Employers still vague about costs of labour turnover

RETENTION

Employers still vague about costs of labour turnover

The vast majority of managers are unaware of the cost of their most prized employees jumping ship. Only 12% of organisations surveyed by the Chartered Institute of Personnel and Development were able to provide estimates of the costs of labour turnover.

All told, the CIPD estimates that replacing a manager is likely to cost on average £6,807, while for a professional employee the cost was put at £5,864. The 577-company survey discovered that the average cost of labour turnover in 2002 for the UK is £4,301 per leaver.

These turnover costs may include:

• Leaving: payroll and personnel administration
• Replacement: recruitment, interview time and placement fees.
• Transition: training costs and reduced performance while learning and during induction.
• Indirect: loss in customer service/satisfaction.

Experts reckon costs of turnover are much higher

According to Stephen Taylor, a senior lecturer at Manchester Metropolitan University Business School, these estimates are substantially lower than those commonly reached by consultants and academic researchers seeking to calculate an accurate overall cost associated with a voluntary resignation. "This suggests that most organisations are wholly unaware of just how significant a saving they could make, were they to reduce turnover levels by a few percentage points among key groups of staff," says Taylor.

The CIPD is urging organisations to systematically calculate the true costs associated with the departure of an employee including all direct and indirect costs incurred as a result of the resignation and the replacing the individual. This will mean recruitment costs, management time, the cost of induction and any training and taking into account that it will take the new incumbent some time to become fully effective in their job.

Tackling labour turnover

The overwhelming impression to emerge from the survey is that the tools used by the vast majority of organisations to diagnose the causes of labour turnover are "informal and unreliable".

CIPD adviser on reward and employment conditions, Charles Cotton, says: "There seems to be no systematic approach to stemming the losses -- with most reporting the use of exit interviews as a tool to diagnose the reasons behind labour turnover. But the reality is that people do not always tell the truth for fear of burning bridges -- and organisations need to be doing much more to find out why people leave them."

Key findings of CIPD survey

Distilled down, the main findings of the CIPD research are these:

Labour turnover rates

Labour turnover for all employees stands at 16.1% in 2002 -- its lowest level for four years and compares with 18.2% in 2001 and 26.6% in 2000. The level of turnover is 15.7% for full-time staff and 13.5% for part-time workers.

Occupational groups

For the UK sample, the occupational group with the lowest rate of staff turnover is personal and protective services, where 63% of organisations report no labour turnover at all during 2002. The highest rate of reported turnover is among administrative and secretarial jobs, where three in ten organisations report 20% or more annual rates of employee turnover.

Industrial sectors

For the UK sample, the hotel, catering and leisure sector and call centres have the highest rates of staff turnover, at around 40% in 2002. Low rates of turnover (around 10%) are generally found in manufacturing, transport and storage, and paper and printing.

Organisational performance

Most respondents report that labour turnover negatively affects organisational performance -- for the UK sample 62% of respondents say that turnover has a negative effect of performance.

Reasons for turnover

For both the UK and Ireland samples, the primary reasons for labour turnover relate to the lack of career and developmental opportunities and pay.

Tackling turnover

The most commonly reported initiative used by organisations to tackle turnover in the sample is to increase learning and development opportunities (54.4% of respondents), followed by improved induction programmes (47.7%) and improved employee communications (45.1%).

Want to know more?

Title: Labour Turnover 2003: A survey of Ireland and the UK, Chartered Institute of Personnel and Development.

Methodology: The survey questionnaire was sent to personnel professionals in the private and public sectors in Ireland and the UK during August 2003.

Sample size: For the UK, a total of 577 organisations with a combined workforce of 877,550 employees responded to this ninth annual CIPD survey. For Ireland, 69 employers responded, employing between them a total workforce of 51,627 staff.

Availability: A copy of the survey can be downloaded, free of charge, from www.cipd.co.uk/surveys.

The Chartered Institute of Personnel and Development has over 118,000 members and is the UK's leading professional body for those involved in the management and development of people. Visit www.cipd.co.uk.

Posted 16 December 2003