Strategies for Significantly Reducing Employee Churn
Employees in the modern world don’t tend to stick around with a single company throughout their careers. Whilst there are many reasons for employees departing ways with an organization, high employee churn rate can be detrimental for a business.
In this guide, we’ll explore why organizations should actively work to reduce the employee churn rate and explore the reasons behind it. We’ll also tell you how to analyze and assess the churn rate, and present five effective strategies for reducing employee churn.
WHY IS IT IMPORTANT TO REDUCE EMPLOYEE CHURN RATE?
Employee churn rate, which refers to the number of employees leaving the organization and being replaced by a new employee, is a serious issue for many of today’s companies.
In fact, the first reason organizations should care about the rate is simply down to it happening often in most companies and industries.
Life Work Solutions’, a company providing retention and consulting services, research found in 2008, that half of recruits across sectors leave the organization within two years. One in four recruits pack their backs within six months. Furthermore, the study found around 70% of organizations struggling to replace these spots swiftly.
The second essential factor in caring about the employee churn rate relates directly to the above. High employee churn rate and the difficulties in finding replacement also mean high costs for the organization.
Right Management, a career and talent consulting firm, found in its research that it costs nearly three times an employee’s salary to replace them. In another similar study, the Center for American Progress found it costs 1/5 of the annual salary of the employee. In fact, in the Life Work Solutions study, 70% of the organizations didn’t only complain about the struggle of finding a replacement, but also the negative financial impact it has on them.
What are the costs associated to employee churn?
- Finding the new recruit – Including hiring a recruitment company, spending money on setting applications, etc.
- Severance – In certain instances, the organization might be required to pay severance to the employee.
- Losses in productivity – While the organization is looking for a replacement, it might suffer from decreased productivity.
- Lost opportunities – The employee might have been highly talented and this can be a financial lost opportunity, for instance.
- Training the new recruit – Whether the organization transfers someone to the new role within the company or hires someone new, the training process will add extra costs.
Finally, higher levels of employee churn can pose an operational challenge for the organization. Continuous changes in the workforce can affect the company culture, which can suffer consequently. It’s difficult to build a good team if the turnover is high. Furthermore, the overall morale of the remaining employees might drop if people around them are leaving. If they need to also take on additional responsibilities, then productivity and morale can be further impacted.
In service industries, high churn rate can also impact client relationships. Building a strong relationship is harder if the manager of the relationship is constantly changing.
Read this worldwide trend report on employee retention.
WHAT ARE THE CAUSES FOR HIGH EMPLOYEE CHURN?
There are numerous reasons for higher employee churn. Certain causes are easier to manage, but there are also those, which can be difficult to control.
The hard to manage reasons for high employee churn rate include:
- Harsh economic conditions in the area or the industry.
- Local labor market conditions.
Both of these can be difficult to predict and therefore, organizations can find it hard to manage or prevent them.
But certain operational factors also influence the employee churn rate and can be managed by a company.
- Non-rewarding job positions – Employees might feel pressure to leave for a more rewarding role.
- No route for career development – Employees don’t feel the organization offers the ability to ‘climb up the ladder’.
- Poor working conditions – Health and safety concerns are not taken seriously by the organization and this can damage employee relations.
- Ill-natured role – The employee might also feel discouraged if the job is monotonous, dangerous or outright stressful.
- Poor employee and organization fit – Sometimes the employee and the organization just don’t have the same goals and work ethic.
- Poor communication or inadequate job training – Inadequate communication within the organization can lead to loss of morale and if the employee is not properly trained for the role, they can also seek opportunities elsewhere.
- Poor leadership – It’s also important to examine the leadership and management style and culture within the organization, if turnover is high.
Finally, it must be mentioned competition can also lead to increases in employee churn rate. If competitors offer better compensation packages or better career opportunities, employees might seek for positions in these organizations instead. It is important to stay on top of the competition in order to keep the best employees within your organization.
FIRST STEP TO DECREASE EMPLOYEE CHURN RATE: ANALYSE YOUR CURRENT SITUATION
Before we examine the individual strategies your organization can implement to reduce employee churn, you first need to understand the current situation within your company. Understanding the current employee churn rate, as well as its effects, will make it easier to tackle them.
