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2005 Employee Retention and Turnover

Beth Kniss

In the last issue of InfoLink we explored the 2005 Employment Outlook . . . Employee Outlook and shared recent research on layoffs, hiring activity, the labor market, worker sentiment, employee engagement and pay increase projections. This article will focus on research relating to employee turnover and retention. Turnover rates vary significantly by industry, however the Bureau of Labor Statistics (BLS) has reported the following historical annual turnover rates:

7 to 10% from 1975 to 1995 14% in 2001 (the turnover rate accelerated in the late 1990s) 19.2% between September 2002 and August 2003 37% in 2004 (for all areas of business)

The BLS defines turnover as any separation from a business by an employee, including layoffs, firings or resignations. With turnover rates on the rise, organizations across all industries are facing retention challenges and many are taking proactive steps to curb the rising rates. Why? Consider the following estimated costs of turnover:

Employee turnover could cost companies up to 40% of their annual profit (The Hay Group, 2001). The average company loses approximately $1 million with every 10 managerial and professional employees who leave the organization (Fitz-enz, 1997) Turnover costs are 50% of the leavers annual salary (Sorensen, 1995) Turnover costs can reach 100% of the leavers annual salary (Ettorre, 1997). Turnover costs are between 100% and 200% of base salary to replace an employee (Bliss, 2000)

Recognizing the obvious costs, many companies are taking proactive steps to reduce turnover and retain their employees. Results from a recent Business Confidence Survey, indicate that 59% of the respondents, representing small and medium-sized companies, were taking steps to boost employee retention (Administaff, 2005). CEOs are starting to take note. A survey of 1,000 CEOs/MDs and 1,000 mid-to-senior level managers identified the following as key CEO concerns:

Improving morale Manager/staff retention initiatives HR policies that improve the work/life balance Better communication from the CEO and other senior management

The same study found there was an increasing focus on improving morale in most companies in order to retain staff. The most effective methods are:

Hiring high quality, like-minded people that existing colleagues enjoy working with

Teaching managers to create a better working environment for staff Good communication strategies and building/implementing a set of flexible work policies (Hamilton James & Bruce, 2005)

Employer flexibility has been found to influence employee retention. One survey of more than 10,000 small businesses reports:

79% allow employees to schedule their vacations 74% permit time off to deal with personal issues 57% offer flexible work schedules 46% go out of their way to accommodate child-care issues

The same survey found that providing flexibility results in the following benefits:

77% cite better relations with workers 64% report higher employee job satisfaction 61% report higher employee retention (Canadian Federation of Independent Business, 2005).