Employee turnover is a measure frequently used by managers, particularly in the human resources department, to evaluate the health and vibrancy of a company. Conventional wisdom reinforced by management consultant gurus idealizes a "low" turnover rate, interpreting it as a sign that management is doing several positive things:
- Hiring the right people with the right skills who fit into the company's culture from the start.
- Paying employees the right compensation, often with attractive bonuses, ample benefits and flexible work schedules.
- Fostering employee engagement with effective leadership, personal interaction, active employee recognition programs and mutual respect.
- Creating a positive work environment where each employee can reach his or her full potential.
As the economy has slowed, so too has employee turnover, reflecting higher unemployment and fewer opportunities for employees to move from one position to another. According to CompData Surveys 2011 BenchmarkPro survey, overall employee turnover declined from 18.7 percent in 2008 to 14.4 percent in 2011.
When low turnover is a result of external economic factors, it can disguise management's true performance and its influence on operating results. In other words, despite conventional thinking, low turnover isn’t always preferable — it can indicate that your employees are poorly selected and trained, overpaid, coddled and complacent. In view of the ample labor force available and the static wage increases of the past decade, HR professionals and managers should evaluate their existing organizations to determine whether a company may benefit by employing a strategy to increase turnover. A higher turnover rate, especially in the current economic clime, can encourage existing employees to perform at their best and enables management to replace under-performers with top talent.
Here are five benefits increasing turnover can yield:
1. Improve talent.
The pace of technology brings new opportunities, challenges and demands upon a workforce. Some companies have effectively implemented a culture where employees continually improve or leave. Jack Welch, former CEO of General Electric, implemented a policy of annually evaluating staff in order to "purge" and replace the bottom 10 percent of performers.
While critics may deem this policy as cruel, proponents argue that it is essential to effectively compete in a modern world. Whatever your conclusion, one thing is certain: GE has long been recognized for its industry and innovation leadership. According to Thomas F. O'Boyle, author of At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit, Welch, during his tenure at GE, produced more money for shareholders than any other CEO with the exception of Bill Gates at Microsoft.