanted to add that with them what we oftentimes hear from the actual participant is that this was such an investment of the company and that oftentimes is a surprise to them, but a pleasant surprise. So it’s something that we definitely see the impact happening, not necessarily through formal measurement, but we hear the fact that employees feel like they’re being invested in; that they’re being given opportunities that everyone necessarily isn’t.

So I definitely think that it’s important to remember that although it can be a huge investment to create leadership development, and leadership workshops, the impacts that we see with our client organizations are huge. It often takes awhile to see an objective data, but we certainly hear it from the participants themselves, and it’s a very rewarding part of our role as well.

Question

How can you hold managers accountable for turnover?

Answer

I think it all does start with how are you defining and measuring turnover. So what we’re seeing with a large hospitality, hotel organization that Courtney and I both work with, is that they do a really great job of discerning what is the turnover that is within the control of the manager.

They’ve made some investments to track that data and really understand again what is that turnover that they can influence. There are other things like depending on where the hotel is located, whether its seasonal traffic, there are so many factors that influence it, so they’ve invested in figuring out what is that regrettable turnover that’s within their control.

And that is a key metric for their manager. It’s something that as they’re going through a performance review process, if they’re having conversations with their operation leadership in HR, its something that that is constantly being discussed, and addressed. And as part of that, the manager is also responsible for digging deeper to figure out, “why is this turnover really happening?,; asking those questions.

So I think it does come down to something that you can track. I know there are some organizations that actually have those numbers up on a board somewhere. So they’ve done a really great job in ensuring that’s the way their managers are assessed, and the way they’re rewarded as well in terms of pay.

Just add to that I think too it’s important to notify those managers at the beginning. Let them know, explain to them what’s the difference in Regrettable vs. Desirable vs. Ok Turnover. So that it can really sink through as people are leaving, “what is their business impact and is that someone we’d regret losing?” And to Nikki’s point, having those metrics threaten centers for the managers, as well as for their leadership is really important.

I think it’s important the way it’s positioned within the organization as well. Oftentimes when managers are held accountable for turnover they feel like it’s unfair because there are all these other factors, so it may not be the main metric that influences their pay or whether or not they’re promoted, but it certainly should be something that they feel like they have ownership over, that they feel like they can influence. It should really just be part of their culture. Really keeping their team engaged, should be the primary role of that manager, so I think, again it’s how you position it to them, and how you define it to them.

Question

How can you measure engagement and try to predict turnover if your company doesn’t have an engagement survey?

Answer

When it comes to measuring engagement, I think that there are a few things that you can look at. First of all, if we think about turnover when people are leaving, consider the reasons that they’re leaving, and then work backwards into engagement. I think if you look at your existing employees and see, what is their satisfaction with their manager, what’s their satisfaction with their job? We know that engaged employees work longer hours, they want to socialize with their coworkers. They’re often willing to volunteer and raise their hand for additional work and assignments.

Those are some more of a qualitative ways to measure engagement, but you can start to get a feel for an organization, and what that engagement across the board looks like. I think that’s one piece in looking at some of the nuances across the organization. Ask how engaged employees are.

I think then the piece is looking for the red flags, right? So when it comes to turnover, a thing you may notice is an employee ducking out early. You may see them less likely to volunteer, you may see an employee that used to come to all the company functions or lunches or what have you, stop showing up. All of those things can be warning signs that they’re starting to disengage. And as a manager, you should really be proactive in having a conversation. “Ok, what’s going on? Is something happening? Is there anything that I can do as a manager, to really re-engage you? What are you looking for?” Sometimes it’s as simple as having that conversation, and understanding what do you want out of this job, what is it that we’re not offering, and then trying to meet those needs.

I think sometimes we try to beat around the bush and don’t necessarily know how do we have those conversations, and what if we can’t offer them? But sometimes it’s as simple as they just want to know that they’re doing a good job. They want to know that their manager cares about them. A lot of times, it’s not a financial reward that someone’s looking for, it has more to do with just letting them know. Rewarding them for a job well done.

One thing I would add here is we hear all the time that ruling out an annual engagement survey can be a very costly and inefficient process, and so that may not always be an option for your organization. To add to what Courtney was talking about, I think some of more of the informal ways to gather that information is a great place to start.

Another thing that we actually do in our organization is called 15Five, and this is a different system and company. Essentially what we do every week is we fill out a few brief questions and it goes to our manager, and actually leadership can see this, and it rolls up to them, but really it’s a quick way to assess, I think the first question is “How are you feeling this week? What are your key challenges, what’s going well?” And that’s about it.

By getting to those three questions, you can start to get a sense of what’s the overall engagement. Where might there be some challenges throughout the organization that maybe people don’t feel as comfortable talking to their boss directly about? Or they don’t feel comfortable talking to their CEO about, but they can still have insight into that. I think that if you guys haven’t heard of that, we love it. It’s a great tool within our organization, so it’s just something to consider.

The other thing that I wanted to mention too is really focusing on the early engagement of the employees. We have a tool called Impact that we tie to our assessment surveys to automatically send out a survey to candidates that have been hired, so new hire employees to get just a quick sense of how is that onboarding process. “How are you feeling today? Do you feel prepared?” And asking their managers, “what do you think about the candidate, where they, do you think they were a good initial fit?”

So just another tool to try to get at that new hire engagement, so certainly if any of the things that we’ve talked about there are of interest to you-you can reach out to Dan or anybody at Outmatch, and we’re happy to talk more about how we actually implement those in organizations.

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