A recent study finds nearly half of employees reporting their ideal level of turnover as being between 0 percent and 10 percent. Experts caution that acceptable turnover rates can vary greatly from company to company, and urge HR to carefully weigh the right variables and implement processes to get a clear picture of turnover's impact on the organization.
By Mark McGraw
Employees come and go. It's a fact of doing business.
Defining how much turnover is acceptable for your business depends on a variety of factors. Type of industry or employee expectations, for example, are but two variables that managers and HR have to consider in determining the amount of annual churn that's optimal for a given organization.
A recent AMA Enterprise survey asked nearly 1,000 U.S. companies to gauge the ideal level of turnover within their organizations, with nearly half (46 percent) of respondents putting that number between 0 percent and 10 percent. Another 19 percent indicated 10 percent to 20 percent as being ideal; 4 percent said 20 percent to 30 percent would be acceptable; and 2 percent said greater than 30 percent was optimal.
In addition, 29 percent of participants said they "don't know" the level of turnover that's best for their organizations.
Identifying an optimal level of turnover can indeed be an inexact science, says David Ulrich, professor of business at the Ross School of Business at the University of Michigan, and co-founder and partner at The RBL Group, a Provo, Utah-based consulting firm.
"Turnover range is a very hard number to justify," says Ulrich. "This should be an industry 'par' score."
In general, however, "companies with better retention [in] key jobs than their competitors will win over time," he says, noting that "most good leaders recognize that talent drives success over time."
The type of turnover is an important factor to consider in determining what sort of numbers the organization deems acceptable, says Sandi Edwards, senior vice president of AMA Enterprise, the New York-based division of The American Management Association.
"If 10 percent of the top talent in a company turned, it would not be good news, whereas 10 percent of low performers [leaving] would be fine," says Edwards.
Indeed, "not all employee turnover is created equal," adds Kim Ruyle, president of Coral Gables, Fla.-based talent management and organization-development firm Inventive Talent Consulting.
Employers must accept that "some voluntary turnover is unavoidable, and some is even desirable," he says.
"Turnover can be a good thing when it results in enhanced capabilities, when there's increased energy and innovation as a result. The net impact of turnover, the level of desirability … is likely a function of several factors, including the position level, whether the employee is on a fast track to be a general manager or a senior specialist, for instance.
"I'm not in a position to suggest what the natural voluntary turnover rate is for [a] business, but I can say some things with a high level of certainty," continues Ruyle.
"Some voluntary turnover is unavoidable. Voluntary turnover is impacted by factors such as the industry in which you operate and your geography, and there will likely be different rates between functions. Certainly the natural rate will fluctuate with the general economy, technology trends and so forth."
It's true that different industries can survive and be successful with higher turnover rates, says Edwards.
Some hospitality and retail organizations "do quite well" with significant turnover, she explains, adding that "high-end professional services that rely on deep understanding of their clients would not thrive if they experienced excessive churn."
Demographics and generational differences play a part as well, she adds.
"The baby boomer exodus is upon us, and the younger generations see their careers in many companies versus [staying] in one [organization] for life.
"A healthy organization … needs to continue to reinvent itself and it is unlikely that more than 90 percent of the population is a good fit. If one had to pick a number as normative and ideal, 10 percent to 15 percent turnover would be beneficial for growth, in my opinion."
While pinning down the ideal amount of turnover may be a tough task from company to company, the number of organizations that are unclear whether they're even tracking turnover may be of more concern.
In the same AMA Enterprise survey, respondents were also asked if their organizations track annual employee turnover. Forty-two percent of participants said their company has a formal process for tracking turnover, with 29 percent indicating they have an informal process in place. In addition, 12 percent said their organization has no process for tracking annual employee turnover, with another 17 percent saying they "don't know" if the company keeps tabs on turnover rates.
It's worth noting, though, that these survey figures don't necessarily mean turnover isn't being tracked at all, says Edwards.
"It may be that HR tracks corporate turnover much more systematically than the general management population is aware of," she says. "We surveyed a mix of managers and levels with possibly varying exposure to company figures, and these percentages reflect their perceptions."
Still, "these perceptions are important at a time when understanding the impact of talent loss is critical for managers to grasp and cope with," she says.
HR "needs to be communicating in a transparent manner" and putting meaningful metrics in place in order for employee and management perceptions of turnover to match reality, says Edwards.
"Voluntary turnover versus involuntary turnover, high-performance talent churn versus low-performance churn, industry norms -- these are all important when trying to get a handle on turnover in an organization," she says.
She also suggests HR leaders "play a role in setting expectations or management standards that ensure that key performance indicators include developing talent for the organization, effectively managing both high performers and low performers."
Low-performing employees, explains Edwards, require coaching to improve, and fair processes for moving out of an organization. "Managers need to ensure employees are in roles where they can succeed and can feel good about their contributions."