Rethinking Employee Retention

In human resources, we talk about retaining talent and the cost of turnover as if we never want anyone to leave the company – ever. We implement certain programs with the hopes of driving attrition toward zero – the lower the better.

We also have a tendency to focus more on voluntary versus involuntary turnover. Our thought process is that when the company fires someone, it’s a conscious choice and we already know what went down. However, when it comes to voluntary turnover, we think of it’s an action taken by the employee. Better yet, we better figure out what’s causing it so we can drive that number down – once again, as close to zero as possible.

I view turnover as more than a zero sum game. Turnover is something that is inevitable, and it changes the makeup of your workforce. It isn’t necessarily just an evil thing that we should try to eliminate entirely.

When tracking terminations, it is common to record the reason for an employee leaving. For voluntary departures, we track reasons such as personal reasons, compensation or benefits, travel or commute, career growth, nature of work, and the list goes on. On the involuntary side, we track reasons like term for cause, inadequate performance, reduction in force, and that list goes on.

However, many companies aren’t looking at this data, and I think we can do better.

Here’s an idea for looking at turnover a little differently.

Develop a Retention Index Forget about who initiated the termination. What’s more important is how the attrition is changing your workforce. If you take the average turnover from various demographics, and then subtract it from the total average turnover – you can calculate a retention index.

For example, you calculate the turnover by performance category, and find that attrition among your number two performers is 10 percent. Overall, the average turnover for the company is 8 percent. This gives you a retention index of -2 percent.

A retention index of -2 percent means you are losing your number two performers 2 percent faster than average (not a good thing). If this drops to -5 percent, you have a real problem, and this data can help you get approval for internal recruiting and mobility programs.

If you prefer a visual, here's a video with an example of how to calculate a retention index.

You can run the retention index on categories like job classification, skill set, tenure, diversity statistics, or any other demographic that might be important to your company.

The reality is this – turnover happens whether you want it to or not, so you should embrace it and learn how to manage it effectively. If you are analyzing your turnover with a retention index, you can monitor the changes to your employee population, and take action to move it one direction or the other.

Don’t get suckered into the hype around the cost of turnover, because sometimes there’s an even greater cost, and that’s the cost of people who stay longer than they should.