“Over 50% of all organizations globally have difficulty retaining some of their most valued employee groups.”

(Source: Willis Towers Watson Survey)


Employee turnover is the Achilles’ heel of small and mid-sized companies. The cost of losing people can sometimes be almost unbearable for an organization. It’s very difficult to replace good people in a company. CEOs repeatedly name talent acquisition as their top priority – even more important than increasing profits.


So we tend to idealize a low turnover rate, and for good reason. The average cost of losing an employee has been estimated at 38% of the employee’s annual salary. But boosting your company’s retention rates means more than keeping tabs on the amount of people who quit last quarter.

Let’s drill down and see what HR and managers should keep in mind about employee churn.

1. Is there a magic number? 10% is widely accepted as a healthy rate of turnover. But the truth is that every industry, and every organization, is different. Oracle founder Larry Ellison, for example, says his company’s unusually high turnover rate allows his team to respond quickly to changes in the industry. On the other hand, a variety of businesses have much lower turnover rates, somewhere between three and five percent. A good place for your company to start is in aiming for a turnover rate for your best performers that’s as close to zero as possible.


2. Are your people leaving because they’re not happy? This assumption misses the bigger picture. Attrition rates are a standard part of doing business in today’s talent-driven job market. According to the US Bureau of Labor Statistics, the average employee in the service industry only stays with the same employer for three years. When someone leaves your organization, do you know why? If you don’t have one, you may want to consider developing a first-rate exit interview (EI) process. An effective EI can reveal what is and isn’t working in your organization, highlight challenges and opportunities, and give your company a treasure trove of valuable competitive intelligence.


3. Who owns your company’s turnover? An eye-opening study found that at least 75% of the reasons for voluntary turnover are connected to things that managers have control over. So managers must take an active role in coming up with ideas to reverse the tide of top performers leaving. It’s your managers who have the ability and authority to create a company culture that will inspire your people – one that will make your best and brightest want to stick around and help your organization reach new heights.


4. Is all turnover bad? Not necessarily – it depends on whether it’s ‘functional’ or ‘dysfunctional’ attrition. It’s important to recognize the difference. When low-performing employees leave an organization this is considered functional, and it can boost productivity in the long run. Whereas dysfunctional turnover can hurt your organization. When a company’s top performers leave, it’s hard – not to mention expensive – to replace them.

Focus on who, forget how many

One of the most important changes in our working world is that more and more companies are competing primarily on talent. With software shrinking the world and speeding up the pace of business, companies will either thrive or die based on their ability to hire, and keep, the most creative people.


So, forward-thinking companies see employee attrition as a chance to bring in new talent, and improve the employees they already have. If your organization is experiencing high turnover, think about how you can make the most of this. You could, for example, analyze the way you’re doing things, make changes to your work processes, and bring in new ideas for improving the company culture.


One idea is to track turnover more effectively by developing and using performance quartiles. This entails all departments, including HR, clearly defining what productivity is – which is time-consuming but crucial. Your company may want to use total sales, or new product sales, or sales growth. You may even want to use a combination of indicators. Whatever productivity index your company decides on, it needs to make sense for your business, and be completely objective.


Employee retention is on the mind of every employer. While no retention strategy is perfect, you can make dramatic improvements by understanding the underlying issues that are driving your best people to leave. Knowing what motivates – and demotivates – your irreplaceables is a big step in the right direction.

About Danielle

Danielle is a Marketing Manager at Hibob. She studied Business and Psychology and believes in the power of utilising behavioral insights to form great companies. She enjoys discovering what the future of work might look like, listening to podcasts, traveling, and hiking.

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