Attraction Release Recruitment Retention Induction Reward Development TM Employee Attrition Causes, Effects and Retention Strategies
Introduction According to the CIPD, over 77% of UK organisations reported difficulties retaining employees in 2004. Recruiting and training replacement employees can be costly and utilise considerable internal resource. The CIPD estimates the cost of an employee leaving at 4,300, rising to 6,800 in the case of managers and professionals 1. Often of greater importance however is the loss to the organisation of key skills, knowledge and business relationships when employees leave. In the current climate of low unemployment (at its lowest level since 1981 2 ), and skills shortages, retaining existing employees has become a key business issue. Reed Consulting conducted a primary research survey to help UK organisations gain a greater understanding of the complex business issues raised by staff attrition. This report presents the survey findings, and one of our principal consultants provides insight into the practical steps to managing the challenges faced. We hope that this report will support HR professionals and other business leaders to improve staff retention within their organisations. Contents Executive summary 1 Methodology 1 When do employees leave 2 Organisational factors & job tenure 3 Why do employees leave 5 Managing employee attrition 7 Identifying the level & cost of turnover 7 Understand why employees leave 8 Implement a retention strategy 9
Executive Summary This report seeks to utilise primary research in order to offer a greater understanding of the complex issues raised by staff attrition. Specific aims were to: Identify trends in leavers' behaviour and the reasons employees change jobs/organisations Identify the employers' perspective on employees' reasons for leaving Identify retention strategies that have a positive influence on retention, or at least leave current and former staff with a positive view of the organisation When do employees leave? 3 /4 of our survey respondents had left their last organisation with less than three years service. Why do employees leave? A significant difference was established between what employers assumed were key causes of turnover, and the actual reasons employees gave for leaving. Employers largely failed to take into account the importance of providing opportunities for development for their employees. This was three times as important as any other factor in employees decisions to change jobs. The top 3 causes were: Lack of opportunities for personal and career development Issues with the working experience Salary & benefits What can employers do to minimise the incidence of, and impact of employee turnover? Developing an employee retention strategy involves three stages: 1. Identify the level and cost of turnover and benchmarking it against competitors 2. Understand why employees leave 3. Implement retention strategies Having identified the reasons employees leave, there are a number of specific retention strategies available to employers. Our research has emphasised the importance of adopting an holistic approach to dealing with staff attrition. An effective retention strategy therefore will seek to ensure: Attraction and recruitment strategies enable selection of the right candidate for each role/organisation New employees initial experience of the organisation are positive Appropriate development opportunities are available to employees, and that they are kept aware of their likely career path with the organisation The organisation s reward strategy reflects the employee drivers The leaving process is managed effectively Methodology In order to gather data relating to both employees and employers perceptions of staff turnover, Reed Consulting designed two surveys. The employee survey covered their reasons for leaving and experiences of the leaving process. The employer survey asked HR professionals why they thought employees left, and what steps they had taken to achieve an optimum level of staff turnover (i.e. not necessarily zero staff turnover). Employee Survey In total, 4,113 responses were received from individuals who had recently left a job/organisation of their own volition. Respondents had worked for organisations of various sizes and from various industries, and represented a crosssection of the population as a whole. Employer Survey In total, 277 responses were received from HR professionals. Respondents worked for organisations of various sizes across a variety of industry sectors, and provided a strong and representative cross-section of the HR profession. 1 Recruitment, Retention and Labour Turnover Survey 2005. CIPD 2 Office of National Statistics Reed Consulting www.reed.co.uk/consulting 1
When do employees leave? For our survey sample of employees, the average length of tenure in any one job is 2 years, 4 months. The following graph shows when employees are most likely to leave. Chart showing average length of job tenure Proportion of employees leaving after this length of tenure 0 2 4 6 8 10 12 14 16 Length of tenure (years) As the graph shows, there is a large peak of employees leaving having worked for the organisation for only two years. In our survey, 76% of respondents had left their last organisation within 3 years. Burgess and Rees 3 define this section of the working population as job shoppers. They suggest that people in their early careers treat jobs as commodities. They move from job to job shopping around for their ideal role. Burgess & Rees found a second pattern in average job tenures. Whilst concurring that most job tenures last less than 3 years, their results identified a second group. Having shopped around in their early careers, they suggest people then find a role and organisation in which they feel comfortable, and then settle down long term. They estimate that 24% of the working population have worked for one employer for at least 30 years. Job Shock The graph above also shows considerable numbers of respondents who left their previous role shortly after joining. This scenario, referred to as job shock (originally identified by Reed Consulting in 2003), can be particularly costly to organisations. The organisation spends considerable sums recruiting and training the new employee, who leaves without necessarily achieving full productivity. Job shock is common amongst our respondents as shown in the above graph. 3 Job Tenure in Britain, Burgess & Rees 2 www.reed.co.uk/consulting
