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33333HRFOCUS / AUGUST 2005
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Why the Turnover Threat Is
Real—and What to Do About It
By now, every HR professionalhas heard the news—a staffing
shortage is on the way. You won’t be
able to find the talent and skills you
organization needs to survive unless
you prepare.
R E T E N T I O N
The “pre-crisis” of the staffing
shortage has already a
ived, courte-
sy of the improved economy and the
unimproved state of employee satis-
faction in many workplaces: Turn-
over rates are on the rise, and more of
your employees may be looking for a
job elsewhere.
In fact, 35% of cu
ent employees are
actively seeking a new job and anothe
40% are passively doing so, according
to a survey from SHRM and Caree
Table 2. Number of Voluntary Separations as
a Percentage of Total Number of Employees
Category Average
Overall 11.4%
By industry
Durable goods manufacturing 8.4
Non-durable goods manufacturing 9.6
Utilities and energy 6.5
Retail and wholesale trade 34.0
Services 13.5
Health care 12.8
Banking and finance 13.2
Insurance 7.6
By region
Northeast 9.2
Southeast 12.1
North Central 11.3
South Central 15.2
West Coast 8.4
By number of employees (FTEs)
Fewer than XXXXXXXXXX
500 to XXXXXXXXXX
1,000 to 1, XXXXXXXXXX
2,000 to 4, XXXXXXXXXX
5,000 or more 18.7
(Source: Watson Wyatt Data Services)
Table 1. Separations as a Percentage of
Total Number of Employees
Category Average
Overall 19.3%
By industry
Durable goods manufacturing 16.5
Non-durable goods manufacturing 17.3
Utilities and energy 10.6
Retail and wholesale trade 40.6
Services 22.3
Health care 20.3
Banking and finance 22.8
Insurance 12.5
By region
Northeast 20.1
Southeast 21.6
North Central 18.2
South Central 22.6
West Coast 13.7
By number of employees (FTEs)
Fewer than XXXXXXXXXX
500 to XXXXXXXXXX
1,000 to 1, XXXXXXXXXX
2,000 to 4, XXXXXXXXXX
5,000 or more 28.5
(Source: Watson Wyatt Data Services)
44444 HRFOCUS / AUGUST 2005
R E T E N T I O N ( c o n t ’ d )
Journal.com, 2004 U.S. Job Recovery
and Retention (www.shrm. org).
BENCHMARKS TO CONSIDER
An excellent resource for HR profes-
sionals is the Workforce Efficiency
study from Watson Wyatt Data Ser-
vices (www.wwdssurveys.com). It
provides information on involuntary
and voluntary separations.
The average separation rate as a
percentage of total employees is
19.3%, according to the study (see
Table 1, “Separations as a Percentage
of Total Number of Employees”). It
isn’t a surprise to see that the turnove
percentage is the highest in the retail
and wholesale trade—40.6%—since
that segment has traditionally had high
turnover. At the other end of the spec-
trum, with the lowest rate of turnover,
is the utilities and energy industry
(10.6%), followed by insurance
(12.5%) running a close second.
Turnover is also a regional “disor-
der”: The South Central region of the
U.S. has the highest overall turnove
ate (22.6%), while the West Coast
has the lowest (13.7%).
Companies with 2,000 to 4,999
employees report the lowest percent-
age of separations (16%). The largest
organizations (5,000 or more employ-
ees) have the highest percentage of
turnover (28.5%).
TYPES OF TURNOVER
Voluntary rates. As you know, vol-
untary turnover is most troublesome fo
most employers, although, of course, in-
voluntary separations present their own
set of challenges. The Watson Wyatt
Table 3. Nonexempt Employee Turnover Rates
Category Voluntary Involuntary Total
Overall 9.8% 6.0% 15.8%
By profit status
For-profit XXXXXXXXXX
Nonprofit XXXXXXXXXX
By industry
Durable goods
manufacturing XXXXXXXXXX
Non-durable goods
manufacturing XXXXXXXXXX
Utilities and energy XXXXXXXXXX
Retail and wholesale
trade XXXXXXXXXX
Services XXXXXXXXXX
Health care XXXXXXXXXX
Banking and finance XXXXXXXXXX
Insurance XXXXXXXXXX
By region
Northeast XXXXXXXXXX
Southeast XXXXXXXXXX
North Central XXXXXXXXXX
South Central XXXXXXXXXX
West Coast XXXXXXXXXX
By number of
employees
(FTEs)
Fewer than XXXXXXXXXX
250 to XXXXXXXXXX
1,000 to 1, XXXXXXXXXX
2,000 to 4, XXXXXXXXXX
5,000 or more XXXXXXXXXX
(Source: Watson Wyatt Data Services)
Table 4. Exempt Employee Turnover Rates
Category Voluntary Involuntary Total
Overall 7.8% 5.2% 13.3%
By profit status
For-profit XXXXXXXXXX
Nonprofit XXXXXXXXXX
By industry
Durable goods
manufacturing XXXXXXXXXX
Non-durable goods
manufacturing XXXXXXXXXX
Utilities and energy XXXXXXXXXX
Retail and wholesale
trade XXXXXXXXXX
Services XXXXXXXXXX
Health care XXXXXXXXXX
Banking and finance XXXXXXXXXX
Insurance XXXXXXXXXX
By region
Northeast XXXXXXXXXX
Southeast XXXXXXXXXX
North Central XXXXXXXXXX
South Central XXXXXXXXXX
West Coast XXXXXXXXXX
By number of
employees
(FTEs)
Fewer than XXXXXXXXXX
250 to XXXXXXXXXX
1,000 to 1, XXXXXXXXXX
2,000 to 4, XXXXXXXXXX
5,000 or more XXXXXXXXXX
(Source: Watson Wyatt Data Services)
55555HRFOCUS / AUGUST 2005
study reports that 62.9% of separations
were voluntary, meaning that employees
left by their own choice.