There are three questions you must answer in order to understand your need for action.
1. How high is your employee churn rate?
You must first assess and measure the company’s churn rate and situation. The churn rate can be calculated by dividing the annual termination number by the average number of employees in the organization.
For a more detailed take on the calculation, check the below video tutorial:
The higher the churn rate, the bigger your problem. The severity of the rate depends a bit on your industry, as well as the other points discussed below, but you definitely don’t want it to be above industry or the national average. For example, in the UK, the average churn rate is around 15% a year, but some industries might have higher churn averages.
Once you know the churn rate, you should start examining the reasons behind it. Is it something specific within the organization making employees leave?
2. What are the costs of your employee churn rate?
Once you know the churn rate, you should calculate the cost of employee turnover. You need to look at your organization specifically and include any costs necessary for the calculation.
For example, you need to count the cost of different strategies you might use to reduce the rate. If you increase employee benefits, then these need to be considered as part of the cost of employee churn rate.
3. How can you decrease/prevent employee churn rate?
Finally, you need to start considering the different ways to decrease and prevent employee churn rate. The above points will help you get started, as you understand the depth of the issue and the costs associated with it.
Developing the right employee retention strategies involves an understanding of the company culture and often requires small or big changes within the organisation. Below we’ll provide you with five different strategies, which can all help reduce employee churn rate.
FIVE STRATEGIES FOR REDUCING EMPLOYEE CHURN
Let’s now examine some of the most effective strategies used for keeping employees happy and wanting to remain in your organization.
Strategy 1: Hire the right fit
One of the easiest ways to stop employees leaving is to ensure they are the right fit for the company in the first place. Therefore, you can significantly reduce your churn rate by focusing more on the recruitment process.
It’s important to clearly define the role and position you are recruiting for. You shouldn’t just focus on the required skill set, but the kind of candidate that would excel in this role. Aim to talk about the benefits to the candidate as well, since you want the right candidates to apply. You need to explain the company culture and the vision to ensure it matches the candidate’s career goals.
The recruitment process shouldn’t focus too much on skill testing. A proper recruitment process should instead include the following components:
- Behavior-based testing
- Competency testing
- Background check
- Organizational fit analysis
- Future development analysis
- Motivational and goal oriented approach
Furthermore, it’s beneficial to use trial periods on most roles, as they help you further assess the compatibility. This is not only beneficial to your organization, but also helps the candidate see whether they enjoy the role or not. Trial period will be less costly, even if the candidate decides to leave, than hiring someone and having him or her quit within a year.
Finally, employee referrals should be a key tool in your recruitment process. Jobvite’s research shows HR executives consider referrals as the top source of quality hires. In addition, referral hires are proven more loyal, with 46% of referrals staying for over three years or more. For new hires from job boards, the rate is only 14%.
Strategy 2: Improve career development and training
Your organization also needs to continually motivate and challenge its employees. Improved career development and training can help employees feel more valued in their role. It can also give them a more positive outlook about future prospects. For example, training can tell the employee you are investing in them for the long haul.
These training sessions and development plans are good at creating an environment of ‘looking towards the future’. The skills the employees gain feel important and they have a specific purpose and need in the future within your organization.
The following slides will some basic insights on developing employees.
But training also has the important role of ensuring the job doesn’t become too difficult for the employee. It provides support for the employee, as they feel they don’t have to solve new problems or challenges alone.
Positive feedback should be part of your career development objectives as well. It is crucial to continuously communicate with the employee about their role and to do so in a constructive and supportive manner. You definitely shouldn’t only provide feedback when the employee does something wrong. In fact, it’s important to reward good behavior and support successes, even the smallest achievements.
One auspicious strategy to consider is the implementation of a mentoring program. The mentoring program is a great way to provide support and create a goal-oriented feedback structure.
Strategy 3: Focus on happy and flexible work culture
An organization with an unhappy work culture is unlikely going to retain its employees. Even if the role is rewarding, the communication between co-workers and the general atmosphere at the company do play a major role in keeping employees motivated and excited to come to work.
