Employee turnover: causes, costs, and combat strategies

What is employee turnover?

Employee turnover is what happens when employees either leave of their own accord (voluntary turnover) or are asked to leave, perhaps following poor performance, a dissolution of their role, or other organisational changes (involuntary turnover).

Hiring is expensive, and losing people can disrupt organisational performance. Excessive turnover is linked with low morale and customer churn, which are both expensive and undesirable. So it’s little wonder that employee turnover is generally viewed as an unconditional negative in business.

But employee turnover is both normal and necessary. Careers progress, life changes, and businesses grow and adapt their strategy over time. A company with an employee turnover rate of zero and the same staff year after year would quickly stagnate and fail.

The key to maintaining healthy and sustainable levels of turnover is to focus on retention as a means of reducing unwanted turnover.

Having an employee experience (EX) program is a valuable way to stay ahead of unhealthy turnover. It allows you to proactively focus on the drivers of retention, rather than reactively attempting damage control when a valued employee is already partly or completely out the door.

Desirable vs undesirable turnover

It can be helpful to differentiate between kinds of employee turnover, since they can have very different effects on your business.

• Voluntary vs involuntary
• Regretted vs unregretted

Turnover can be voluntary or involuntary, and it can be desirable or undesirable. These possibilities can be combined with one another in either direction. For example, voluntary turnover can be undesirable (when a high performer leaves) or desirable (when a low performer leaves).

The cost of employee turnover

While there’s no single agreed-upon way to calculate employee turnover, there’s no question that it lays a heavy financial burden on businesses. Josh Bersin of Deloitte noted that the cost of losing an employee can range from tens of thousands of dollars to 1.5–2x the employee’s annual salary.

These staggering costs are the sum of many factors. There’s the expense of recruiting, onboarding, training, and the ramp time for a new hire to reach peak productivity. There may also be costs associated with lowered engagement from other staff who witness high turnover. Businesses may suffer higher error rates, general cultural impacts, lost productivity, and lost institutional knowledge or thought leadership.

High turnover can create a culture of fear, where employees are concerned with how safe their job is. This in turn affects productivity, because rather than being fully engaged in their roles, staff spend time worrying about their livelihood or who might be gone tomorrow.

High employee turnover rates can also damage a company’s employer brand, as employees who leave due to dissatisfaction or disengagement may vilify the company in the marketplace, impacting its ability to attract high-quality candidates.

Theories of performance and turnover

Studies of employee turnover don’t typically identify what makes high and low performers leave a company, and whether there are different drivers influencing these two groups.

This is an unfortunate oversight, given that not all voluntary turnover has the same organisational impact. The departure of a high potential employee can be a huge detriment to an organisation’s success.

While there’s no single reason for employee turnover, there are some useful models out there to help shape your thinking. Here are two theories to consider:

• Expectancy Theory (Vroom, 1964)
  • Places emphasis on internal organisational conditions to explain turnover (e.g., role clarity or overall satisfaction)
  • Hypothesis: high performers are less likely to leave voluntarily when their performance is clearly linked to desired rewards or recognition
• Cornell Model (Smith, et al., 1969)
  • Emphasises external organisational conditions to explain turnover (e.g., the recent COVID-19 pandemic, past employment, and current labor market)
  • Hypothesis: high performers who become dissatisfied will have greater access to external employment opportunities and will be more likely to leave voluntarily

According to Expectancy Theory, businesses can retain top talent through rewards and recognition, or drive them away by failing to meet expectations. The Cornell Model suggests that top performers are harder to keep hold of thanks to their high “purchase power” in the employment market, regardless of what the company does.

In reality, it’s likely that both internal factors and external forces play a role in driving turnover, and each should be considered in your retention planning.

What causes high turnover rates among valuable staff?

If you’re experiencing unwanted turnover, there are a few common causes that you should consider.

Overworking your star performers

High performers are often “rewarded” with additional work and stretched responsibilities. However, if their workload remains too high over a sustained period, this can lead to burnout. Research has found that role overload is positively correlated with turnover (Griffeth et al., 2000). So companies must take care to keep the balance between offering high performers challenging work and overburdening them with too much responsibility.

Low engagement

Employee engagement is the degree to which individuals invest their personal energies into their job performance. Engaged employees are psychologically present, committed, and proud of the company they work for. So it’s not surprising that companies with highly engaged workforces reported 31% lower employee turnover according to research by Bersin. The meaningfulness of someone’s work, development opportunities, leadership support, and access to resources have all been found to drive engagement. Empathy and engagement are also strongly linked and, in 2019, Forbes reported that 96% of employees believe showing empathy is an important way to improve employee retention.

