Getting the measure of labour turnover
John Philpott of the Chartered Institute of Personnel and Development (CIPD) offers guidance on how to interpret labour turnover metrics.
Last year the CIPD introduced a quarterly HR trends and indicators survey. Among a variety of questions put to CIPD members was "what is the most pressing issue facing HR this quarter"? In every survey so far the answer has been the same: staff retention. This finding undoubtedly reflects the current tightness of the labour market and the imperative to keep hold of staff able to consider plenty of alternative job opportunities.
In common with the CIPD's annual recruitment, retention and labour turnover survey, the quarterly review identifies considerable effort on the part of employers to improve retention. Just under two-thirds (64%) are adopting new retention strategies. Nearly 60% have introduced a new induction process, while more than half are offering new learning and development opportunities and changing their approach to communicating with staff. New pay structures have been implemented by 38% and just over a quarter have introduced a new work-life balance programme focused on retention.
Such a degree of activity confirms the conclusion of this IRS Employment Review feature that control over the costs of voluntary labour turnover represents a great opportunity for HR professionals to contribute to the success of their organisations. The feature also demonstrates the value of measuring the causes, extent and cost of turnover in order to combat the various "push" and "pull factors" that can result in staff quitting their jobs.
However, by way of background it is worth focusing a little closer on what measures of "labour turnover" actually show since, as basic economic indicators go, the voluntary rate of labour turnover (or "quit rate") is one of the trickiest to interpret.
Much depends on context. In a competitive labour market, where accurate information about job vacancies is freely available, a high economy-wide quit rate is a sign of economic health. It implies that people are mobile between jobs and able to slot in where they are most needed and most productive. But a high quit rate is a symptom of malaise if people simply churn around from job to job without increasing their pay and prospects.
What is true for the economy as a whole also holds for individual organisations. Bosses constantly fret over staff retention - losing staff is costly and is thought by most employers to harm overall organisational performance. Yet too little turnover can leave an organisation short of fresh blood and vibrancy. Moreover, while an organisation's voluntary labour turnover rate is usually determined in part by the way in which it manages its people, other factors also come into play.
Before determining whether an employer - or indeed a sector or the economy as a whole - has a labour turnover "problem" it is therefore necessary to establish some measure of "natural" turnover. This, rather than the raw quit rate, represents the most appropriate benchmark.
One simple means of measuring natural turnover is to adjust for such factors as the demographic and skill profile of an organisation, sector or economy. For example, quit rates decrease with age, as workers become more settled in jobs and generally face fewer opportunities to switch jobs. Consequently, the natural turnover rate for the economy is likely to fall in future decades as the population ages. Likewise, employment sectors with relatively high proportions of younger staff - notably hotels, restaurants and call centres - will tend to have relatively high natural quit rates.
Quit rates also tend to be relatively low for managerial, professional and highly skilled staff. While people in these occupations will be in demand they are typically somewhat older than average and will normally have established stable positions in their organisations. But ironically, despite their low propensity to quit, workers such as these are often a prime focus of employers' retention strategies because they cost much more to replace.
With human capital management, measurement and reporting in vogue, labour turnover metrics will be increasingly to the fore. This makes it even more important that appropriate measures are constructed, widely understood and correctly interpreted.
John Philpott, chief economist, Chartered Institute of Personnel and Development.
