We know that the costs associated with high rates of turnover can have a detrimental effect on an organization’s bottom line.
Research has indicated that many companies likely see around 28% of their new hires quit within the first 90 days of their employment. Such a high rate of turnover can have a significant financial impact.
Just as increasing employee engagement is a challenge that many organizations continually struggle with, reducing turnover presents its own challenges—and the two are closely linked, with employee engagement having a major impact on turnover.
Employee engagement reduces turnover because engaged employees are less likely to leave their jobs. This helps organizations avoid the high costs associated with turnover that result from the recruitment and onboarding of new employees, loss of productivity, and effects of disengagement on performance.
This article will explore the ways turnover can negatively impact an organization, the effects of employee engagement on turnover, and the ways high engagement can improve retention.
What Is Employee Turnover?
Attrition, churn, job abandonment, turnover… you have probably heard all these terms before, often used interchangeably. But are they all the same thing?
Both employee turnover and attrition refer to employees leaving a company. An organization’s churn rate includes both the attrition rate and turnover rate.
Attrition occurs when an employee retires or when their position is eliminated by the employer. Turnover, on the other hand, is the result of employees being discharged, terminated, resigning, or abandoning their job.
Job abandonment occurs when an employee fails to report to their job as scheduled, with no intention of returning to the job or notifying the organization that they have or intend to quit.
Turnover can be voluntary or involuntary. In the case of involuntary turnover, employees are terminated for a number of reasons, such as poor job performance, behavioral issues, or violating policies. Layoffs are also considered involuntary turnover.
Voluntary turnover is when an employee’s resignation is based on their, rather than their employer’s, decision. The resignation could be for a wide range of reasons, such as accepting a position with another organization, relocating, changing careers, or leaving the workforce entirely.
This type of turnover isn’t always considered a negative thing because it gives organizations a chance to hire talented, diverse, and uniquely skilled employees who will help the organization grow.
At the same time, it allows organizations to replace disengaged employees who may be costing the organization a considerable amount of money each year because they often remain in their roles for a long time, hurt productivity, create toxic work environments, and drive good employees away.
There are some downsides to high rates of retention in organizations. Even so, a high rate of turnover is costly for a company and can negatively impact productivity.
Causes of Turnover
Employees most frequently leave a job for one that offers better compensation, but it isn’t always about the money. Turnover can have a variety of causes.
Bad leadership, dysfunctional organizational cultures, overwork or burnout, lack of growth opportunities and career advancement, low morale, little or no recognition of accomplishments and contributions, not enough flexibility, toxic work environments, lack of inclusion, and poor work-life balance.
Employees may also leave a job for one that is more challenging or work that is more meaningful. They may leave to work in an entirely different profession, relocate to a new city, state, or country, or exit the workforce altogether.
It is inevitable that every organization will experience some amount of employee turnover, no matter how great the organization’s culture is or how competitive the compensation is. This is a completely normal part of business.
However, turnover can become a big problem for an organization when it becomes the norm or when organizations start to lose high performers and employees who have a longer tenure with the organization.
When this becomes the case, organizations need to take steps to determine why this is happening. If a large number of employees are leaving their jobs for the same reason, it could indicate issues with management or organizational culture.
Recent Uptick in Turnover Rates
The COVID-19 pandemic has affected so many aspects of our lives, and that includes how we work and our perceptions of our jobs. Many workers, particularly frontline workers, are experiencing burnout as a result of the pandemic. This is driving both disengagement and turnover.
As Gallup recently reported, employee engagement in the U.S. experienced its first annual decline in a decade, dropping to 34% engaged in 2021 from 36% engaged in 2020. This unfortunate trend continued into the early part of 2022. Only 32% of full- and part-time employees are engaged and 17% are actively disengaged.
A huge shift in workers’ priorities is occurring. As a result, workers have been leaving their jobs in record numbers. This phenomenon is commonly referred to as “The Great Resignation.”
Early on in the trend, these workers were mostly younger, less-tenured employees working predominantly in the retail, food service, and healthcare industries. Now older, more tenured employees in higher-paying jobs in the finance, tech, and other knowledge worker industries are increasingly walking away from their jobs in search of more meaningful work and a better work-life balance.
High Employee Engagement, Low Employee Engagement, and No Engagement
There are three categories of engagement: engaged, not engaged, and actively disengaged.
Due to their emotional commitment, engaged employees feel a sense of purpose, find meaning in the work they do, and care about their work, their co-workers, and the organization.
Engaged employees feel comfortable giving and receiving feedback and interacting with leadership. They also experience strong social relationships with their coworkers.
Indicators of high engagement in a workplace include less absenteeism, higher retention rates, increased productivity as the result of high performance, improved customer service, resulting in more client satisfaction and client retention, and better overall profitability for the organization.
This is the category most U.S. workers fall into.
Not engaged (or unengaged) employees show up to their jobs with little commitment or enthusiasm. They do what they are asked but rarely go above and beyond because they are not fully invested in the organization’s success or mission.
