This week, you examined the types of employee turnover and the various HR metrics available to assist in reducing the expense of turnover for organizations. Many organizations express concern about turnover because of the high costs of hiring and training new employees. Although not all turnover is negative, organizations can benefit from being able to measure and quantify it.

For your Discussion this week, consider the data below the table titled “Model for Costing Lost Productivity” found in Chapter 5 (p. 165) of the Mathis, Jackson, and Valentine course text.

With these thoughts in mind:

Post by Day 3 a substantive response of at least 150 words, which includes a brief interpretation of the data presented, your reaction to the data, and the reason for your reaction. Explain a possible reason for the turnover costs and the possible implications of the data for human resource professionals and organizations. Provide at least one potential solution for reducing turnover rate that could enable an organization to promote positive social change. Explain how your solution would promote positive social change.

 

5-5a: Detailing Turnover Cost

Other areas in addition to lost productivity to be included in calculating detailed turnover costs include the following:

Separation costs: HR staff and supervisory time, pay rates to prevent separations, exit interview time, unemployment expenses, legal fees for separations challenged, accrued vacation expenditures, continued health benefits, and others.

Vacancy costs: Temporary help, contract and consulting firm usage, existing employee overtime, and other costs until the person is replaced.

Replacement costs: Recruiting and advertising expenses, search fees, HR interviewer and staff time and salaries, employee referral fees, relocation and moving costs, supervisor and managerial time and salaries, employment testing costs, reference checking fees, pre-employment medical expenses, relocation costs, and others.

Training costs for the new person: Paid orientation time, training staff time and pay, costs of training materials, supervisor and manager time and salaries, coworker “coaching” time and pay, and others.

Hidden/indirect costs: Costs that are less obvious, such as reduced productivity (calculated above), decreased customer service, lower quality, additional unexpected employee turnover, missed project deadlines, and others.

Turnover metrics illustrate that turnover is an expensive HR and managerial issue that must be constantly evaluated and addressed. Figure 5-9 summarizes the costs of turnover.

FIGURE 5-9: Components of Turnover Cost

 

As noted, not all turnover is negative. Losing low performers should be considered positive. There may be an “optimal” amount of useful turnover necessary to replace low performers and add part-time or contract workers with special capabilities to improve workforce performance.

5-5b: Optimal Turnover

Turnover costs and benefits can be calculated separately for various organizational segments. HR frequently strives to minimize all turnover but in some cases more turnover may be better. For example, reducing turnover makes sense when it is very expensive, when those leaving are more valuable than their replacements, or when there may not be suitable replacements. However, more turnover in certain segments of the organization may make sense if it costs very little, those leaving are less valuable than their replacements, or there is certainty that good replacements are available.⁴² Sometimes turnover is good, other times it clearly is not. A more sophisticated view tries to optimize the impact of turnover for the organization.⁴³ The solution is to calculate the financial impact of different types of turnover and attach a dollar cost to it to determine the optimum level.⁴⁴