Employee turnover: the positives and the negatives for your business

A high rate of employee turnover can be problematic in a company but low turnover is also a problem

For many companies, a high rate of employee turnover can be an embarrassment. It is a warning sign to future employees that all is not right, and it is unnerving for existing employees. That being said, low turnover is also a problem. 

As the saying goes, out with the old, in with the new. Voluntary turnover at a company allows for renewal. New people coming into the company bring with them new ideas and new ways of working. They can eliminate stagnation, question ineffective work processes and inject vitality into a team or even an entire company.

A study from the School of Management of MIT by Ralph Katz and Thomas J. Allen showed while team performance increased after 1.5 years of average team tenure, it actually “declined noticeably” after five years.

Katz and Allen believed this was due to a marked decline in communication rate among group members and between them and critical external sources of information. This means that by not bringing in new people, a team can become very closed off to new thinking. 

High performers

Sometimes, the people that leave are not necessarily high performers, or they might not be particularly motivated in recent months if they were actively seeking to change companies. In other cases, employees who are leaving might have done a perfectly fine job, but they were just unhappy in the role – it just was not the job they wanted to do or the industry they want to be in.

Some employees can develop a sense of entitlement when in a role too long, believe they have already proved themselves over the years and slack off as a result. Or they might resist change and become part of the “this is how it is always done” brigade.

“Find out the average turnover rate for your industry and as long as your company’s rate is aligned with the average.”

Turnover gives you an opportunity to assess your employee need. Maybe the person leaving needs to be replaced with a person with more experience. Maybe they need to be replaced with someone who has less experience. Maybe they don’t need to be replaced at all.

It also shows that often employees are progressing into better roles when they leave a company. That signals to staff that your company is a good place to work to progress your career. 

Industry average

The average turnover rate for all businesses across every industry is 3.5%. You can calculate your business’s turnover rate by dividing the number of people who have left by the number of total employees and multiplying it by 100. It is a good idea to keep an eye on this figure. Find out the average turnover rate for your industry and as long as your company’s rate is aligned with the average, then you don’t need to worry. 

Do not panic if someone resigns at your company, and try not to take it personally.

Do assess why the person resigned and question whether you or your team could have done anything differently to retain them. Examine your salaries and benefits and make sure they are comparable to the industry. And try to see the potential positives. 

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