Measuring Employee Turnover Rate: A Bogus Statistic…

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There have been countless articles, posts, and other musings on HR metrics and how, without metrics, HR is doomed to forever be viewed as a second-class business citizen.  And through a stroke of re-branding genius HR metrics have been transformed into HR analytics, with a whole technology industry built up to help us HR types sort our analytics out.  Admittedly, I’ve been a little old school when it comes to HR metrics – think traditional baseball statistics (i.e., wins, homeruns, RBIs) to sabermetrics (on base percentage + slugging percentage).  In fact, for years now, I’ve been proudly flaunting our low turnover rate as the only proof needed to prove how successful our people programs have been.  Well, recently my thinking was challenged by a colleague, leaving me feeling like I’ve been peddling the HR statistical equivalent of Dave Kingman.  As it turns out, focusing on turnover rate is like focusing only on homeruns – important, but misleading.  A low turnover rate could really be telling you:

1.  You’ve got a “comfortable” culture.  You go to work, do your thing and go home.  There’s not a lot of pressure, no one really pushes you to do or learn more, you’ve got a lot of friends at work and you’re compensated well.  Why would you leave?  Oh, that’s right, you wouldn’t!

2.  People really want to leave but can’tYup, the ol’ economy thing gets in the way here.  These folks aren’t bad workers, it’s just that it’s time for a change or their heart isn’t in it anymore.  They’re out there trying their best to move on, but it just ain’t happening.  And depending on where in the country you live, this could be even more pronounced.

3.  People really want to leave but don’tSame as above except these guys are too lazy to mount a serious job search.

4.  Unintended consequences.  You’re a manager in a company that focuses so much on turnover rate that even though you’ve got a poor performer on your team, you don’t take action because you don’t want to be an outlier.  So you tolerate underperformers.

You get the point.  While turnover rate can be a helpful input to understanding what’s happening in your organization, we should be a little more skeptical of drawing too many conclusions.  So what should we measure?  Taking a page from the sabermetrics book, I propose we adapt the Wins Above Replacement Player (WARP) for our organizations.  Simply, what is the performance level of our team members compared to “replacement” talent available on the open market?  We can call it Performance Above Replacement Employee (PARE).

Using a 1-5 scale:

Performance of current employee

Divided by

Expected performance of replacement employee

A score of 1 or higher is good.  Do everything you can to retain that employee.  A score lower than 1 isn’t good and you should take the necessary steps to improve.  From a retention perspective, I’d want to know what percentage of employees with a score of 1 and above are we retaining?  Now, I can hear those out there saying, “isn’t this just another way of saying retain high performers?”  No.  Most performance measurement is comparing an employee to internal talent or the subjective assessment of a manager.  The PARE system looks external so you may have a “high” performer in your system but turns out they’re only average when compared to the market.

Would love to hear your thoughts and reactions!

FOT Background Check

Andy Porter
Andy Porter is a VP of HR/OD with Merrimack Pharmaceuticals in Cambridge, MA which means he works with some wicked smaaht people. Some days, he indeed does wear short shorts around the office(call it a morale booster) but it really just makes people uncomfortable. Other days, he spits some mad game on cheese. No really – he’s somewhat of a cheese aficionado. But more importantly? At Merrimack he gets to contribute his small part as an HR Pro towards improving the lives of cancer patients.

11 Comments

  1. Rob says:

    How do you measure the ‘expected performance of replacement employee’? This seems to be a pretty subjective measure to me, one that could easily be manipulated as a means to an end. Additionally, while our expectation may be at a certain level, true performance of the replacement employee may not meet expectations.

    Reply
  2. Arik F says:

    Tying WARP to HR turnover? Touche Andy, touche. The concept really does work in baseball, why couldn’t it work in HR? Although a well-developed performance management system would need to be in place to ever get something out of PARE, it’s definitely an intriguing concept.

    Reply
  3. Jim D'Amico says:

    Fantastic post. I love sabermetrics, so I’m glad you worked it into an hr post. My only question about PARE would be what would the box score look like? Would you use the most simple measure a 1:1 numerical comparison based on a review? Or would you develop spacific stats to track? If so which ones? I think it’s a fascinating area to explore, for sure.

    Reply
  4. Jeff Haynes says:

    A really great idea… am very curious to understand how the potential performance could be measured for external replacements. It might work really well for internal transfers though – where you have a very well developed performance management system (competencies, skills, performance etc). Perhaps if you are in a high volume, homogeneous workforce (think call centers) you could set your applicant testing to coincide with your current performance management metrics and actually get an apple to apple comparison of internal and external. A very appealing concept.

    Reply
  5. Cathy Martin says:

    I think turnover is just a tracking metric like days to fill and cost per hire. Where you get insight is, when you combine data points and it tells a great story. Like are all your high performers, high potentials and highly engaged employees leaving and if so, why. What about your new hires are they leaving at a faster rate than tenured employees, if so why? I think quality of hire is an excellent metric to see how effective your recruiting process, onboarding process and managers are. It’s one that is getting a lot of attention out in crazy metrics land…..

    Reply
  6. John Michel says:

    Andy, I appreciate you bringing this up. It’s always a good idea to make sure that current HR metrics aren’t outdated. Personally, I’ve always found reducing employee turnover a highly effective way to cut costs – the ROI is tangible and dependable (see my link). What are your thoughts?

    Reply
  7. Ian Welsh says:

    Great article, Andy!
    An excellent way to PARE down the employees!
    I also like the data when turnover is separated into voluntary and involuntary terminations. Maybe the percentage relationship between those two figures would have significance.
    Turnover and applying your deliberations to a sales team would be particularly interesting.
    The other metric I have doubts about is “attendance” – for reasons similar to those you state. Can a company really save $1000,000 by bringing employees back two minutes earlier from break?
    Thanks,
    Ian

    Reply
  8. Don Rottman says:

    Andy,
    You absolutely made my day. What a beautiful thing to hear pragmatism really isn’t dead. I’ve followed a linked-in chain where someone asked about metrics. Someone sent a “report” and no less than 200 others asked for it. Let me tell you what meaningless milk toast it was.
    I am 110% on board with qualifying turnover as good vs. bad and the associated cost/benefit of keep vs. replace. I have been working on packaging a model I call H.e.R.O. (Human empirical Resource Optimization), which has that fluffy sound to it, but is about meat vs. metrics. It creates a “map” of a group, measures the value of the variance between individuals and quantifies the value of other decisions. It is used to create predictive assessment, integrated with baselines with the recruitment/selection function….scientifically forcing you to become a better organization over time. (unless you are losing top performers). Why is it so hard to get people to get what you get?
    Personally, my theory, a thinking allergy combined with a safety/security thing. If I don’t rock the boat, I won’t fall out. Personally, I believe the opposite. If you don’t create incremental, meaningful value….
    Forgive my rant, I get excited about this stuff and you’ve finally hit the nail right where it needed to be hit.
    Choose to make it a great day
    Don Rottman

    Reply
  9. Meredith says:

    DAMN IT, ANDY! And just when I was feeling good about how much I’ve reduced our turnover.
    I was walking around thinking, “I’m the best HR Manager ever! Look at me! I win!”
    But now…

    Reply
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