Lately I've been thinking a lot about the metrics that organizations use to measure HR's effectiveness. In a recent post I discussed the fallibility of using average time to hire metrics as a means to measure the performance and effectiveness of an organization's HR department or recruiting team. Another flawed HR metric I see time and time again is voluntary turnover rate. Rarely do I come across an organization that discriminates between good turnover and bad turnover.
Allow me to elaborate…
In the eyes of many organizations turnover is turnover and they want less of it. Period. While all turnover has its associated costs, not all turnover is bad. Losing a poor performer from your team is actually a good thing granted that your organization focuses on strategically hiring a replacement that will perform at the level the position is capable of producing. While it may cost several thousand dollars to recruit, interview, train, and onboard a replacement… these costs can be easily recouped through the improved performance of a better fit, higher performing employee.
In fact I would even suggest that the voluntary resignation of a low performer is something that should be embraced as an opportunity to improve your organization's performance and its bottom line. On the other hand the loss of a top performing team member is much more costly to the organization and can greatly diminish its bottom line results.
Herein lies the problem with strictly measuring voluntary turnover rate…
If all an organization knows is that it is turning over 40% (the national average according to the BLS) of its staff annually, it doesn't really know which portion of its workforce is being lost. Is it the high performers? Low Performers? Steady Performers? Morale killers? It's impossible to say based on the 40% statistic alone, but managers and leaders still insist on measuring total turnover rate instead of a more meaningful measurement such as turnover among top tier performers.
Case in point… I was recently speaking with a close friend who works for one of the Big Four accounting firms. She noted that while turnover within her department is usually pretty high – roughly 50% annually – it has slowed dramatically as the economy has weakened as of late. Typically she told me that those who don't enjoy their work or can't perform at a high level leave relatively quickly – within a year (a good thing). However as the labor market has softened recently there are few that are brave enough to leave the security of a steady paycheck when typically they would have moved on months ago.
Strictly looking at the turnover rate HR will probably be getting a big pat on the back and congratulated for its ongoing efforts to reduce turnover. However, much of the reduction in turnover rate is the result of low performers staying in a job they aren't really good at or engaged in. In reality the softening of the employment market presents an excellent opportunity to "trim the fat" within her organization and pick up some top talent that is competing fiercely for fewer and fewer jobs.
In my opinion the best way to effectively measure turnover is to systematically categorize the performance of your team members into quartiles or quintiles and treat turnover within each performance level as a separate animal. If 50% of your team members in the top performance quartile are leaving each year, you've got big problems. On the other hand, if 50% of your team members in the bottom performance quartile are leaving each year this is a completely different story and, while still costly, it represents an opportunity to implement a more strategic hiring approach to identify candidates that are likely to be top performers and will more than make up for the cost of turning over your low performers.
How is your organization measuring turnover?
Is turnover measured as turnover regardless of who leaves, or are you parsing the turnover numbers to find out the real impact that turnover is having on your organization's bottom line? If you aren't… shouldn't you be?
Now go maximize possibility!
Other blog posts you may be interested in:
- Does HR Really Want to Reduce Employee Turnover?
- The Problem with Average Time to Hire Metrics
- Improving HR Performance - Top Performer Hiring Percentage
- The High Cost of Employee Turnover
Chris Young helps organizations Maximize Possibility through talent management, cultural transformation, and strategic intervention. Bring Chris in today!
