Employees who leave the organization at the organization’s request (involuntary turnover) as well as those who leave on their own initiative (voluntary turnover) can cause disruptions in operations, work team dynamics, and unit performance. Both types of employee turnover create costs for the organization.
In some cases, these costs may be short-term but have longer-term benefits; in other cases, the costs may be significant and longer-lasting.
Costs of employee turnover include the direct economic costs of staffing and training new hires as well as the indirect costs of the downtime needed for the new employee to gain proficiency in his or her job and to become fully socialized and integrated into, the organization.
In addition, those responsible for training the new employee are pulled away from their regular job responsibilities. If an organization has made significant investments in training and developing its employees, that investment is lost when employees leave.
Excessive employee turnover can also impact the morale of employees and the organization’s reputation as being a good place to work, which makes retention and recruitment more challenging and time-consuming.
Employee turnover
Employee turnover can, however, be beneficial. It can allow the organization to hire new employees with more current training who are not locked into existing ways of doing things. Fresh ideas from outsiders can be critical to organizations that have become stagnant and are in need of innovation.
Employee turnover can also lower the average tenure of employees and translate into lower payroll expenses. Turnover also affords opportunities to promote talented, high performers. Finally; when poor performers or disruptive employees leave the organization, morale can improve among coworkers.
It may be assumed that voluntary employee turnover generally provides more costs than benefits and that involuntary turnover is beneficial for the organization from a cost perspective. Both of these assumptions are often false.
First, voluntary turnover may allow the organization to find a better performer than the employee who left possibly at a lower salary. Second, involuntary turnover open results in much higher costs than training or counseling an employee with performance deficiencies.
The Performance-Replaceable Strategy Matrix
Both voluntary and involuntary turnover can be managed strategically to allow the organization to maximize the benefits of turnover and maximize the cost incurred with the process. The table given below presents a Performance-Replaceability Strategy Matrix developed by Martin and Bartol as a tool to allow organizations to manage turnover strategically.
The model on which this matrix is based argues that turnover in organizations, while unavoidable, can be strategically managed to allow organizations to minimize the disadvantages of turnover and maximize its advantages.
The Performance-Replaceable Strategy Matrix
Martin and Bartol have classified turnover as being functional (beneficial) or dysfunctional (problematic) for an organization. Whether turnover is functional or dysfunctional depends on two factors: the individual employee performance level and the difficulty the organization would have replacing the individual.
In Table, replaceability is depicted on the X-axis and performance level on the axis. Each of the six cells is then classified as resulting in functional or turnover, and appropriate strategies for managing employees who fit into each of the cells are pro-sided.
Clearly the more dysfunctional the turnover the greater the attention that will be required by management to retain the employee.
Regardless of the performance level, backups should be developed by the organization for any employees who would be difficult to replace.
Ideally, the strategy for managing turnover involves keeping high performers rewarded through innovative compensation and recognition and reward programs while engaging in human resource planning to ensure that as few employees as possible occupy positions that will make them difficult to replace
Strategic Management of Turnover Retention
All employees whose turnover would be disruptive would be reclassified as easy to replace once appropriate backups had been trained.
At the same time, performance incentives and counseling should be provided to low performers to encourage and motivate them to become average performers.
Similar incentives should be provided to average performers to encourage and motivate them to become high performers.
If these lower performers do not improve in time, they should be terminated. In cases of involuntary turnover or termination, employers need to have a strategy and standard policy that if followed would allow the employer to defend a charge of wrongful termination.
In recent years, courts have been increasingly open to hearing complaints that an employer violated the public policy exception to employment at will.
Although there may be no legal responsibility to continue to employ individuals, many courts have found that employers have an ethical responsibility to discharge employees only for just cause.
Strategic management of turnover retention
Consequently, employers who discharge their employees should have strong evidence of just cause that has been documented and communicated to the employee over time.
Otherwise, the employer could incur significant costs in defending itself against the charges or face negative publicity and dissension among the ranks of its employees.
The Martin and Bartol model argues that the organization’s goal should not necessarily be to reduce all turnovers but to reduce dysfunctional turnover by developing appropriate human resource programs and policies.
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