Job dissatisfaction

Unsurprisingly, recent studies, such as Griffeth, et al., 2000, found that as job satisfaction decreases, turnover tends to increase. However, low job satisfaction doesn’t necessarily suggest someone is about to churn. A number of other factors, such as external opportunities, also need to be present before there is a high risk.

Pay not in line with performance

The relationship between pay and turnover is a complex one – it’s not simply the case that you can pay someone more to stay, although if everything else is right with a role, a salary bump may prevent a high performing employee from deserting you for a competitor offering a higher salary. Instead, pay comes into the equation when results and rewards are strongly linked, as in commission-based roles. In these scenarios, strong performance and high rewards go hand in hand with job satisfaction, which in turn may be a protective factor against turnover. Podsakoff and Williams (1986) found that, when pay is contingent on performance there is a much stronger link between performance, turnover, and job satisfaction. However, the correlation is a fairly weak one and may only be predictive up to a certain point.

Low organisational commitment

Organisational commitment describes how dedicated an employee is to their organisation and how much they are willing to work on its behalf. It’s a significant predictor of turnover over time, with turnover increasing as commitment decreases (Meyer, et al., 2002). Feelings of commitment are associated with engagement but can also be related to organisational justice – how fair an employee perceives their workplace to be.

The value of people

Now more than ever, people are recognised as a company’s most valuable asset. The rise of technology and the information age has resulted in more companies competing based primarily on their people rather than just their products. Losing high performers en masse can rapidly ruin a company.

Unlike equipment or machinery, employees are appreciating assets that deliver more and more value to the organisation over time, which helps to explain why losing them is so costly. This is especially true of long-serving employees. If you were to crunch the numbers and perform a tenure/employee turnover calculation, you’d likely find that the costs increase exponentially as a person’s years in employment increase.

Ways to reduce employee turnover

Whichever other factors are involved, turnover intention tends to be the best predictor of actual turnover. This is something you can measure using questions like “How much longer do you plan to stay at this company?” on your EX survey.

To dig deeper into the underlying causes, consider both internal and external factors. While you can’t control most external factors, you are likely able to influence the internal factors that will help mitigate the impact and offset the risk.

The key to retention is detailed, up-to-date knowledge of job satisfaction levels, organisational commitment, and engagement in your key employee groups (which may include high potentials, high performers, specialised talent, etc). One of the best ways to achieve this is through an ongoing EX program that keeps you abreast of employee perceptions on these key topics.

A regular pulse approach, rather than an annual survey, can give you a better chance of retaining high performers, who likely have more numerous and frequent opportunities to leave for other companies.

That retention strategy needs to go deeper than simply offering the employee more money. Increasing pay is a short-sighted and unsustainable strategy, and success is more likely if you address multiple facets of the job that influence engagement and job satisfaction levels.

To promote high engagement levels:

• Strive to provide environments that are supportive of individuals and promote psychological safety via empathy and two-way communication
• Make an effort to design roles that help high performers experience their work as meaningful. You can measure how well your roles achieve this using an EX survey
• Be careful when increasing the responsibilities of high performers to avoid burnout
• Use your EX program to check whether employees feel they have the necessary work-life balance, social support, and resources they need to be productive
• Focus on employee perceptions of fairness to help increase organisational commitment

Our XM Scientists can help your company get the most out of its EX program and target specific areas related to turnover. This will allow you to become more proactive in retaining top talent and protecting the attraction, hiring, and onboarding investments you’ve already made. If you don’t already have an EX program in place, there’s no better time than right now to start listening to your employees.

References

Vroom, V. H. (1964). Work and motivation. New York: Wiley.

Smith, Patricia C., L. M. Kendall, and Charles Hulin. “The measurement of satisfaction in work and behavior.” Chicago: Raud McNally (1969).

Griffeth, Rodger W., Peter W. Hom, and Stefan Gaertner. “A meta-analysis of antecedents and correlates of employee turnover: Update, moderator tests, and research implications for the next millennium.” Journal of management 26, no. 3 (2000): 463-488.

Podsakoff, Philip M., and Larry J. Williams. “The relationship between job performance and job satisfaction.” Generalizing from laboratory to field settings 207 (1986): 253.

Herscovitch, Lynne, and John P. Meyer. “Commitment to organizational change: Extension of a three-component model.” Journal of applied psychology 87, no. 3 (2002): 474.