It’s crucial to guarantee the work culture is respectful and supportive. Everyone should feel welcomed in the workplace and equal in terms of the respect they enjoy.
The focus of creating a positive work culture should be in:
- Establishing effective communication strategies. Information should flow easily between different departments and within a team. Employees at all levels should also have a clear channel to raise concerns without the fear of punishment.
- Providing enough support, especially during challenging times. Every organization will face difficulties and employees can face challenges in their personal lives. There should always be enough support available during challenges to guarantee the employee doesn’t feel alone.
- Creating a friendly and respectful work environment for all. Today’s companies include people from all walks of life – Workforce is often a mixture of men, women, young, old, and different ethnicities and religions also meet up at the workplace. It is essential to ensure there is no discrimination or bullying within the organization.
- Valuing employee effort adequately. This doesn’t simply refer to financial rewards, but also to a culture of positive feedback and praise.
Your organization should also embrace flexibility. A flexible work environment is much less likely to leave employees feeling burnt out. Employees are also much more likely to stay in flexible work environment rather than work in an inflexible company.
When you are transforming your organization’s work environment, pay attention to the following points:
- Offer the option of flexible working hours whenever possible.
- Provide employees with the ability to occasionally work from home (if possible).
- Create a flexible holiday plan, which allows employees a bigger voice in deciding when they take a leave.
- Discuss work/life balance issues within the workplace and provide additional support for employee’s who are struggling:
- This could be the option to share certain tasks with others.
- Receive medical help and consultation.
- Become a family friendly employer by offering different perks like:
- Corporate kindergarten, if your organization is big enough.
- Family flexible holidays around the time school holidays are.
- Proper parental leave options for both mothers and fathers.
A study by the Boston College Center for Work & Family found that 80% employees felt flexible workplace has positively affected retention rates. In another study, almost 40% of American adults surveyed said they have considered or left a job due to inflexibility.
Strategy 4: Provide appropriate compensation and benefits
Naturally, there should also be enough focus on the financial compensation. Whilst a flexible and supportive work culture can be a great start for keeping employees happy, you also need to ensure the role is financially satisfying. Employees might find leaving a great work culture behind harder, but if competitors are offering a lot more money, the better earnings potential might seal the deal.
When considering the financial compensation, keep these two points in mind:
- Always aim to pay above the minimum wage. Employees will find it hard to stay motivated if they struggle financially, even though they put a lot of effort into the work they do.
- Consider competition as a benchmark. If your competition pays better, your best employees are more likely to leave.
In addition, you should consider providing other long-term incentives for talented employees. These could be in the form of bonuses and different profit-sharing plans. Remember to regularly assess and adjust the compensation package to ensure you stay ahead of competition.
Furthermore, financial compensation should also come in the form of different benefits and non-cash perks.
For instance, you should offer appropriate health and welfare plans for the employees, including an adequate retirement plan. Other perks could be help with childcare or even house care. You could also offer different loyalty programs for travel or fitness schemes.
Strategy 5: Embrace the wider community
Finally, your organization can reduce employee churn rate by being an active member of the wider community. Employees respect companies, which are focused on the common good and embracing a positive attitude towards helping local community groups.
Your company should allow employees to partake in voluntary events, as this can improve the wider employee culture. For example, different voluntary events could include the families and local neighborhoods, which can help create a larger sense of belonging to a family.
Embracing the wider community shows the employee that the company is doing something good. This can in return make them feel more appreciated. Corporate social responsibility can ensure employees don’t feel they are just a member of a faceless corporation, but an active member of a company, which is trying to achieve something positive.
Employee churn rate is something companies in today’s competitive business environment need to take seriously. Not only can high levels of employee churn result in knowledge and talent drainage, it can also have a dire financial effect on the company.
It is therefore essential to properly understand the organization’s churn rate and evaluate the reasons behind it. Organizations should focus on proactive strategies, which help create a more flexible and positive work culture and provide adequate support and financial compensation to their employees.
By applying these strategies, companies can actively tackle the problems of employee churn.