What is labour turnover
TWO floor assistants in Home Depot, a hardware superstore, are chatting. Is there anyone left from our orientation class other than us? one asks the other. Uh, let me think. Nope, just you and me. They shake their heads, wondering why they, alone in a group of 15 who joined only eight months earlier, are still there. Maybe only suckers stick around in jobs like theirs.
These are words and thoughts that strike terror across America. Today nearly a quarter of working Americans clock in each day in businesses where the average tenure is less than a yearoften far less, as in the case of one 24-hour warehouse where the average employee lasted just four weeks. Industries with 100% or more average annual turnover include most of retailing, food services and call centres, along with more specialised businesses that range from elderly-care nursing to car sales. Together, they account for more than 30m workers.
The main reason for all this disloyalty is Americas tightest labour market in a generation. Unemployment, at around 4% nationally and less than 2% in many regions, is at a 30-year low. Walk down any high street or cruise any shopping mall and it is hard to find a store that is not begging for workers.
But there is more to it than that. Behind the counters and between the cubicles, the balance of power has shifted: workers know that they are in demand and that they have more choices than ever before. The free agent movement that is spurring white-collar workers to shun corporate career paths is trickling down to blue-collar workers. Instead of job security and guarantees, they want opportunity and merit pay. And if they do not get it, they do not hesitate to quit.
Across the board, Americans average tenure with their current employer has remained relatively steady at around three years for most of the past decade, but some industries are doing far worse than the norm. For instance, part-time retail workers (the largest category of employees in that industrial sector, which employs in total more than 20m people) had an average turnover rate last year of 124%, according to a survey by the National Retail Federation; turnover of full-time workers was a still-shocking 74%.
Likewise, the Food Marketing Institute estimates that turnover of full-time grocery-store employees almost doubled between 1991 and 1999. The median tenure of supermarket employees is now 97 days, according to a recent survey by Blake Frank of the University of Dallas. The two favourite words in this industry have become help wanted, Michael Sansolo, a Food Marketing Institute vice president, told a recent conference. Todays labour market is probably the toughest Ive experienced in my 30 years in this industry, says Bill Parker, who runs call centres for Spherion, based in Florida.
As one might expect, what many of these high-turnover jobs have in common is that they are poorly paid, hard, boring, dead-end, dangerous or otherwise unattractive. There are some exceptions, however: despite fast-rising salaries and liberal use of such retention tools as stock options, employee defections in the high-tech industry have also reached epidemic proportion, with the average technology professional now staying on the job for just 13 months, according to Roy Talman & Associates, a Chicago headhunting firm.
The price of this employee churn is extraordinarily high. Most analysts reckon that the cost of losing an employee, all told, is between half and one-and-a-half times his annual salary. Even fast-food joints, which typically think of staff as almost as disposable as the cutlery, calculate the cost of replacing each one
at more than $500. For a software engineer, the total cost of a departure, from lost production time to recruitment and training of the replacement, can exceed $100,000. A survey last year by the American Management Association put turnover at the top of bosses list of worries, with the majority saying that their retention concerns were getting more serious each year.
Not for churning
Not everyone in these industries is suffering equally. The best have managed to change the way they run their operations to cut turnover. Others are striving to find employees who are more likely to stay. For instance, a few years ago 7-Eleven, a convenience-store chain, introduced an automated freephone number that allows job applicants to fill out a form by telephone 24 hours a day. By modifying the questions asked according to previous answers, 7-Eleven was able to screen out poor candidates more effectively than if it used paper forms. Now the company hires nearly half of its new staff from such telephone applicants, and retention rates have risen.
Another reason for the job-lines success was that it was easy and convenient. For companies that are open fewer hours of the day than a convenience chain, this can matter even more. Retailers often find that allowing people to apply after hours also brings in people who are already working elsewhere, a far more desirable group than the unemployed. Storehouse, a mens clothing chain, goes so far as to issue special employment-invitation cards to its employees and encourages them to hand them out to anyone impressive whom they meet working at another store. The strategy has been so successful that the chain has kept its stores staffed without running help-wanted ads.
At the same time, the tight labour market is forcing firms to be more flexible in the way they treat the employees they have. Loosening policies on working hours, for instance, can bring in stay-at-home mothers who need to work around child care and illnesses, a potentially valuable workforce that is normally excluded by strict shift regimes.
Better training might seem like an odd response to a tight job marketafter all, the employee is likely to leave, so why waste the money?but it too can pay dividends, since one of the main reasons why employees leave is the poor quality of their co-workers. And if the business sometimes has to be run short-handed, the best way to ensure that customers do not suffer is to make certain the hands available are helpful ones.
The same goes for better advancement opportunities, merit-based pay and language lessons: all help to build loyalty in a climate where disloyalty is more commonly rewarded. The most obvious incentivemore moneyis often the last to be considered. Companies are under intense shareholder pressure to keep down payroll costs, which have a more immediate and obvious effect on corporate performance than morale.
Although employees may leave for more money, non-monetary factors are often more important, says Michael OMalley, an employment expert with William Mercer, a management consultancy. Companies that try to buy happiness often end up with a deal culture where everything is for sale and everything can be bargained.
Americas extraordinary lack of wage inflation$7 has been the hourly rate for a supermarket worker for nearly a decadeis testament to the pervasiveness of this thinking. But with turnover pressure still rising, clever management tricks can go only so far. In Silicon Valley, stock options, free frappuccinos and the chance to change the world are the rewards for loyalty. At Home Depot it may eventually have to be more cash.Source: faculty.haas.berkeley.edu