Employee Turnover is a Useless Metric

quitnowI know that we want it to be useful, but it isn't.

I understand the desire, though. We are constantly told that it costs tons of money to hire a new staff person. That makes turnover a very bad thing, so the metric itself can be considered a measure of failure. The articles I see typically put it at 150% of the annual salary of the person leaving (and more for managers). These articles give you a list of things to calculate, measuring the time doing recruiting, doing exit interviews, covering that person's work when they're gone, training new people, etc. Suddenly every time someone leaves it "costs" you hundreds of thousands of dollars!

Except it doesn't. Most of these "costs" are in the form of time spent by your remaining employees doing things they wouldn't have done if that employee didn't leave, and that doesn't cost you a dime, unless you bring in temps. True, for the existing employees, that takes away from what you thought they were doing, and that can stress the system, but it's not necessarily a waste, as the calculations indicate it is. If other people are filling in for someone, maybe they are learning a new part of the business. Maybe they are deepening their understanding of another department. That system knowledge is valuable over the long term. Exit interviews are a "cost?" No. They are valuable opportunities for learning. If that person didn't leave, you probably wouldn't have learned about their experience. Now you can apply that knowledge to your system.

And what about the value of the new people coming in? New ideas, new perspectives. That person who just left spent the last few years at YOUR organization, learning things that your organization already knows. This new person has been somewhere else, learning new and different things, and now they can share that wisdom in your organization. How great is that?! And you're keeping in touch with that person who just left, right? At social events your employees will still be talking to her and might be learning a thing or two about her new job and how she does things there. I don't mean industrial espionage or leaking trade secrets, just peer to peer learning. You wouldn't have that opportunity if she stayed. Given all these benefits, there seems to be as much of an argument FOR employee turnover as there is against it. Those dreaded "costs" are simply investments that produce valuable returns.

Now, I know what you're thinking. What about those obvious situations where people are "jumping ship." You've got a company or a department where within the last year, the turnover rate spikes. Isn't that a metric that indicates a problem? Well, yes, often there is a problem in those situations. You might have hit a point where your business model or your structure doesn't match the needs of the environment, and frustration mounts. Or you might have a manager that was good with just a few people, but struggles directing a larger department. Maybe your culture has become disconnected from what drives success. But I have a question for you: why have you not figured any of that out UNTIL you notice the turnover? Turnover can be an indicator of problems, but for goodness' sake it shouldn't be the leading indicator! If people jumping ship is your first indicator of a problem, then you're not paying enough attention to what's happening inside your organization. Period.

You know where turnover absolutely IS a cost and indicator of problems? In machines. When cogs break, the line is shut down while we replace them, and that costs the business money and productivity. Got cogs breaking on a regular basis? Something is definitely wrong. That shouldn't be happening. But employees are not cogs, and organizations are not machines (as much as we want them to be). If you're a leader in a human organization, there are plenty of things that need your attention before you look at turnover rates. If you pay attention to those things, and focus on learning and systems thinking and growing a strong culture, I'm betting you'll be fine without measuring employee turnover at all.

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11 Comments

  1. 10.10.2013 at 12:01 pm

    Jamie,

    Great perspective! Employee turnover is a lagging measure. Most lagging measures are produced and reviewed too late to impact the existing issues. The leading indicators or measures are what matters. Frequent reorganizations? New managers? New product introduced that require unique staff support? Etc.

    Example: if a company want to increase sales, focusing on the lagging measure of “total sales” will not help much. Measuring the % of sales staff that complete new product training may be more helpful.

    What other leading indicators should be measured?

    Joe

    • 10.10.2013 at 10:25 pm

      Hmmm. Great question, Joe. Not sure I have a brilliant answer right away! I know one organization that set up 12 behavior-based cultural values that all staff are measured on, which is covered formally twice a year, but also informally in one-on-one conversations on a regular basis. Those conversations would probably raise flags earlier on.

  2. […] Jamie Notter: Employee Turnover Is A Useless Metric You’ve seen the latest data on UK labour turnover levels at the top of this page. Now here’s a very contrasting voice, arguing that “turnover itself is too often perceived to be “a very bad thing, so the metric itself can be considered a measure of failure.” What’s your take on what Jamie has to say here? Follow Jamie on Twitter. […]

  3. 21.11.2013 at 3:57 pm

    Hi Jamie,

    Great article. I would also say the same about exit interviews. The statement you made about people jumping ship could be made about exit interview practices. If people are leaving and now you are asking their opinion on their experience, then you’re not paying enough attention to what’s happening inside your organization.

    Having to ask people why they are leaving is an indication of a manager not involved with his/her team and not engaged in regular, meaningful conversations.

    The idea that a person would not be fully honest until they are leaving indicates an environment of not caring what your people think, as well as, lack of collaboration, lack of innovation, lack of involvement, lack of ownership at all levels, and lack of valuable and helpful communication.

    I have a few red flags when talking to businesses when it comes to bad management practices, one is if they do performance reviews. The other is if they do exit interviews. If they do either of them it’s time to dive in and find out where the real problems are.

    Again, great article.

    Cheers

    Ernie

    • 22.11.2013 at 9:55 am

      Excellent point, Ernie!

  4. Kate
    22.11.2013 at 8:11 am

    I’ll concede that turnover may not be the all mighty metric that some try to make it, but certain factors you attempt to turn into a positive for the organization seems to ignore a very important factor – morale and work culture. When there’s consistent turn over there’s a definite impact on the psychology of the staff.

    And when delegating duties becomes like musical chairs because of turn over, it sucks the life out of morale because employees are faced with 1) juggling their workload with that of the person who has left and 2) taking the time to transition those duties back to the new person…if the duties are transferred. Often once something is delegated it remains where it was pushed and that’s not necessarily a good thing even if it can be.

    I agree that if turnover is the leading indicator of issues, then the organization has greater problems. But it’s by no means a useless metric.

    • 22.11.2013 at 9:53 am

      Okay, I admit I am prone to hyperbole sometimes, so “useless” might have been too strong. And I hear you on the morale piece, but I still argue that it’s not the turnover that causes those morale issues. It’s other failures of management. It indicates a system that can’t learn and adapt well. I certainly don’t want turnover for turnover’s sake, but I don’t think it’s the source of the problems.

      • Kate
        22.11.2013 at 11:03 am

        “It’s other failures of management. It indicates a system that can’t learn and adapt well.” On this we agree.

        • 22.11.2013 at 1:31 pm

          Hi Kate,

          For me if you have to wait for turnover metrics to indicate there is a problem you have not only lost the battle, frankly, you’ve lost the war with your competitors.

          Also, a turnover metric doesn’t tell you anything other than whether you are below, at, or above industry average. It doesn’t answer the questions as to why they are happening, and that, as you have stated, is the true need.

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