According to the data presented in the textbook, what was the most common voluntary turnover reason?

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  • Learning Objectives

    1. Be able identify the difference between direct and indirect turnover costs.
    2. Describe some of the reasons why employees leave.
    3. Explain the components of a retention plan.

    According to the book Keeping the People Who Keep You in Business by Leigh Branham (Branham, 2000), the cost of losing an employee can range from 25 percent to 200 percent of that employee’s salary. Some of the costs cited revolve around customer service disruption and loss of morale among other employees, burnout of other employees, and the costs of hiring someone new. Losing an employee is called turnover.

    There are two types of turnover, voluntary turnover and involuntary turnover. Voluntary turnover is the type of turnover that is initiated by the employee for many different reasons. Voluntary turnover can be somewhat predicted and addressed in HR, the focus of this chapter. Involuntary turnover is where the employee has no choice in their termination—for example, employer-initiated due to nonperformance. This is discussed further in Chapter 9.

    It has been suggested that replacement of an employee who is paid $8 per hour can range upwards of $4,000 (Paiement, 2009). Turnover can be calculated by

    separations during the time period (month)/total number of employees midmonth × 100 = the percentage of turnover.

    For example, let’s assume there were three separations during the month of August and 115 employees midmonth. We can calculate turnover in this scenario by

    3/115 × 100 = 2.6% turnover rate.

    This gives us the overall turnover rate for our organization. We may want to calculate turnover rates based on region or department to gather more specific data. For example, let’s say of the three separations, two were in the accounting department. We have ten people in the accounting department. We can calculate that by

    accounting: 2/10 × 100 = 20% turnover rate.

    The turnover rate in accounting is alarmingly high compared to our company turnover rate. There may be something happening in this department to cause unusual turnover. Some of the possible reasons are discussed in Section 7.1.1 “Reasons for Voluntary Turnover”.

    According to the data presented in the textbook, what was the most common voluntary turnover reason?

    Figure \(\PageIndex{1}\): United States Yearly Turnover Statistics, 2001–11 Source: Data from Bureau of Labor Statistics, “Job Openings and Labor Turnover Survey,” accessed August 11, 2011,

    In HR, we can separate the costs associated with turnover into indirect costs and direct costs. Direct turnover costs include the cost of leaving, replacement costs, and transition costs, while indirect turnover costs include the loss of production and reduced performance. The following are some examples of turnover costs (Maertz & Campion, 1998):

    • Recruitment of replacements
    • Administrative hiring costs
    • Lost productivity associated with the time between the loss of the employee and hiring of replacement
    • Lost productivity due to a new employee learning the job
    • Lost productivity associated with coworkers helping the new employee
    • Costs of training
    • Costs associated with the employee’s lack of motivation prior to leaving
    • Sometimes, the costs of trade secrets and proprietary information shared by the employee who leaves
    • Public relations costs

    To avoid these costs, development of retention plans is an important function of the HR strategic plan. Retention plans outline the strategies the organization will use to reduce turnover and address employee motivation.

    Table \(\PageIndex{1}\) Turnover Costs
    Recruitment costs Lost knowledge
    Advertising costs for new position Loss of productivity while new employee is brought up to speed
    Orientation and training of new employee Cost associated with lack of motivation prior to leaving
    Severance costs Cost associated with loss of trade secrets
    Testing costs
    Time to interview new replacements
    Time to recruit and train new hires

    Costs of Turnover 

    This video provides an overview of the cost of employee turnover.

    Measuring the levels and costs of employee turnover is vital in building the business case and informing the design of targeted retention initiatives. This can be a powerful tool for winning line manager and board-level support for resourcing activities.

    Measuring employee turnover

    Organisations may track their ‘crude’ or ‘overall’ turnover rates on a month by month or year by year basis, expressed as a percentage of employees overall. The formula is simply:

    Total number of leavers over period x 100
    Average total number employed over period

    The total figure is for all leavers, including those who retire, or leave involuntarily due to dismissal or redundancy. It also makes no distinction between functional (that is, beneficial) turnover and that which is dysfunctional.

    Crude turnover figures are often used in published surveys of labour turnover as they tend to be more readily available and can be useful as a basis for benchmarking against other organisations.

    However, it’s also useful to calculate a separate figure for voluntary turnover (resignations), as such departures are unplanned and often unpredictable (unlike planned retirements or redundancies for instance) and can have a particularly adverse impact on the business.

    It may also be helpful to consider some of the more complex employee turnover indices, which take account of characteristics such as seniority and experience, or calculate figures for different functions and locations of the business to highlight areas where turnover is higher than others.

    Measuring employee retention

    A stability index indicates the retention rate of experienced employees. Like turnover rates, this can be used across an organisation as a whole or for a particular part of it. The usual calculation for the stability index is:

    Number of staff with service of one year or more x 100
    Total number of staff in post one year ago

    Costing employee turnover

    The costs associated with employee turnover related to resignations rather than redundancies may be estimated by calculating the average cost of replacing each leaver with a new starter in each major employment category. This figure can then be multiplied by the relevant turnover rate for that staff group to calculate the total annual cost of turnover.

    The major categories of costs are:

    • Administration of the resignation.
    • Recruitment and selection costs.
    • Covering the post during the period in which there is a vacancy.
    • Induction training for the new employee.

    Many of these costs consist of indirect management or administrative staff time (opportunity costs), but direct costs can also be substantial where advertisements, agencies or assessment centres are used in the recruitment process.

    More complex approaches to turnover costing give a more accurate and invariably higher estimate of total costs. These could include measures estimating, for example, the relative productivity of new employees during their first weeks or months in a role and that of resignees during the period of their notice (both likely to be lower than the productivity levels of established employees).

    As more organisations are taking steps to improve retention, their turnover costs are likely to decrease. More can be done though to evaluate the effectiveness of retention initiatives, as noted in our Resourcing and talent planning survey report.

    What is the number one reason for employees engaging in voluntary turnover?

    Poor compensation: When people leave a company, compensation and benefits are a major reason, especially for younger workers: The LinkedIn survey found that compensation and benefits as the No. 1 reason they change jobs. Higher base pay has a strong impact on retention for a few reasons.

    What is the major cause for involuntary turnover in an organization?

    Involuntary turnover is one type of turnover that occurs when an employee is terminated from a position. Employees may be let go for a wide range of reasons, including unsatisfactory job performance or inappropriate behavior, often called counterproductive work behavior (CWB).

    What is an example of voluntary turnover?

    Voluntary Turnover Examples Voluntary turnover occurs when employees leave of their own volition. Employees who resign, retire or simply leave the organization for other reasons are all voluntary turnover examples.

    Which situation is an example of a voluntary turnover quizlet?

    Which of the following situations is an example of a voluntary turnover? Fatima, an employee at Flora Inc., is about to resign her job to start her own business. The top management at Zion Manufacturers decides to search its employees on the job.