Why Companies with High Turnover are Doomed

Your company’s turnover rate is defined as the number of employees who depart your organization over the course of a year. According to our 2021 Pay Practices survey, the highest level of turnover by region in the US was in the Mountain States (21%) and the lowest rates were in the West Coast (16%).

Not all industries were affected in the same way. Total turnover rates by industry topped out at 40% in Hospitality & Leisure, 23% in Transportation, and 21% in HealthCare. The lowest turnover rates were in Insurance (9%) and Government & Nonprofit (12%).  27% of participants believed turnover was causing them to miss production and delivery timelines.

With turnover on the rise, you can now expect almost one in five employees to leave your organization this year. And depending on your company’s unique conditions, that number could be higher.

Defining types of employee turnover

If your organization is challenged by high turnover, you need to first diagnose the type or types of turnover you’re experiencing.  Two different types of employee departures can contribute to your total turnover rate and understanding the major causes of employee turnover can help you diagnose why you have high staff turnover rates.

Involuntary turnover refers to separations initiated by the employer, or by factors outside of an employee’s control. Involuntary turnover can be driven by employee terminations due to performance issues, layoffs, or company restructuring, or it can be due to employee retirement, death, or disability.

Voluntary turnover refers to separations not initiated by the employer. Employees may choose to leave your organization for a variety of reasons, including job dissatisfaction, compensation issues, lack of recognition, or a desire to pursue a new career.

Combined, voluntary and involuntary turnover represent your organization’s total turnover rate. Total turnover therefore represents all separations from your organization.

What does it mean when a company has high employee turnover?

While a certain amount of turnover will always exist in an organization, high turnover can take its toll. Not only can it damage morale and harm company culture, it can lead to significant financial costs.

If your organization has high turnover, you need to spend time and energy replacing top talent that has been lost. High turnover rates can also contribute to lost productivity, employee burnout, and low employee engagement among employees who continue to work for your organization.

How employee turnover impacts a company

Many people believe that a high rate of employee turnover indicates that a company is a bad place to work or has a problematic company culture. But high turnover is not necessarily the result of internal issues. In many cases, high turnover can simply be the logical outcome of a strong economy or competitive labor market.

Nevertheless, high turnover can negatively impact your organization. Negative effects of employee turnover include low employee morale, which can spiral into ever higher turnover among other employees. The reverse is also true. With lower turnover, employee morale can improve, and this can be equally contagious in a positive way.

Additionally, some turnover can be healthy for your organization. Legendary General Electric CEO Jack Welch had a management rule that claimed the bottom 10% of employee performers are terminated or self-terminate – which would add to your total turnover metric but ultimately make your organization stronger. Still, if your company's turnover rate is higher than you are comfortable with, you must first determine what type of turnover you have, identify why it is occurring, and then find a strategic solution.

How do you fix high turnover?

You can combat different types of turnover by focusing on company recruiting practices, employee engagement and training initiatives, and other programs that span the entire employee lifecycle.

Here are some common causes of voluntary and involuntary turnover, along with potential solutions for addressing these challenges.

Poor performance – if employee performance is not living up to expectations and you find that much of your involuntary turnover is driven by employee terminations, you may need to address your performance management process. Make sure employees clearly understand their goals, as well as where gaps exist today between their performance and your expectations. If necessary, document improvement plans with goals and timing expectations and follow up regularly to assure measured goals are on track. If you revamp your performance process and continue to see a mismatch between employees and expectations, consider changing your recruiting process to try and identify better-fit employees up front.

Layoffs – if your business is seeing a decline in profits, staff reduction may be an inevitable step along the way. Still, managers can play a role in reducing the need for layoffs by assuring they hire properly at the outset, accurately assessing headcount need and hiring high performing talent into critical roles. If layoffs do happen, make sure to implement a strategic communication plan to minimize the negative impacts on remaining employees.

Company restructuring – if your turnover is related to company restructuring or changing business conditions inside your organization, you may need to consider if there are opportunities to recruit internally for newly opened roles. An organizational restructure can be an opportunity to allow employees to take on new roles and responsibilities. Re-orgs are also a perfect time to enable both lateral moves and promotions for existing employees, and internal recruiting can ensure that employees look for their next career opportunity within your organization, rather than outside it.

Bad management – if leadership is confident, consistent, and focused, your employees are more likely to understand how their goals align with larger organizational initiatives. On the flip side, if management changes direction frequently, is authoritarian in their leadership style, or does not help employees see the bigger picture, you may find that rocky management is contributing to turnover. In these cases, consider management coaching sessions, mentor programs, town halls, or other communications initiatives that can help your management team adjust their approach to employee relations.

Lack of recognition – if data from exit interviews demonstrates that employees are leaving because they don’t feel appreciated for the work they do, you may need to examine your employee recognition programs. A simple starting place? Giving positive, honest feedback when it is earned. Not only does it make the employee feel valued, but the immediacy serves to reinforce and reward behavior. In the short-term, a simple “good job” can go a long way. Long-term, you may want to consider implementing pay-for-performance plans and bonus programs that will drive engagement and ultimately retention.

Compensation issues – if employees feel they’re compensated fairly, they’re more likely to work for your organization long-term. Employees are looking to work for organizations that offer fair and competitive pay packages and communicating how your organization ensures pay is fair can go a long way towards retention initiatives.

Companies with the highest employee retention understand why their turnover is happening and implement strategic initiatives to keep turnover costs down. By identifying your top performers and conducting a flight risk analysis, you can take corrective action.

To find out more about how turnover is impacting organizations and their overall pay practices, download Salary.com’s 2021 Pay Practices Survey Summary