Voluntary employee turnover can cause costly periods of disruption for organisations. In this week’s blog, we get right into some theory and practice which gives practical insights into the underlying triggers behind voluntary employee turnover and how a well thought through retention plan can help you retain your talent.
Whilst voluntary turnover can be thought of in general terms as employee initiated departure from an organisation for any number of reasons, getting specific about the drivers behind those reasons and their impact on the business can help employers decide where they need to channel their focus to retain their high performers.
If we drill down further into voluntary employee turnover, we find that it splits off into two categories; functional, where there is no harm sustained by the business and dysfunctional, where it negatively impacts the company. This voluntary, dysfunctional employee turnover brings periods of disruption to both the economic wellbeing of the business and the intellectual wealth of the organisation, also known as Psychological Capital. According to the SHRM (2006) making a direct replacement can cost up to 60% of the employee’s salary. However, total replacement costs can vary between 90 -200% of the employee’s annual salary when taking into account the manager’s time for recruiting, training, hiring inducements and disruptions to company delivery and service. Turnover costs represent an average 12% impact on pre tax profits and, for an organisation whose turnover sits at around 75% annually, this equates to nearly 40% of pre tax income.
Time to strategise…
There are two leading theories which drive turnover research, the theory of organisational equilibrium (Fayol, 1916 & 1956), and the unfolding model (Lee & Mitchell, 1994). Fayol’s theory of organisational equilibrium suggests that employees evaluate their role in the company against their possible future prospects. A driver behind deciding to stay is whether that person perceives that their inducements (i.e. salary, working conditions, emotional labour or benefits) outweigh their contributions (time and effort in the role). If a team member decides to withdraw socially based on imbalances in job characteristics, relationships or environment, reduced organisational commitment can lead to behaviours such as lateness, absence and poor performance. It’s at this point in the cycle that positive intervention can help to reduce voluntary turnover intentions.
The unfolding model provides another predictive tool for identifying early intentions to leave the organisation. It follows four paths; dissatisfaction, better alternatives, following a plan and leaving without a plan. If the driver is dissatisfaction, employee engagement surveys can help to manage the inducements/contributions balance. Considering better alternatives is where organisations can decide to become more competitive in the marketplace in order to retain their talent. If an employee is following a plan, the organisation can do little to counter this intention except offer a personalised response to their reasons for leaving. However, when an employee intends to leave without a plan, evidence indicates the key driver is usually a negative shock which has taken place at work e.g. unexpected change of line management, reorganisation or being passed over for a promotion. Businesses can strategise to minimise these negative shocks by studying past patterns and training to mitigate them in the future.
So what does the evidence show?
Al Ariss, Cascio & Paauwe (2014), argue that there is a marked inconsistency in how talent management is defined across organisations and few models onto which leaders can map their vision. Academic research is beginning to address this knowledge gap. Early studies recommended focusing attention on nurturing internal talent, promoting management material up through an organisation at the expense of creating an external talent pipeline. Naturally, this meant that key roles were difficult to fill when the internal population lacked a sufficient talent pool. Joyce & Slocum (2012) took data from a 10 year study of 200 organisations across 40 industries in the US, which indicated that company executives are vital to identifying emerging strategic positions and capabilities for talent acquisition and retention. Talent management, and specifically reducing destructive voluntary employee turnover is a strategic process based on emergent needs and a strong company culture. Developing cohesion and organisational citizenship will contribute to unique, valued and strategic talent management programmes.
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Al Ariss, A., Cascio, W. F., & Paauwe, J. (2014). Talent management: Current theories and future research directions. Journal of World Business, 49(2), 173–179. https://doi.org/10.1016/j.jwb.2013.11.001
Allen, B. D. G. (2006). Retaining Talent – A guide to analyzing and managing employee turnover SHRM Foundation ’ s Effective Practice Guidelines Series The Costs of Turnover. Retrieved from: https://ch319.pbsmartmobile.com/public/sites/1399/2699/assets/bbf81e8b8f354289dc9cc241237dfd94.pdf
Fayol, H. (1916/1956) “Administration, industrielle et générale”. Extrait du Bulletin de la Société de l’Industie Minérale. 3e livraison de 1916. Quarantième Mille. Paris: Dunod, 1956.
Joyce, W. F., & Slocum, J. W. (2012). Top management talent, strategic capabilities, and firm performance. Organizational Dynamics, 41(3): 183–193.
Lee, T, W. & Mitchell, T. R. (1994). An alternative approach: The unfolding model of voluntary employee turnover. Academy of Management. Review 19: 51-89.