What is Employee Turnover?
Employee turnover can be viewed as an indicator of stability. In the present adverse economic and investment climate, as well as in the increasingly competitive working national and international environment for firms operating in both private and public sectors, employee turnover becomes a timely and relevant topic for academics, policy makers and other stakeholders (Bowles and Cooper, 2012).
- Employee turnover is the rotation of workers around the labor market; between firms, jobs and occupations; and between the states of employment and unemployment (Abassi et al. 2000).
- The Oxford Advanced Learner’s Dictionary defines employee turnover as “the rate at which employees leave a company and are replaced other people”.
- The term turnover is defined by Price (1977) as the ratio of the number of members who have left an organization during the period being considered divided by the average number of people in that organization during the period.
Employee turnover generally refers to the movement of workers around the labor market between firms and among the states of employment, unemployment and inactivity (Burgess, 1998). It is sometimes defined as a measurement of inarticulate employee unrest.
Employee turnover (sometimes known as labor turnover or wastage or attribution) can be disruptive and costly. It is the cause as well as effect of instability of employment. It is also considered as a measure of the morale and efficiency of workers (Bowles and Cooper, 2012).
Managers refer to turnover as the entire process associated with filling a vacancy. Each time a position is vacated, either voluntarily or involuntarily, a new employee must be hired and trained immediately.
Woods (1995) describes this replacement cycle as turnover, the term often utilized in efforts to measure relationships of employees in an organization as they leave, regardless of reason.
Software industry is most sensitive to the problem of employee turnover, as its success mainly depends on its efficient and effective employees. This industry, which solely depends on its skilled human resource for not only its growth, but also for its survival, will be hit very hard if its key employees leave the organization.
Sometimes the success of an industry lies in its power of retaining its key employees. The problem is still more serious in BPOs (Business Processing Outsourcing) Opens in new window which are newly emerged job centers, where the problem is clubbed with many other factors by very nature of the industry itself.
Cost Involved in Employee Turnover
Employee turnover is expensive from the view of the employer or organization. The reason a lot of attention has been paid to the issue of turnover is because turnover has significant effects on organizations.
Estimates of the cost of employee turnover are useful as means of backing up a business case for taking action to reduce wastage. The following factors should be considered when calculating costs.
- direct cost of recruiting replacements (advertising, interviewing, testing, etc.);
- direct cost of introducing replacements (induction of the chosen substitute and formal and informal training of the chosen candidate until s/he attains performance levels equivalent to the individual who quit [John, 2002]);
- direct cost of training replacements in necessary skills;
- leaving costs — payroll and HR administration;
- opportunity cost of time spent by HR and line managers in recruitment, induction and training;
- loss of output from those leaving before they are replaced;
- loss of output because of delays in obtaining replacements;
- loss of output while new starters are on their learning curves acquiring the necessary knowledge and skills.
Research by Philips (1990) found that the visible or direct cost of recruitment accounted for only 10-15 per cent of total costs. By far the highest costs were associated with the inefficiencies arising while the post was vacant (33 per cent) and the inefficiency of new workers (32 per cent).
On average, 12.5 months were required for executives to be comfortable in a new position, and 13.5 months were required for a new employee to achieve maximum efficiency. Dyke and Strick (1990) argue that high turnover rates might have negative effects on the profitability of the organization if not properly managed.
Costly et al (1987) points out that a high labor turnover may mean poor personnel policies, poor recruitment policies, poor supervisory practices, poor grievance procedures and lack of motivation. Too high employee turnover may cause organizational problems while too low or no turnover may cause a lack of idea generation and resistance to change.
Why Do Employees Leave the Organization?
Current literature on the employee turnover says that most of the employees leave an organization out of frustration and constant friction with their superiors or by other team members. In some cases low salary, lack of growth prospects and motivation compel an employee to seek a change.
The management must try its level best to retain those employees who are really important for the system and are known to be effective contributors to the organizational goals. It is the responsibility of the line managers as well as the management to ensure that the employees are satisfied with their roles and responsibilities and the job is offering them a new challenge and learning everyday.
Employees today are different. They are not the ones who don’t have good opportunities in hand. As soon as they feel dissatisfied with the current employer or the job, they switch over to the next job. It is the responsibility of the employer to retain their best employees. If they don’t, they would be left with no good employees. A good employer should know how to attract and retain its employees.