If You Want A Better Bottom Line, Check Your Turnover

As a former vice president of operations for a major multi-national company and now a consultant specializing in leadership, recruitment and team-building, I am always surprised when I come across employers who are willing to accept higher turnover rates as “inevitable”; “acceptable”; or “the norm”. Many executive and management groups seem not to understand that turnover is one of the single best metrics available to them to better understand the relative success or failure of any company or department.

High turnover rates are only normal in companies that do not understand the value of human capital and who generally feel that people are easily replaced. Much has been written about the financial cost of employee turnover but it is sufficient to say that each time an employer loses a staff member, the bottom line of the company decreases noticeably. Despite the inevitable loss of profit that employers experience when employees leave, many still bumble along losing staff day after day; month after month; year after year while paying other people to hire, fire and process new and departing human capital.

Let’s use 15 percent as an acceptable turnover rate. That number is high for many employers and very low for others but it might be considered an average for businesses that show mediocre profitability. If the operational and financial management areas of the company are highly efficient, profit may still be possible even if 15 people out of 100 employees leave the firm every year. When turnover moves above 15 percent the chances for an acceptable profit margin decreases. Companies that have 20, 30 or even 40 percent turnover are in a constant battle to maintain profitability and spend so much time and money on recruitment, hiring and training that acceptable profitability is often only a dream.

In order to avoid high turnover rates, employers must determine “why” employees choose to leave them. We must accept that an acceptable level of income is a factor in employee satisfaction. It is fairly easy to know how much a particular position is worth in the overall market place in which your business competes. Always be fair, never pay too much and never niggle over a few inconsequential dollars. In other words, “be fair, but never be taken advantage of”. Once appropriate pay is agreed upon, you must deal with the real issues of employee engagement that make the difference between high and low turnover rates.

The main challenge to acceptable turnover rates is management, or more specifically, “managers”. Whenever I find low morale and lagging employee engagement in any of the companies I work with, I am able to trace it back to a specific manager or a group of managers. Senior management or “upper management” of multi-department or multi-location companies often fall into the trap of setting up accounting and reporting systems that manage the financial side of the business so that they can determine if a manager is following corporate procedures, but seldom do they even attempt to measure the effectiveness of the “people-management” or “leadership” skills of their managers.

Turnover is based on “engagement”. You must know if your employees are loyal and interested in their jobs. Your staff members must be happy and engaged.  Your staff members must “like” their jobs and ideally even “love” their jobs. I have heard all of the excuses for poor employee morale. When challenged on high turnover rates, poor managers will generally say things like, “I can’t get good people”; “Young people these days just don’t care”; “We don’t pay enough”; “We have some trouble-makers here and I can’t get rid of them.” Poor mangers will never admit that they really have no idea why they have high turnover or that it is their own attitude that is driving people away. Corporate directives and people-driven mission and vision statements are nice but they only work at the board-room level unless they are driven down to the rank and file by working managers. We know from many studies that the main reason people quit their jobs is because of their relationship with their immediate manager. This fact is now irrefutable and it must be dealt with “head-on” in order to improve overall profitability.

Your managers must evolve and understand that nobody has to work for them if they don’t want to. They must accept that employees have options elsewhere but that they will stay with a good manager despite lower pay, a less-than-lofty title, tougher working conditions, longer hours or a plethora of other carrots that competing employers might dangle in front of them. So what makes a good manager and how can you change them?

Senior management must make personal development and leadership skills a top priority for managers at all levels of the company. They must give their managers the skills, to not only manage the business, but manage, or more correctly, “lead” their people. This can be accomplished firstly by making employee engagement a measurable, key performance indicator and then providing training that directly tackles the challenge of leading a diverse group of people.

Leadership training cannot be short-term or “hit-and-miss”. It must instead, be deliberate, consistent and ongoing. The challenge with leadership training often, is that employers and senior management will complain that they are “too busy” to attend sessions. Managers and executives will routinely avoid leadership training because they have to finish up a budget, meet with a client, go to an important meeting or join a conference call. While they are avoiding the leadership training sessions, they are setting a poor example, learning nothing about employee engagement and directly harming the bottom line of their company. I have seen it time and again. The only companies that improve due to leadership training have a CEO, an executive group, and a management team that is dedicated to the process and a will to buy-in for the long term.

While the ongoing training is happening, the entire employee force must know about it. They must be made aware that their management team wants to do better and that the time they spend at leadership training sessions is for the sole purpose of doing better for the workforce. That communication will have a twofold effect. Firstly, it will show employees that something is being done to improve morale and secondly, it will give them the opportunity to measure the effects of the training and discuss it amongst themselves. When handled well, leadership training will make the difference between an employer-of- choice and an employer-of-last-resort.

Secondly, managers must get in front of their employees. They must get up from their desks and interact in a real human way with every direct report they have, on a daily bases. Communicate, communicate and communicate some more! That concept too, will often be met with the protestation from managers that they are “too busy”. They must be made to understand they can never be too busy to make time for their most precious resource…their employees.

As an aside to communication, managers must trust their employees to be able to do their jobs and allow them to err or even fail from time to time. Micromanagement is one of the biggest killers of employee engagement. Leading is not about “telling, checking, and criticizing”…it is about, “teaching, supporting, and encouraging”. Any good a manager might do can easily be destroyed by his or her own micromanagement or by the interference of a head office or an outside department.

Employees do not expect their managers to be perfect…they only expect them to be human. They want them to be compassionate, caring and understanding. Workers want to know that they matter and that their manager is willing to go to bat for them. Employees will give their personal best for a good manager but conversely will do everything they can to do as little as possible for a poor one. People are not computers, stock, spare parts or tools. They are flesh and blood, deep-thinking, emotional beings that react positively to positive stimulants and negatively to negative forces.

If you want better bottom-line numbers for your company, check your turnover rates and target the departments or branches that have the worst numbers first. Study the departments that have lower turnover rates and find out what makes them different. Use what you learn to build a leadership training program that will take your company to the next level.

Turnover is a killer…Leadership can be the saviour!

Wayne Kehl is the President and Chief Communications Officer of Dynamic Leadership Inc.

www.dlionline.ca