The Science Of Reducing Employee Turnover

Human Resources

Employee retention is one of the key challenges facing businesses today with many more employees leaving their jobs voluntarily as opposed to being let go. Many of these are high-performers who will cost the company a great deal to replace in both tangible (job/search, training costs) and intangible costs (lost trade secrets and morale). Data from Equifax shows that 60% of all separations are voluntary. And when a company hired a new employee that ended up leaving, they walked out the door within 12 months nearly half the time. The latest data reflects a voluntary turnover rate of nearly 11% and this can vary wildly by industry and individual company, some see most of their staff change in just a single year. It’s not just about reducing that turnover rate but about increasing engagement within the organization, creating a better culture, more motivated employees and ultimately a more successful company. It definitely pays to have happy employees in fact a study by economists at the University of Warwick  showed that employees who rated themselves as happy with their job led to a 12% spike in productivity and that unhappy employees were 10% less productive. Here’s some research on what underlines turnover in the modern workforce and what matters most in keeping employees engaged.


This study from Harvard Business Review found that young managers were nearly always in a continuous job hunt, with 95% of them updating their resume or in some way reaching out for new job opportunities. It found that employee development, mentoring and training was the biggest resource not being provided. Employees want to grow in their professional career and feel like they are going somewhere, both in learning and in job advancement. Many companies consider themselves too busy to take the time and money to invest in the education of employees and many times figure that it’s not worth it since they will likely leave anyways. The case here is that in taking on this opinion businesses are completing a self-fulfilling prophecy of not being able to hold onto key talent. Another important finding is that many employees jump jobs in order to get a pay raise or promotion  which is many times the result of organizations with formulaic pay raise policies who lose their talented management as they jump to new jobs where they can ask for and receive a salary that is equal to their work experience. When a key role needs to be filled companies are willing to pay out and want to get the best but much less effort is spent to keep the best.

Employee-QuittingThe 2016 Society For Human Resources employee engagement survey finds that respectful treatment of all employees is key, followed by adequate compensation. Other studies have also found pay as a major factor but only when an employee is being underpaid to what they otherwise could receive if they found another job. Other research has shown that 30% of employees would quit if they found their work was too boring or not stimulating. Everyone has particular strengths and many top HR books advance the notion that you should give your talent the opportunity for a different role that may be well suited to their strengths. The interview process is also an important part of this, as we indicated earlier some 50% of those who leave a new job do so within the first 12 months and another survey by SHRM found that 60% of new hires found their job is not what they expected. It’s important that the work environment and work expectations are well communicated before the hiring process, they should get a chance to meet with their supervisor and the others they will work with, understand the culture and what exactly they will be doing and how they will be expected to work. That way you can attract only those who are likely to stick around and not go through multiple cycles of turnover which are extremely costly and destabilize organizations.

Just how expensive is it to a company to replace an employee? The costs include the lost revenue while the position is unfilled, the cost of time and money to find a replacement and the amount of time necessary to get that person back to the departing employees level of knowledge of the company, assuming you can even find someone as good as the one you lost. Depending on the job they do this can be from 50% – 200% of annual salary. You also have the intangible costs of employees leaving to work for your competitors, loss of morale and further increases of turnover as a result.


Pay is certainly an important factor and the fact that many companies aren’t providing enough opportunity and pay increases to high-performing managers. While you don’t need to overpay your employees, you do need to make sure that you are paying and giving them as much lateral opportunity as they would otherwise receive if they went to your competitor with their level of expertise.

  • Cost of replacing entry level employees: 30-50% of their annual salary (ERE Media)
  • Cost of replacing mid-level employees: 150% of their annual salary (ERE Media)
  • Cost of replacing high-level or highly specialized employees: 400% of their annual salary (ERE Media)


It’s important to note in the book First Break All the Rules: What the Greatest Managers Do Differently that featured the largest employee engagement interview to date they found that pay was only an issue when someone was getting underpaid vs the going market rate for their position. What they found time and time again that mattered the most was having a good manager who gave appreciation, provided the necessary tools, was supportive and let you know what was expected of you. Employees who feel like their manager cares about them and provides a more supportive role are unlikely to leave so long as pay remains adequate. In fact a further analysis that combined performance data found a significant correlation between those manager centric survey questions and revenue growth. This finding is backed up even further by a new Gallup survey that a startling 60% of adults have left a job to get away from a bad manager. Management performance shouldn’t just be measured by typical output but also by the surveys of employees to these key questions as that will indicate the ability for future growth and sustainability of performance.


Key points:

Pay: It’s important to keep up with the going salary range for your area and make sure your employees are adequately compensated. Tools like Payscale and can help you find out what others are paying and give you a range. There should always be a path to promotion, smart and hardworking employees who hit a ceiling may decide to go elsewhere where more opportunities are present.

Freedom: One of the top work benefits is now the ability to have some flexibility in scheduling and to work off-site. Not only is this the most valued benefit by current employees but according to research from SHRM most organizations find that the employees who work off-site achieve greater results.  A study conducted by Boston College Center for Work & Family showed that managers (76%) and employees (80%) mentioned that flexibility had very positive effect on employee turnover rate.

Good Management: A good manager cares about their employees and is in a supporting role as opposed to directing and micro-managing tasks. They don’t take credit and they desire to give their employees a chance to advance up the ladder. Letting someone know what is expected of them, giving them the tools and support to accomplish that and then appreciating them for a job well done is key. Measure management performance using survey metrics of those that serve under them.

Employee Development: Invest in the education of your employees, whether through in-house training, conferences or educational reimbursement funds. It will not only make them more skilled at their job and bring new knowledge into the organization, it will make them more productive and less likely to leave.

Which of the following have you invested in to help keep talent?

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