When determining the overall health of the business, the first statistic most organizations examine is employee attrition rate.
However, a common misconception is that if the attrition rate is low, all is well with the company, and if the rate is high, there must be a serious problem within the business.
The truth is attrition is not as simple as the percentage of employee turnover. It has more to do with what is behind the numbers.
Attrition Is Not Always Negative
Many companies assume attrition in their own organizations is either due to the fact that the employees are unhappy with their work environment, or the company is not hiring the right employees.
While this assumption could be partially true, it probably does not highlight the entire picture of what is spurring the increased rate of attrition.
Some attrition, especially in the service industry and in hourly positions, is normal. According to the Bureau of Labor Statistics, the average employee in the service industry only remains at the same place of employment for three years.
In addition, employee attrition does not always have a negative impact on a business. If attrition is caused by the loss of several poor performers in the workplace, this could ultimately have a positive impact on the business and its productivity. Sure, you may have to determine why these employees were hired in the first place and if they left voluntarily or involuntarily, but ultimately the results are more positive than negative.
Furthermore, if you are looking at attrition by departments, you must factor in the number of high performers who were promoted into other departments of the business. These conditions may actually signify a number of positive attributions within the workplace that could prevent your high performers from leaving the company.
The Cost of Attrition and the Weak Performer Differential
Some experts suggest the entire hiring process can cost as much at 50% of the annual wage for an entry-level position. If your company loses a strong performer, especially one in a supervisory position, these costs should be a concern.
However, keeping poor performers around has equally high costs for the company.
Positive attrition can save businesses a comparable amount of money by ousting underperforming employees. In his piece, Calculating the Dollar Cost of a Bad or Weak-Performing Employee, Dr. John Sullivan illustrates the financial impacts of weak performers using the weak employee differential (i.e. the performance percentage difference between the average and the worst employee in a job family). Indeed, a poor performer's continued presence can have exponential impacts on a business's revenue:
- Minimum weak employee: 33.3 percent of the average revenue per employee, or three-fourths of their annual salary.
- Typical weak employee: 100 percent of the average revenue per employee, or two and one-fourth times their annual salary.
- Exceptionally bad employee: 300 percent of the average revenue per employee, or six and three-quarters times their annual salary each year.
Additionally, weak performers tend to stick around longer than their more skilled counterparts, because they may have trouble finding another job. This could multiply the damage to your business over years, or even decades if not addressed. A poor performer's exit, though, has a myriad of benefits, including increased productivity, improved employee morale, improved quality of service, and a lower risk of losing high-performing employees.
Dealing with Your Employee Attrition Rate
Companies should embrace periods of positive attrition as a way to bring in new talent and enhance the talent already in place. It can be the perfect time to implement changes or introduce new ideas. On the other hand, if it appears that your top performers are leaving the company, or there is a surge of poor performers coming onboard, there may be a problem within the business.
It's important to keep in mind dysfunctional companies are more likely to hire dysfunctional employees, and high performing employees will not stay in a culture where they cannot thrive. Companies with negative attrition should not only look at their hiring process, but use hiring assessment tools to look for problems that lie deeper within the company.
The people you hire drive your business forward and ultimately, determine its success. For more information on how your organization can identify and retain high-potential employees, speak with one of our talent selection specialists and discover how you can transform your organization's business outcomes, starting with the hiring process.