In business most professionals understand that employee turnover is bad while employee retention is good. Perhaps because in the corporate world success is measured in dollars gained vs. dollars lost and most know that employee turnover is a big expense. The cost of replacing entry level employees is 30-50 percent of their annual salary while mid-level employees may cost a company as much as 150 percent of their salary to replace.
Retaining employees for as long as you are able to avoid turnover costs is rational, however turnover can also be beneficial. Years ago my colleague was speaking about turnover with a gentleman who ran a call center. This manager found that turnover, after a period of time had elapsed, was beneficial because he could hire entry level call center agents at a pay rate lower than what the exiting agents had been earning. Periodic turnover allowed the call center manager to reduce costs.
One issue often associated with employee turnover is a decrease in company morale as remaining employees have to shoulder the responsibilities the departing employee left behind until the role is filled. Low employee morale of course can also be created by retaining a disruptive employee who poisons your culture and office atmosphere. The departure of such an employee could produce positive results within days. In a previous post I pointed to a study which revealed that avoiding a toxic worker, even one in the top 1% for productivity, saves a company far more than the cost savings they would receive from employing the superstar.
Turnover also provides the opportunity to inject more energy into your business. Long retained workers may lose passion for what they do. While they leave to seek greater challenges elsewhere with a renewed vigor, your company may provide a similar challenging opportunity to an incoming employee. Though you may have to train them, their energy level and spirit for the new challenges that lie ahead may spark morale and spirit in the workplace.
Turnover, especially in senior positions, may eliminate the tendency for mirror image hiring. Mirror image hiring is a hiring manager’s propensity to hire those with similar backgrounds or behavioral characteristics. According to I/O psychologist Allen Gorman, “The ‘similar-to-me’ bias could also lead to creativity stagnation and lack of innovation in organizations. This happens because as organizations continue to hire employees that have the same backgrounds and experiences as those already in the organization, employees begin to think and behave in the same fashion due to their shared experiences.”
Turnover is uncomfortable not just in terms of revenue lost and the expenses associated with finding/training a new employee but also the concern of how a new employee will fit into one’s corporate culture. Change however brings new life and enthusiasm and so turnover should be viewed as an opportunity to not only improve your company but potentially reduce expenses in the long run.
The argument continues over whether employers should hire for cultural fit or for skills. Many say skills because hiring for cultural fit inevitably gives way to discrimination. Others say hire for cultural fit because poor cultural fit leads to employee turnover and the high costs associated with it. Lately I see more and more articles pointing to the significance of hiring for cultural fit over talent. This recent sports story highlights how highly we value cohesion in the workplace. Continue reading “What Matters Most To Your Team, Talent or Personality?” »
As a provider of job candidate assessment software we are very focused on turnover. We hate costly employee turnover, which studies have shown is mostly caused by poor job fit. So we work hard to build software solutions that measure how well potential employees will fit the employers with whom they seek employment. It’s how we can make an impact on turnover, making companies more productive and profitable. Continue reading “Are Older Workers Holding on to Jobs Hurting Younger Workers Looking for Jobs?” »
Turnover rolls along at high rates and at a high cost to employers. Rates run as high as 35% in the hospitality industry. Costs, according to research by SHRM, can be as much as “60% of an employee’s annual salary, whereas total costs of replacement, including training and loss of productivity, can range from 90% to 200% of an employee’s annual salary.”
It seems like the cost of turnover is like a dirty little secret no one wants to talk about. Or do anything about. Yet we are talking about literally billions of dollars a year in costs.
The year 2007 began with a quit rate of around 3 million employees per month. That’s out of a labor force of about 150 million in the U.S. During the subsequent Great Recession, when self-reported employee satisfaction rose and departures went down, 1.6 million employees still quit in the month of September 2009, the lowest number reported in years. Since that bottom, the number of employees quitting has steadily grown to around 2.5 million per month. There has been no indication that the one-time decline in quits would become a new normal.
Why do employers accept high rates of turnover and its hidden costs? One reason may be that turnover allows employers to keep wage rates down.
I was at a conference a few years ago and found myself pitching programs to a C-level executive of a Fortune 1000 company that could improve the quality of his hiring, and thereby lower turnover. He listened for a moment and then interrupted me, saying “Jim, you just don’t understand. We like turnover.” When I asked him to explain, he glibly answered “we hire them at $8 per hour, give ‘em a six-month raise to 10 bucks, and then hope they leave before we have to bump them to $12. We then bring in their replacement at $8 and start the process all over again.”
Despite all the happy talk about employee satisfaction and engagement, how can employees find satisfaction in jobs where they are simply treated as “factors of production”, fungible commodities to be traded off for some illusory cost savings?
I believe that employers have an inherent commitment to help their employees find satisfaction in and through their work. If you believe this way, then excessive turnover is an affront and should be addressed.
Of course you need skills to get considered for employment but to land a job one could argue they aren’t nearly as important as you think. Cosmetics giant L’Oreal recently began assessing sales people for emotional intelligence (EQ) during their hiring process. They found that those with a high EQ score outsold their peers by $90,000. Additionally turnover among those with high EQ scores was 63% less than those hired through traditional methods.
Naturally I’m sure the final pool of people from which L’Oreal chose their next sales person all had prior sales experience. Can we not deduct from this case study though that the most experienced candidates didn’t always get the job and that someone who had less experience but a high EQ score did?
Beyond the EQ score used in hiring, we find further evidence that a high level of skills is not the determining factor for employment. Business Insider recently ran an article featuring the favorite interview question of 9 CEOs. I have included the questions below and ask for you to tell me how many of them relate directly to someone’s skills.
“On a scale of 1 to 10, how weird are you?” Tony Hsieh, CEO – Zappos
“Tell me about the time you realized you had the power to do something meaningful.” Simon Anderson, CEO – Dreamhost
“How would you describe yourself in one word?” Dara Richardson-Heron, CEO – YWCA
“What would you do in the event of a Zombie Apocalypse?” Ashley Morris, CEO – Capriotti’s Sandwich Shop
“Tell me about the last person you fired.” Marc Barros, CEO – Contour
“Tell me about your failures.” Jenny Ming, CEO – Charlotte Russe
“What was the last costume you wore?” Dave Gilboa & Neil Blumenthal, CEOs – Warby Parker
“Tell me about your crowning achievement.” Lou Adler, CEO – The Adler Group
“Tell me about your last project. Who was involved and what was the biggest challenge?” Jane Eggers, CEO – Spreadshirt
I suppose that while detailing how one would survive a zombie apocalypse a job candidate might list the skills necessary to ensure their survival but sandwich making and customer service is probably not one of them.
Many of the questions above have no right or wrong answer. They are asked simply to learn more about the candidate’s personality and potential cultural fit, not their skills.
Moving on, a three year study conducted by LeadershipIQ involving thousands of hiring managers and employees revealed that of the 46% that failed within the first 18 months of being hired, 89% failed for attitudinal reasons, not for skills.
So here’s my question to you the hiring manager. If higher emotional intelligence leads to greater performance and less turnover and if 46% of employees fail within the first 18 months because of their attitude and not skills, how are you going to evaluate your job candidates going forward?
Here’s my question to you the job candidate. If higher emotional intelligence leads to greater performance and less turnover and if 46% of employees fail within the first 18 months because of their attitude and not skills, how are you going to answer questions during your next job interview?