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Untitled-1 33333HRFOCUS / AUGUST 2005 HRfocus (ISSN 1059-6038) is published monthly for $309 per year by the Institute of Management & Administration, Inc., 3 Park Avenue, 30th Floor, New York, NY 10016-5902. © 2005. Institute of Management & Administration, Inc. All rights reserved. A one-year subscription includes 12 monthly issues plus regular fax and e-mail transmissions of news and updates. Copyright and licensing information: Subscribers may make occasional photocopies of articles within an IOMA newsletter but may not reproduce the publication in its entirety. Routine or systematic photocopying or distribution of the newsletter or articles from the newsletter is a copyright violation. To ensure compliance with all copyright regulations or to acquire a license for distribution or republishing, please contact IOMA’s corporate licensing department at 212-244-0360, ext. 8741, or by e-mail at
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[email protected]. Why the Turnover Threat Is Real—and What to Do About It By now, every HR professionalhas heard the news—a staffing shortage is on the way. You won’t be able to find the talent and skills your organization needs to survive unless you prepare. R E T E N T I O N The “pre-crisis” of the staffing shortage has already arrived, courte- sy of the improved economy and the unimproved state of employee satis- faction in many workplaces: Turn- over rates are on the rise, and more of your employees may be looking for a job elsewhere. In fact, 35% of current employees are actively seeking a new job and another 40% are passively doing so, according to a survey from SHRM and Career Table 2. Number of Voluntary Separations as a Percentage of Total Number of Employees Category Average Overall 11.4% By industry Durable goods manufacturing 8.4 Non-durable goods manufacturing 9.6 Utilities and energy 6.5 Retail and wholesale trade 34.0 Services 13.5 Health care 12.8 Banking and finance 13.2 Insurance 7.6 By region Northeast 9.2 Southeast 12.1 North Central 11.3 South Central 15.2 West Coast 8.4 By number of employees (FTEs) Fewer than 500 10.8 500 to 999 9.1 1,000 to 1,999 10.1 2,000 to 4,999 10.7 5,000 or more 18.7 (Source: Watson Wyatt Data Services) Table 1. Separations as a Percentage of Total Number of Employees Category Average Overall 19.3% By industry Durable goods manufacturing 16.5 Non-durable goods manufacturing 17.3 Utilities and energy 10.6 Retail and wholesale trade 40.6 Services 22.3 Health care 20.3 Banking and finance 22.8 Insurance 12.5 By region Northeast 20.1 Southeast 21.6 North Central 18.2 South Central 22.6 West Coast 13.7 By number of employees (FTEs) Fewer than 500 17.6 500 to 999 18.0 1,000 to 1,999 20.2 2,000 to 4,999 16.0 5,000 or more 28.5 (Source: Watson Wyatt Data Services) 44444 HRFOCUS / AUGUST 2005 R E T E N T I O N ( c o n t ’ d ) Journal.com, 2004 U.S. Job Recovery and Retention (www.shrm. org). BENCHMARKS TO CONSIDER An excellent resource for HR profes- sionals is the Workforce Efficiency study from Watson Wyatt Data Ser- vices (www.wwdssurveys.com). It provides information on involuntary and voluntary separations. The average separation rate as a percentage of total employees is 19.3%, according to the study (see Table 1, “Separations as a Percentage of Total Number of Employees”). It isn’t a surprise to see that the turnover percentage is the highest in the retail and wholesale trade—40.6%—since that segment has traditionally had high turnover. At the other end of the spec- trum, with the lowest rate of turnover, is the utilities and energy industry (10.6%), followed by insurance (12.5%) running a close second. Turnover is also a regional “disor- der”: The South Central region of the U.S. has the highest overall turnover rate (22.6%), while the West Coast has the lowest (13.7%). Companies with 2,000 to 4,999 employees report the lowest percent- age of separations (16%). The largest organizations (5,000 or more employ- ees) have the highest percentage of turnover (28.5%). TYPES OF TURNOVER Voluntary rates. As you know, vol- untary turnover is most troublesome for most employers, although, of course, in- voluntary separations present their own set of challenges. The Watson Wyatt Table 3. Nonexempt Employee Turnover Rates Category Voluntary Involuntary Total Overall 9.8% 6.0% 15.8% By profit status For-profit 9.8 6.5 16.3 Nonprofit 10.0 4.3 14.3 By industry Durable goods manufacturing 6.8 6.2 13.1 Non-durable goods manufacturing 7.4 4.9 12.1 Utilities and energy 6.5 4.7 11.1 Retail and wholesale trade 11.9 7.5 19.3 Services 11.2 5.9 17.1 Health care 13.3 5.3 18.6 Banking and finance 13.3 8.6 21.8 Insurance 9.2 4.7 14.0 By region Northeast 7.7 5.2 12.9 Southeast 11.8 6.9 18.7 North Central 9.0 5.9 14.8 South Central 12.2 6.5 18.7 West Coast 10.6 6.0 16.6 By number of employees (FTEs) Fewer than 250 9.2 5.9 15.2 250 to 999 9.6 6.3 15.9 1,000 to 1,999 9.9 5.7 15.5 2,000 to 4,999 9.8 5.4 15.2 5,000 or more 10.6 6.5 17.2 (Source: Watson Wyatt Data Services) Table 4. Exempt