Once again, the retail and wholesale
trade has the highest voluntary turnove
ate, at 34% (see Table 2, “Number of
Voluntary Separations as a Percentage of
Total Number of Employees”).
Nonexempt employee turnover last
year was 15.8%, slightly lower than the
overall turnover average (see Table 3,
“Nonexempt Employee Turnove
Rates”), according to another Watson
Wyatt study, the ECS Geographic Re-
port on Office Personnel Compensation
(www.wwdssurveys. com), which focus-
es on office-level and nonexempt jobs.
In the ECS survey, voluntary turnove
is 9.8%, compared with involuntary turn-
over of 6%. The highest reported turn-
over rate is in banking and finance
(21.8%), followed by retail and whole-
sale trade (19.3%). Utilities and energy
companies have the lowest turnover rate
(11.1%).
When it comes to nonexempt turnover,
the Northeast has the lowest rate of 12.9%,
while both the Southeast and South Cen-
tral regions are at 18.7%.
Size of company seems to have little
effect on nonexempt turnover: There is
only a slight increase in the rate at organi-
zations with 5,000 or more around full-
time employees: 17.2%, compared to
around 15% for other sizes of companies.
Exempt turnover saw a lower rate
than nonexempts (13.3%), according to
the ECS Geographic Report on Middle
Management Compensation, also from
Watson Wyatt (see Table 4, “Exempt
Employee Turnover Rates”).
Again, the industry with the highest
turnover rate was retail and wholesale
trade at 17.3%, 10.4% of which was
voluntary. The lowest turnover rate is
durable goods manufacturing at 10%,
with half voluntary and half not.
RECOGNIZING THE ISSUE
HR professionals believe they are
more concerned about turnover than
the residents of the C suite, according
to the SHRM study. Thirty-nine per-
cent of HR professionals polled said
they are somewhat concerned about
the levels of voluntary resignations,
and 24% are very concerned.
Top executives at the largest com-
panies—500 or more employees—
seem to be more tuned into the prob-
lem and involved in dealing with it,
HR professionals said. At organiza-
tions with fewer than 100 employees,
HR professionals believe that they
wo
y more about the issue than the
company leaders.
When it comes to the reason fo
employee departures, HR profession-
als and employees agree on the top
three:
Better compensation elsewhere.
Career opportunities elsewhere.
Dissatisfaction with potential fo
career development at their cu
ent orga-
nization.
HR professionals also believe that
urnout and feeling unappreciated are
major causes for voluntary turnover.
Employees cited “readiness for a new
experience,” boredom, and better ben-
efits elsewhere as being more press-
ing drivers to the exit door.
DEALING WITH TURNOVER
First, HR professionals would do well
to develop numbers to demonstrate
the high cost of turnover. One good
esource that provides links to calcu-
lators on turnover costs is www.hr-
software.net/pages/220.htm.
Next, you need to consider how
your organization can respond to the
turnover. The SHRM survey reports
that about one third of companies use
some sort of special retention pro-
cess. The most common tactic is com-
petitive merit increases and salary
adjustments at 59% (see Table 5, “Spe-
cial Retention Processes Used in Re-
action to the Improving Job Mar-
ket”). Other popular coping strate-
gies include bonuses (41%), promo-
tion (57%), and providing career de-
velopment opportunities (50%).
How well are these tactics working?
Fifty-nine percent of HR professionals
said competitive salaries work well to
etain employees; 47% think providing
career development opportunities is
effective; 45% believe that flexible
work schedules help to keep employ-
ees; and 31% believe promoting qual-
ified employees is effective.
Table 5. Special Retention Processes Used in Reaction
to the Improving Job Market
% of Organizaions
Process Using the Process
Providing competitive merit increases/salary adjustments 59%
Promoting qualified employees 57
Providing career development opportunities 50
Providing bonuses 41
Offering schedules conducive to work/life balance
(e.g., telecommuting, compressed workweeks, etc.) 28
Offering stock options