More turnovers, please?
June 27, 2005
Conventional wisdom that we’ve discussed before focuses on
excessive turnover as a net cost to be minimized:
excessive turnover as a net cost to be minimized:
“Will improved job market lead to undesired increase in turnover?”
“HR/Employment Blogosphere update for June 6, 2005″ (linking to Recruiting.com: “Who is Responsible for Turnover?”)
“More on turnover reduction: profiling two companies’ efforts”
“Take This Job and Keep It! Reducing Employee Turnover”
Now come an iconoclastic pair of articles from Workforce Management, arguing that the benefits of the right kind of turnover are underestimated, while the costs and risks are often overestimated.
The articles are: “The Turnover Myth” and “Recalibrating Turnover-Cost Calculators,” both by Fay Hansen.
Both very well done and thought-provoking, though incomplete and somewhat dangerous, for reasons I will explain.
“The Turnover Myth” starts out:
Jeff Chambers, vice president for human resources at SAS Institute . . . , will tell you quite frankly that measuring turnover costs is a waste of time. In another equally heretical moment, he will tell you that he doesn’t care if SAS is sued for wrongful termination. But he cares a great deal about performance management and is willing to tolerate turnover costs and the risk of a lawsuit to drive financial results.At SAS, the article continues, two out of three separations are involuntary, roughly double the norm, and “[t]he involuntary rate jumped from 3.28 percent in 2003 to 4.15 percent in 2004.”
“Involuntary turnover is rising because we are being more aggressive,” Chambers says. “We’ve removed the institutional impediments and let managers know that we want to get the right people on the bus. If employees can’t do the job, we cut them loose.”Thesis for the rest of the article:
Achieving optimal turnover means understanding both the financial costs and gains incurred as well as controlling who stays and who goes. Although many workforce management executives are satisfied with simply minimizing turnover and measuring it against broad industry benchmarks, others have mastered turnover as a tool for achieving a maximum return on the investment in human capital.The key is who is leaving. Another company brags of “a performance-driven culture with extraordinarily low turnover rates for top performers, high turnover rates for low performers.”
I think the turnover issue is not one-size-fits-all. In some businesses and industries, turnover can be so high that reducing it is, as the conventional wisdom would have it, pretty much of an end in itself.
Think retail and fast food, for example, where constant churning of employees can mean stores are constantly in training mode and rarely have employees with more than a couple of years’ experience, even in supervisory roles.
Another comment I have is that it while it may be true that “human resources overestimates the potential for employee lawsuits,” involuntary terminations do have this potential and the cost can be very great.
I suspect caution about termination coming from HR (and legal) is often no more than a necessary counterweight to managers (like those quoted in the article) eager to achieve operational gain without regard to legal risk. HR may overestimate, but operations may underestimate, the potential for employee lawsuits.
“Recalibrating Turnover-Cost Calculators” points out that too often discussion of turnover fails to view it as a cost-benefit proposition, weighing only the cost side. This article goes on to discuss benefits like “annual bonuses that are not paid, open-position savings, lower salary costs for the new hire, benefits savings and the value of any performance improvements that occur.”
Sadly, as I read on, I start thinking like a plaintiff’s lawyer (when was the last time that happened on this Blawg?) wishing I could sue an employer who relied on statements like these:
Turnover can produce substantial savings in employee benefit programs, particularly when younger workers replace older workers. . . .Playing with fire, IMHO. So please, don’t keep a copy of this article in your RIF planning file, or you’ll be asked in a deposition about comments like these and how they influenced your RIF.
[F]or each year that the average workforce age at a company is above the aggregate average, health benefit costs increase 2 percent above trend.
Related Posts
Take This Job and Keep It! Reducing Employee Turnover
Thinking creatively about employee benefits
Will improved job market lead to undesired increase in turnover?
Estimate your company’s turnover and absenteeism costs
Applebees’ Reduces Turnover Using Metrics, Accountability, and Rewards
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