The High Cost of Employee Separations Flashcards
What are the three basic parameters that affect employee movement within organizations?
- The quantity of movers
- The quality of movers (that is, the strategic value of their performance)
- The costs incurred to produce the movement (that is, the costs of acquisitions or separations)
There are two types of turnover. What are they? Provide an example of each.
- voluntary (example: resignation)
- involuntary (example: requested resignation, permanent layoff, retirement, death)
Which type of turnover is more controllable and which type of turnover is less controllable?
- more controllable: voluntary
- less controllable: involuntary
Voluntary turnover can be further broken down into two categories. What are those two categories? Explain each category.
- Turnover is functional when the resulting difference in workforce value is positive and high enough to offset the costs of transacting the turnover.
- Turnover is dysfunctional when the resulting difference in workforce value is negative or the positive change in workforce value doesn’t offset the
costs.
What are pivotal talent pools? Provide an example.
- Pivotal talent pools are those where a small change makes a big difference to strategy and value.
- For example, where salespeople have a lot of discretion in their dealings with customers, and those dealings have big effects on sales, the difference in performance between an average and a superior salesperson is large. Replacements also likely will be lower performers because the skills needed to execute sales are learned on the job; as a result, workforce value sees a substantial
reduction when a high performer leaves and is replaced by a new recruit.
Explain why investing in reducing turnover in non-pivotal talent pools may not yield a good return on investment.
- In some jobs, performance differences are smaller, such as in a retail food service job where there are pictures rather than numbers on the cash register and where meals are generally sold by numbers instead of by individualized orders.
- Here the value produced by high performers is much more similar to the value of average performers.
- The job is also designed so that replacement workers can learn it quickly and perform at an acceptable level.
- So in this job, voluntary turnover among high performers, who are replaced by average performers, does not produce such a large change in workforce value.
- If the costs of processing departures and acquisitions are low, it may be best not to invest in reducing such turnover.
What are the six steps to manage turnover strategically?
- Identify pivotal talent pools.
- Measure voluntary turnover rates of the pivotal talent pools.
- Benchmark internally and externally.
- Determine why people leave voluntarily.
- Assess the cost of voluntary turnover in the pivotal talent pools.
- Diagnose the causes of voluntary turnover in the pivotal talent pools.
- Match HR strategies/activities to the appropriate cause(s) of voluntary turnover identified in step 4.
- Repeat 1-5 with the non-pivotal talent pools.
How do you compute turnover percentage rates?
Number of turnover incidents per period/Average work force size×100
Example:
- Number of employees on 1st of the month: 62
- Number of employees on the last day of the month: 60
- Average headcount for the month: (62+60)/2 = 61
- Number of terminations from the 1st of the month through the last day of the month: 3
- Monthly turnover rate: (3/61) X 100 = 4.9%
Note: can be calculated monthly, quarterly, annually or any other period deemed appropriate
How are turnover rates related to unemployment rates?
- Turnover rates are inversely related to unemployment rates (local, regional, and national).
- As unemployment rates go up, turnover rates go down.
- As unemployment rates go down, turnover rates go up.
How do organizations typically break down turnover rates for analysis?
- Typically, organizations compute turnover rates by breaking them down into business unit, division, diversity category, or tenure with the company.
- Then they attempt to benchmark those turnover rates against the rates of other organizations to gauge whether their rates are higher, lower, or roughly the same as those of competitors or their own industries.
Typically, how much of the departing employee’s salary (in percentage terms) does turnover cost an employer?
- 150% or more
The general procedure for identifying and measuring turnover costs is founded on which five major separate cost categories?
- separation costs
- replacement costs
- training costs
- (DP): the difference in dollar-valued performance between leavers and their replacements
- economic value of lost business
What is the typical amount of severance pay received by:
- lower-level employees?
- mid-level managers?
- higher-level executives?
- chief executive officers?
- Most lower-level employees receive one or two weeks of pay for each year they worked, up to a maximum of about 12 weeks.
- Midlevel managers typically receive anywhere from three to six months of pay.
- Higher-level executives receive six months to one year of pay.
- Chief executive officers with employment contracts two to three years of salary.
How are employer unemployment tax rates affected by their history of claims?
- Employers with fewer claims for unemployment benefits are subject to a lower unemployment tax than those with more unemployment claims.
What is difference in performance (DP) and why is it included in turnover cost calculations?
- It is the uncompensated performance
differential between employees who leave and their replacements. - DP needs to be included in determining the net cost
of turnover because replacements whose performance exceeds that of leavers reduce
turnover costs, and replacements whose performance is worse than that of leavers add
to turnover costs.
