Sunday, April 08, 2007

Time to go; When turnover isn't really a bad thing

All of you card carrying HR trolls in the audience, plug your ears for this one.
Turnover is NOT a bad thing!
There, I said it, and my HR training tells me I should go wash my mouth out with soap for spewing such treason. After all, page 96 of the HR Secret Code Book clearly states that turnover is an indicator of problems and brings huge costs to the company - right??? BUNK!

Sure, turnover is a critical stat for any organization to watch, and I fully acknowledge that the cost of turnover can be something like 150% to 250% of a person's salary, and some will argue that these costs make higher levels of turnover unsustainable. But while these are basically true, they sort of lead you to believe that lower turnover is better always better - and that's not always the case either. There are some general rules that apply; Too much turnover, for too long can be a bad thing because it causes instability, poor moral and prevents the development of individual expertise and organizational culture. Too little turnover can denote stagnation, complacency and a weak performance culture.

Let's look at an example of where a short burst of high turnover can be just what the medicine man ordered.

You run a sales organization with 50 salespeople, each of whom is paid a base salary of $100,000 has a $1 million annual target. If they are on average only hitting 50% of goal, you are only realizing $25 million in revenues against a $50 million goal. How long can you sustain that??

The truth is that while turning over half of your sales force at 250% of their annual salary will cost you over $6 million in turnover costs, you are just cutting your losses.... the costs in lost sales from that group is over $12 million! I'm no math major, but that sounds like a pretty good start. And if you follow our prior lessons about hiring talented people, you might actually have a shot at them actually making their sales goal and turning a profit along the way. And if most of those who leave do so after having been counseled about their poor results, coached on how to improve them and still not getting it done, you get the bonus prize of having established a performance baseline so EVERYONE knows it's time to put up, or move out. Combined with the potential for better hires due to turnover, you've now got the makings of a very solid and performance focused workforce.

Yes, it all sounds pretty cut-throat, and we all know I am a proponent of the "try to develop rather than replace" approach, but let's face it; not everyone is in the right place to grow and perform at a given moment, so the "manage them up or manage them out" approach fits best sometimes.

Get your HR folks to help you dissect your turnover. Compare your turnover against performance results. How is your turnover spread across groups (job, tenure, age, gender, ethnicity, supervisors, locations, etc). You are looking for evidence that
you are holding on to your top performers and exiting your worst. If that's not the case, get HR to help you dig deeper and find ways to make it so.


Evil HR Lady said...

Thank you! The key is to get the correct turnover. Keep your high performers and encourage your low performers to voluntarily leave.

Easier said than done!

Anonymous said...

I once worked in sales at a company where the top 10% of sales performers sold so many accounts the insurer lacked the claim infrastructure to handle the volume. The company had a great culture and all the top performers wanted to stay and orders were issued from sr management to do what needed to be done to retain top sales performers. Sales Management, however, pointed out that a maintenance program would encourage low performers to stay and so they did nothing. So the top performers all left and the company sales have been stagnant for 10 years.