Maximizing ROI by Slashing Turnover Costs By Michael Mercer, Ted Szaniawski & John Guettler Every manager frets about turnover. Unfortunately, most do not know the real cost of turnover nor how to squash turnover. Fortunately, this article gives you tips you need to tame the turnover beast.

The Myth & Reality of Turnover

Myth: Turnover is bad. Reality: Turnover is often good. If a low productivity, problem employee quits, that is a “good” turnover. But, when a highly productive, delightful employee turns over, that truly is “bad”. So, not all turnover is the same.

Calculating Turnover Cost$

Managers realize turnover is expensive, but they seldom know how to measure turnover costs. To fill this vacuum, Dr. Mercer devised a four-part turnover cost formula:

	Separation Costs, including exit interviews and record keeping
	Replacement costs, e.g. advertising, administrative actions, interviewers’ salary and benefits, tests and meetings to discuss candidates
	Training costs for new-hire, for instance, manuals, workshops, coaching time and salary and benefits of new employee until s/he becomes productive
	Lost business and lost productivity (this is the most expensive!)

Examples of Turnover Costs

Companies applied this turnover cost formula on many jobs. Here are examples from various organizations:

Job Turnover Cost

As you see, turnover proves ultra-pricey. The more you reduce “bad” turnover, the more you boost the bottom line.

Methods to Reduce Turnover

1st Method: Unearth Real Turnover Reasons

Most managers mistakenly think that giving a departing employee an “exit interview” on the person’s last day will uncover turnover causes. But, exit interviews often yield two useless results: The employee either (1) avoids “burning bridges” by not telling real reasons or (2) spews an emotional outburst against the organization. If you do exit interviews, do not expect to get the whole truth and nothing but the truth from departing employees.
Actually, the best method to discover real reasons for turnover is this: Four weeks after an employee quits, call the person at home in the evening. Say “I would appreciate a personal favor. I need to find out why you and other people leave the company. Please level with me: What are the three or four main reasons you left?” Since the person already left and it is a pleasant evening phone call, the ex-employee is likely to tell you reasons for leaving.
Soon, you will spot a pattern of turnover reasons. Then, you know what needs fixing. For example, if a lot of ex-employees cite a particular manager as obnoxious, you need to take action to replace or improve that manager. If many people quit for better career opportunities, then enhance your organization’s career opportunities.

2nd Method: Hire Low-Turnover Employees

Two methods work best in hiring employees who are likely to stay with your organization. First, you readily can customize pre-employment tests to easily predict which applicants are similar to your low-turnover, productive employees. Then you can show preference for these applicants.
Second, examine each applicants work history. Does the applicant have a track record of sticking with jobs or education? Or, does the applicant job-hop or fail to complete academic programs. You are more likely to hire low-turnover employees when you choose applicants with histories of staying at previous organizations.

3rd Method: Managers

The first lines of defense against unwanted turnover are your organization’s managers. Make sure they know how to manage for retention plus productivity. Suggestion: Base part of managers’ performance appraisals, bonuses, pay and promotions on retaining employees.

4th Method: Pay-for-Results

Low pay is a common complaint of employees who quit or take other jobs. So, you have a choice: Do you want to (1) raise everyone’s pay – even for employees you wish would quit or (2) pay productive employees more? Of course, you prefer the latter. To do this, offer incentive pay based of how measurably productive an employee is. This is a total “Win-Win”. First, you link pay to each employee’s bottom line results. This encourages profit improvement. Second, employees who would quit for fatter paychecks discover they can earn more money by staying.

Increasing turnover is Crucial Management Duty!!

Lets tackle a seldom-discussed aspect of turnover: A manager who does not “de-employ” unproductive employees is a failure. Managers who put up with low- productivity employees harm the company’s profits. Also, keeping underachievers on your payroll sets a horrible example for productive employees. So, make sure you insist that managers reduce “bad” turnover while they speed-up “good” turnover.

© Copyright 2002 The Mercer Group, Inc.
Michael Mercer, Ph.D., is a testing expert and professional speaker with The Mercer Group, Inc. in Barrington, IL. Dr. Mercer’s “Abilities & Behavior Forecaster” pre-employment tests are used by companies across North America to help them hire superstars. He authorized “Hire the Best -- & Avoid the Rest” and also “Absolutely Fabulous Organizational Change”. Ted Szaniawski and John Guettler, authorities on how to hire productive employees, are with HRGroup, LLC, Tempe, AZ, phone (480) 753-6188