Employees who are not engaged will do their work but are disinterested in it. They may miss deadlines and communicate poorly with management and co-workers. They may also fail to take ownership, demonstrate accountability, or participate in collaborative projects.
Employees who are not engaged could have been engaged at one time but aren’t any longer. This lack of engagement can be due to changes in their work environment or issues in their personal lives that have affected their level of enthusiasm for their job.
Disengaged employees lack the commitment of their engaged peers. These employees are typically unhappy in their roles, have low-to-no job satisfaction, and spread negativity within the organization.
These employees are not interested in problem-solving, process improvement, collaboration, or innovation. They may be averse to change and learning new processes.
They can also end up costing companies a lot of money. It is estimated that the total cost of disengaged employees in the U.S. is $450-500 billion annually. This makes disengagement a serious threat to the success of organizations.
The Effects of Employee Engagement on Turnover
One of the main effects of employee engagement on turnover is that it boosts retention. Engaged employees are more likely to stay with the organization, which has a positive effect on profitability.
How much does turnover actually cost companies? It has been reported that turnover costs companies, on average, six to nine months of an employee’s salary to replace them.
On top of the high cost of turnover, the time and effort managers have to spend on dealing with attrition takes time away from the aspects of the role they should be focused on. When retention is high, this allows managers to spend less time and effort on the recruitment process.
In addition to the financial impact of high turnover, it can also hurt employee morale. Employees can become overworked due to increased workloads and responsibilities until those vacated roles are filled. Even newly hired employees may experience low morale as they struggle to quickly learn their new job duties.
High rates of voluntary turnover can indicate the organization is losing talented employees to organizations that have more to offer, rather than in terms of pay, in benefits, or other perks. It can also hurt profitability and customer satisfaction.
The Pros and Cons of Retention
Employee retention refers to an organization’s ability to retain employees. A high rate of retention is achieved by reducing employee turnover, which is the number of employees who leave a job, either voluntarily or involuntarily, during a certain period of time.
According to the Society for Human Resource Management (SHRM), employee retention programs play an important role in attracting and retaining skilled employees and reducing turnover and its associated costs.
Increasing employee retention has a significant impact on organizational performance. Because it is more efficient to retain qualified and highly skilled employees than to train and onboard new hires, a high rate of retention is essential for an organization’s success.
High retention rates can indicate a high level of engagement, superior performance, and better customer service. Because the cost of turnover can have a devastating effect on a company’s bottom line, turnover reduction will typically mean better profits.
However, not all turnover is harmful.
In the short term, high rates of retention can save an organization a lot of money and reduce the amount of time and other resources spent on recruitment efforts. But the downsides to retention may be felt more acutely when it comes to long-term success and sustainability.
One of the main downsides to retention is the role that disengaged employees can play in a company’s retention rates. Unfortunately, disengaged employees often remain in jobs for a long time, sometimes longer than more talented employees.
But even engaged employees can pose problems for organizations. Employees that stay with organizations for a long period of time may be more averse to change, less willing to take on new responsibilities and learn new processes, are more stagnant in their thinking, which leads to less innovation, and they can prevent organizations from hiring more talented employees.
They can also impact an organization’s diversity and make work environments less inclusive. Inclusion is a very important factor emerging in job seeker behavior, one that we should expect to become even more important to job seekers in the coming years.
Diverse teams can provide a wide variety of perspectives because each team member’s ideas and inspirations come from places that seem unrelated. This combination of ideas, in an inclusive work environment, leads to more innovation, enhanced creativity, and better problem solving.
Ideally, when less talented and disengaged employees leave an organization, talented employees who are better performers and a better cultural fit will fill those roles. While this “positive attrition” still costs the organization, the costs are offset by the boost in productivity, performance, and engagement that new employees can provide.
One of the biggest factors impacting employee engagement is organizational culture. A good organizational culture can keep employees engaged. This can help with the issues caused by disengagement.
Exit interviews can often bring up issues management may not have been aware of. If the organization has a widespread morale issue that is contributing to a high turnover rate, the issue is more likely the organization’s culture. Employees who lack job clarity, are not given autonomy, do not receive recognition, and do not trust leadership will not be satisfied in their roles and will often leave if these issues are not resolved.
Being able to make the distinction between low-performers/disengaged employees and high-performers/engaged employees can help leaders address this issue and focus engagement efforts on the employees who are a better fit for the organization.
Matt Tenney has been working to help organizations develop leaders who improve employee engagement and performance since 2012. He is the author of three leadership books, including the groundbreaking, highly acclaimed book Inspire Greatness: How to Motivate Employees with a Simple, Repeatable, Scalable Process.
Matt’s ideas have been featured in major media outlets and his clients include numerous national associations and Fortune 500 companies.
He is often invited to deliver keynote speeches at conferences and leadership meetings, and is known for delivering valuable, actionable insights in a way that is memorable and deeply inspiring.