Employee turnover is costly to businesses, with the average cost of replacing an employee hovering around 20 percent of that person’s salary. When turnover is high, those costs can skyrocket. However, high turnover is usually an indication that there are problems with the management of the company, including incompetence or a poor leadership style.
Common Causes of Turnover
Many factors can contribute to high employee turnover. Low pay and lackluster benefits, low engagement, and lack of a challenge are some of the commonly cited reasons that employees give for leaving their jobs. Also topping the list, though, is poor management. It’s been said that people don’t leave jobs, they leave managers, and in companies with high turnover, this is often true. According to a study published in the Harvard Business Review, there is a strong correlation between a competent manager and an employee’s satisfaction. In other words, the more competent the boss, the more likely the employee is to stay with the company.
While a competent boss is likely to retain employees, an incompetent manager is likely to have the opposite effect. Employees are more satisfied when they feel like their managers understand their jobs and have technical competence in the field. Employees want managers who not only have worked their way up through the company, but who can actually do the same work as their employees and have their technical competence evaluated by their employees. People want to ascertain that their bosses are knowledgeable and understand what their workers are doing and the challenges they face. This, according to the HBR study, increases employee happiness, and ultimately productivity. On the other hand, when employees feel like their leader is out of touch, they are unhappy, less productive and more likely to leave.
Poor Management Causing Turnover
Leadership incompetence is not the only cause of high turnover. Employees also leave because of the work environment. If the number of workers leaving is higher than average, reasons could include the work environment (such as the manager doesn’t encourage teamwork or allows a negative atmosphere to take hold), a lack of challenge, no recognition for a job well done or lack of motivation. While employees need to take some responsibility for their own careers, if there seems to be a mass exodus of talented individuals, or if employees don’t stay long, poor management is often to blame.
When Turnover Is a Good Thing
Although the conventional wisdom is still that turnover is costly to an organization in terms of both money and morale, there are cases in which turnover is actually beneficial to an organization. Losing a high-performing employee can be detrimental in the short term, but when low performers are the ones leaving, that can actually help a company make positive changes. Business professor Edward E. Lawler points out in an article for Forbes that when a company is looking to make significant change, it may be more effective to change the workforce, rather than make the workforce change. Lawler also points out that low turnover contributes to more seniority, and with that comes higher costs. Therefore, reducing turnover shouldn’t be about retaining all employees, but retaining the best employees.