Employee Turnover Rates Category Voluntary Involuntary Total Overall 7.8% 5.2% 13.3% By profit status For-profit 7.8 5.8 13.7 Nonprofit 7.8 5.8 10.7 By industry Durable goods manufacturing 5.0 5.0 10.0 Non-durable goods manufacturing 7.1 4.7 11.8 Utilities and energy 6.3 4.2 10.4 Retail and wholesale trade 10.4 6.9 17.3 Services 8.8 5.6 14.4 Health care 11.6 4.3 15.9 Banking and finance 9.6 6.4 16.0 Insurance 5.8 4.2 12.7 By region Northeast 7.4 5.0 12.4 Southeast 8.6 5.7 14.3 North Central 7.1 4.8 11.9 South Central 8.7 5.9 14.5 West Coast 8.8 5.2 14.0 By number of employees (FTEs) Fewer than 250 6.8 6.2 13.4 250 to 999 7.9 5.2 13.1 1,000 to 1,999 7.1 4.7 11.9 2,000 to 4,999 8.3 5.0 13.3 5,000 or more 8.7 5.0 13.7 (Source: Watson Wyatt Data Services) 55555HRFOCUS / AUGUST 2005 study reports that 62.9% of separations were voluntary, meaning that employees left by their own choice. Once again, the retail and wholesale trade has the highest voluntary turnover rate, at 34% (see Table 2, “Number of Voluntary Separations as a Percentage of Total Number of Employees”). Nonexempt employee turnover last year was 15.8%, slightly lower than the overall turnover average (see Table 3, “Nonexempt Employee Turnover Rates”), according to another Watson Wyatt study, the ECS Geographic Re- port on Office Personnel Compensation (www.wwdssurveys. com), which focus- es on office-level and nonexempt jobs. In the ECS survey, voluntary turnover is 9.8%, compared with involuntary turn- over of 6%. The highest reported turn- over rate is in banking and finance (21.8%), followed by retail and whole- sale trade (19.3%). Utilities and energy companies have the lowest turnover rate (11.1%). When it comes to nonexempt turnover, the Northeast has the lowest rate of 12.9%, while both the Southeast and South Cen- tral regions are at 18.7%. Size of company seems to have little effect on nonexempt turnover: There is only a slight increase in the rate at organi- zations with 5,000 or more around full- time employees: 17.2%, compared to around 15% for other sizes of companies. Exempt turnover saw a lower rate than nonexempts (13.3%), according to the ECS Geographic Report on Middle Management Compensation, also from Watson Wyatt (see Table 4, “Exempt Employee Turnover Rates”). Again, the industry with the highest turnover rate was retail and wholesale trade at 17.3%, 10.4% of which was voluntary. The lowest turnover rate is durable goods manufacturing at 10%, with half voluntary and half not. RECOGNIZING THE ISSUE HR professionals believe they are more concerned about turnover than the residents of the C suite, according to the SHRM study. Thirty-nine per- cent of HR professionals polled said they are somewhat concerned about the levels of voluntary resignations, and 24% are very concerned. Top executives at the largest com- panies—500 or more employees— seem to be more tuned into the prob- lem and involved in dealing with it, HR professionals said. At organiza- tions with fewer than 100 employees, HR professionals believe that they worry more about the issue than the company leaders. When it comes to the reason for employee departures, HR profession- als and employees agree on the top three: Better compensation elsewhere. Career opportunities elsewhere. Dissatisfaction with potential for career development at their current orga- nization. HR professionals also believe that burnout and feeling unappreciated are major causes for voluntary turnover. Employees cited “readiness for a new experience,” boredom, and better ben- efits elsewhere as being more press- ing drivers to the exit door. DEALING WITH TURNOVER First, HR professionals would do well to develop numbers to demonstrate the high cost of turnover. One good resource that provides links to calcu- lators on turnover costs is www.hr- software.net/pages/220.htm. Next, you need to consider how your organization can respond to the turnover. The SHRM survey reports that about one third of companies use some sort of special retention pro- cess. The most common tactic is com- petitive merit increases and salary adjustments at 59% (see Table 5, “Spe- cial Retention Processes Used in Re- action to the Improving Job Mar- ket”). Other popular coping strate- gies include bonuses (41%), promo- tion (57%), and providing career de- velopment opportunities (50%). How well are these tactics working? Fifty-nine percent of HR professionals said competitive salaries work well to retain employees; 47% think providing career development opportunities is effective; 45% believe that flexible work schedules help to keep employ- ees; and 31% believe promoting qual- ified employees is effective. Table 5. Special Retention Processes Used in Reaction to the Improving Job Market % of Organizaions Process Using the Process Providing competitive merit increases/salary adjustments 59% Promoting qualified employees 57 Providing career development opportunities 50 Providing bonuses 41 Offering schedules conducive to work/life balance (e.g., telecommuting, compressed workweeks, etc.) 28 Offering stock options