We are often asked what level of turn-over is acceptable or normal. However, who’s leaving and why are the important questions to ask.
No issue comes up more often in relation to workforce planning than ideal turn-over rate. Every time this comes up, our response is always the same: There isn’t just one. We have known very successful organizations with 50% turn-over. We have coached organizations to look at turn-over as regrettable and non-regrettable. In both cases some expense is incurred in replacing the person leaving, training, productivity, etc., however non-regrettable turn-over, in the long run may actually help you, if you are able to hire a higher performing replacement. Another similar name for regrettable turn-over is “high-performance” turn-over, and “bottom performers” would be non-regrettable turn-over.
Use Better Metrics
The term “turn-over rate” is a bad metric, and using it on its own is misleading. Its major flaw is that it does nothing to tell you whether the turn-over is a positive or negative event.
If you are losing 20 percent of the people you consider top performers, then the turn-over is definitely negative, but if the majority of the people leaving are bottom performers, then a high turn-over rate may be positive. Instead of focusing on this outdated metric, organizations should focus on High-Performance Turn-over.
This is the metric that really matters. Your high-performance turn-over rate measures the percentage of turn-over among the most valuable employee population you have. Studies have routinely demonstrated that top performers contribute an average of 10 times more than average performers. Some firms, like Microsoft, claim that contribution number to be much closer to 100. From my experience, smart companies aim to keep turn-over among the top 25 percent of the employee population to below 5 percent.
For Poor/Marginal Performance Turn-over, the metric, sometimes referred to as the replacement rate, is the percentage of turn-over among employees who have demonstrated marginal or poor performance in the past. Poor performers can actually cost you money. Leading firms routinely cut a percentage off the bottom of the organization, some cutting only 5 percent and others, like GE, cutting as much as 10 percent. Generally speaking, the higher this turn-over rate the better.
Ideal Rates Are Unique to Your Company
The ultimate answer is that every firm should establish its own ideal rate. Workforce planning is about:
Strategically planning the flow of talent through the organization
Decreasing the flow of top performers out
Increasing the flow of top performers in
Ultimately, turn-over rate for top performers should be as close to zero as you can get it, and turn-over among the bottom 10-15 percent of your organization should be maximized to the extent that replacement is feasible.
The only population that is left to look at is average performers, which is most likely the largest population in your organization. Some of your retention efforts should be focused on this population as well, because it is more advantageous for you to have an average performer on board than a poor performer. Average performers do no harm to your organization, so the biggest impact of high turn-over among this population is the cost of replacement, and the cost of having a position vacant. Regardless of your findings, 99 percent of the time, the cost of retaining an average performer is less than the cost of replacement and vacancy combined, which means that average-performer turn-over should be minimized.
Don’t Start Too Late
The last issue to be addressed is that most companies look at turn-over when it’s too late. Smart companies identify those that they can’t afford to lose long before these people begin looking. The best way to do this is through pre-exit interviews, which involve talking to them periodically and asking what excites and frustrates them. Great managers then act before a problem occurs. Remember: Talk to them now, or talk to them as they go out the door in the real exit interview.