5 Ways to Manage High Turnover

In industries where employees come and go frequently, HR professionals take a comprehensive approach to stem the tide.

By Eric Krell Apr 1, 2012
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April CoverWhen she joined hydraulic cylinder manufacturer HYDRAtech/CRC Inc. four years ago, Human Resource Manager Jennifer Minto, SPHR, promptly adjusted her traditional approach to turnover.

To recruit trade workers and "retain the staff we currently had, we would have to be creative," says Minto, whose Denmark-based company employs 75 people in its U.S. division, a plant in rural Robertsdale, Ala.

Minto and her team addressed her industry sector's high turnover among machinists through innovative recruiting, including forays into radio advertising and LinkedIn Groups, new training programs, salary studies, and an apprenticeship initiative. Yet, Minto also flexes her left-brain skills to combat turnover. Every quarter, her team recalculates the cost of replacing and training workers to help clarify the cost of turnover and the return on investments designed to reduce it.

Like other HR professionals in high-turnover industries—as well as those who manage high-turnover pockets in organizations where overall turnover rates are relatively low—Minto says the key is a comprehensive, proactive approach.

Christine Deputy, senior vice president of human resources for Dunkin' Brands Inc. in Canton, Mass., agrees that effective turnover reduction requires a multi-pronged effort and a "holistic approach."

Business Impacts

Turnover reduction is likely to become important for most organizations as the economy improves and the demand for many skills increases. Talented employees who stayed put during the challenging economy will be more likely to accept better offers from other organizations.

When turnover is high, business leaders face increased costs associated with recruiting, selecting and training replacements. Other, more-difficult-to-quantify effects also arise, such as declines in productivity, morale, customer satisfaction and innovation.

"We depend on trained, skilled machinists," Minto explains. "Skills gaps or capacity gaps have a huge effect on the remainder of our shop and on our ability to produce our product in a cost-effective manner and ensure on-time delivery."

HR professionals in many industries routinely confront the skills gaps caused by turnover. The annual turnover rate averages 15 percent across all industries, according to the Society for Human Resource Management's (SHRM) Human Capital Benchmarking database. In contrast:

  • Companies in the services industry, such as accommodation and food and drinking establishments, have the highest annual rate at 35 percent.
  • The arts, entertainment and recreation industry has a 27 percent turnover rate.
  • The retail and wholesale trade industry has a 22 percent turnover rate.
  • The health care and social assistance industries have a turnover rate of 20 percent. Some types of health care companies have even higher turnover, notes Harry Kostyk, PHR, human resources manager for Bonnie Brae, a 253-employee residential treatment center for adolescent boys in Liberty Corner, N.J.

"It's difficult to find turnover rates for our specific industry segment," Kostyk notes. "We tend to get lumped in with hospitals, yet we're not anything like a hospital," he says. "It's also difficult to get an apples-to-apples comparison of cost-per-hire rates in the industry because different companies calculate it differently." A standard for calculating cost-per-hire was developed by a task force led by SHRM operating under the auspices of the American National Standards Institute. A turnover standard is in development.

In recruiting, consider the attributes of your most successful employees.

Working with figures he obtained from the New Jersey Department of Labor and the Alliance for Children and Families, Kostyk calculated a segment-specific annual turnover rate range of 20 percent to 40 percent. But other industry and business-specific obstacles remain on the path to lowering Bonnie Brae's annual turnover rate, which was 19 percent the past fiscal year. "We are a nonprofit organization," he says, "so we can't give out bonuses as frequently as, say, a for-profit company might."

At Dunkin' Brands, a company that works with franchisees who own and operate their Dunkin' Donuts and Baskin Robbins stores, the business model presents turnover management challenges. Store owners are their own bosses, so the guidance Deputy and her team provide to them must be sufficiently effective for the owners to follow.

"Whoever is running our stores has to buy into our programs" that address turnover, Deputy says. "We have to ensure that these programs are relevant and easy to execute. If they work, our restaurant managers and their crew members will use them." Deputy says all HR professionals confront similar challenges, regardless of their business models.

Best Practices

Deputy, Kostyk and other HR professionals contending with high turnover point to specific approaches they rely on to manage turnover. Several require no major investments.

"You don't have to spend a lot of money to be smarter about where and how you get people," notes John Cooper, HR advisory practice leader for The Hackett Group, a consulting company based in Miami. "Put the right kind of tools and practices in play, and make them usable for managers."

Nail down the numbers. Identify the turnover rate and its cost to the business. Kostyk asserts that figures are crucial to framing turnover and demonstrating its impact to senior leaders, the board of directors and managers throughout the company. "If someone says, 'Well, that person didn't work out,' you want to be able to explain what the cost of that departure actually is," Kostyk says.

At HYDRAtech/CRC, Minto and her team recalculate turnover cost, based on average rate of pay for a specific position, each quarter. For example, they know that the turnover of a single trade worker costs approximately $53,000. Minto explains that this calculation factors in additional overtime costs for workers who fill in for the missing employee, recruiting costs, onboarding costs, training costs "and the skills-capacity gap cost while new hires are acclimating to our organization and processes."

Integrate hiring into business forecasting. Scott Pollak, a San Jose, Calif.-based principal in PwC Saratoga, a division of PricewaterhouseCoopers Human Resource Services, says he sees a transition in workforce planning within organizations that reduce turnover.

In practice, workforce planning often involves a projection of how many hires will be needed for the next month and then determining how that need reconciles with the annual budget. A better, more proactive approach, and one Pollak sees more frequently, addresses hiring needs further in advance. That foresight can create the time necessary to make smarter hiring decisions.

"Suppose I'm a bank and I need to be hiring people into my call center," Pollak explains. "When I forecast how many loans we expect to originate or how many new customers we expect to gain as the result of a new marketing effort, I'm also considering the people implications of this growth. … I don't get into a situation where the loan origination partner approaches the HR manager and says, 'Oh, by the way, we just launched a new set of offerings in the marketplace, and you're going to need more bodies to handle a whole bunch of calls on this starting tomorrow.' "

Pay attention to fit. HR professionals who are effective in reducing turnover "do a better job of thinking through fit to ensure that they hire the right people as opposed to simply hiring people quickly," Pollack says. Identify the skills and behaviors the most successful employees possess and then screen for those characteristics during recruiting.

The Hackett Group's Cooper agrees. "If I can triangulate the DNA of a great waiter, I can then test incoming applicants against that set of cognitive capabilities, behavioral tendencies and job interests," he explains. "I can really drive a better selection because I don't just look and say, 'Well, you've been a waiter elsewhere, you should be a waiter here.' "

Online assessment tools can help with this approach, but they are not always necessary. Managers of child care counselors at Bonnie Brae have determined common attributes that the most successful and long-tenured employees possess, and Kostyk considers those attributes in recruiting, hiring and training.

Provide post-hire support. "Some companies work very hard to convince people to join the organization," Cooper says, "and then these people are treated like a problem as soon as they show up on the first day." A better approach, he says, involves a more thoughtful and hands-on approach to onboarding.

"How I get you in the door and how I treat you on your first day and in the first month has a huge effect on whether or not you stay," Cooper adds. He says effective "day one" onboarding practices might include having the new employee's badge and uniform ready and waiting, holding an initial performance discussion to set expectations, and assigning a mentor to help give the new employee the lay of the land.

To Minto, training and salary benchmarking are components of ongoing post-hire support. She and her team created a job classification pay grade system to encourage machinists to obtain more-advanced skills and become cross-trained on multiple machines. The HR team also conducts biannual salary studies for similarly situated companies within a 100-mile radius and awards pay adjustments when necessary based on the data.

Engage employees. Deputy says low employee engagement is one of the largest drivers of turnover. "We focus on providing our franchisees with tools that they can use to provide a great environment in the restaurant and help foster higher levels of engagement," she says.

Fostering an engaged workforce requires listening to workers. In response to input from crew members who work in Dunkin' Donuts and Baskin Robbins shops, Dunkin' Brands changed the uniforms to make them more comfortable. In response to requests from store managers, the Dunkin' Brands HR team adjusted its training curriculum to cover more coaching skills aimed at helping managers provide immediate performance feedback to crew members.

"If you can drive greater engagement, you can reduce turnover, which ultimately gives you better customer satisfaction," Deputy notes.

"Our data show that world-class companies are much more likely to use engagement survey tools and to have an ongoing engagement program," Cooper reports. "An engaged, capable employee will outperform a disengaged employee by a three- or four-to-one ratio depending on the industry. Not only are engaged employees more likely to do a great job, they are also more likely to stay longer."

That tendency for employees to stay longer should grow more valuable—in all industries—the moment voluntary turnover rates increase.

The author is a business writer based in Austin, Texas, who covers human resource, finance and social marketing issues.

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