Do organisational factors influence job tenure? In this section of the report we consider whether job tenure is arbitrary, or if organisational factors impact on length of job tenure. Chart showing how length of job tenure varies across different industry sectors 3.5 Average length of tenure (years) 3 2.5 2 1.5 1 0.5 0 Utilities Retail Leisure IT Professional Service Finance Industry Sector Construction Public Sector Engineering Transport Manufacturing Average job tenure differs across industry sectors It has been widely reported that some industries have greater difficulty retaining employees than others. Our survey results as shown in the above graph provide further evidence to support this argument. High Churn According to the graph, respondents from the leisure, catering and hotel and retail industries stayed with their organisations the shortest length of time. These industries are commonly associated with high attrition rates, as they tend to employ large numbers of transient workers in jobs with often antisocial working hours and limited scope for personal development/progresssion. numbers of workers with specialist skills, knowledge and expertise. With skills shortages prevalent, these individuals tend to be highly sought after. With their skills so much in demand, it may be easier for these individuals to shop around prospective employers, looking for their ideal role. Low Churn The manufacturing, engineering and transport industries conversely have the longest average job tenure. These industries typically employ large numbers of blue-collar workers and technical specialists with niche areas of expertise, who are traditionally less transient than other workers. War for Talent The finance, IT and professional services have the next lowest average job tenure. These industries employ large Reed Consulting www.reed.co.uk/consulting 3
The Larger the Organisation, the Longer Employees Stay Less well documented has been how job tenure varies across different sized organisations. The following graph shows the results for our survey respondents: Chart showing how length of service varies across different sized employers Average length of tenure (years) 3.5 3 2.5 2 1.5 1 0.5 0 1-49 50-99 100-499 1000-4999 500-999 5000+ Number of employees The graph clearly shows that job tenure within smaller organisations is lower than in large organisations. Furthermore, this difference is significant. Job tenure in organisations with more than 5,000 employees averages 3 years. This is fully 11 months longer than in the smallest organisations (less than 50 employees). Possible reasons for this could be a lack of development and promotion opportunities, or the greater impact of personality clashes within smaller organisations. Common causes of staff turnover are discussed in the next section. London & Scotland have lowest job tenure Geographic location of the organisation also impacts average job tenure. The job tenure of respondents from Scotland was lowest, whilst respondents from Yorkshire, the North East and North West stayed with their organisation the longest. Job tenure in London was amongst the lowest. The variation in job tenure in different locations is perhaps due to the types of industry prevalent within particular regions. Average job tenure changes over time There has been much recent debate centred on how average job tenure has (or hasn t) changed in recent times. Many commentators claim that the increased prominence of redundancy programmes over the last 20 years has broken the psychological contract between employers and their employees. Employees move jobs far more frequently because they no longer feel loyalty to their employer. Though the job tenures of some sections of the working population (particularly males over 50) have fallen, this has been offset by increases in job tenure of other groups. The greatest increase has been seen amongst female workers. Improved maternity provision and greater accessibility of education to women have been particularly influential. Average job tenure male vs female Whilst length of service for women has increased recently, men do remain with the same employer longer than women. Our figures suggest that the average female stays in one job for 2 years and one month, but men stay 5 months longer. 4 www.reed.co.uk/consulting
Why do employees leave? In order to allow an organisation to design and implement an effective retention strategy, it is important for both senior and line management to understand the reasons that prompt high performers to leave and find alternative employment. However, Reed Consulting s research reveals a disparity between the factors that employers assume to be most influential in driving employees to leave, and those factors that have actually caused respondents to leave a job. The following chart demonstrates the scale of this disparity: Chart comparing employers perceptions of reasons for leaving and employees actual reasons for leaving Employees Employers Organisational Bad Practice Issues within Working Experience Salary & Benefits Lack of Opportunity for Personal & Career Development Dissatisfaction with Organisational Strategy Issues with Colleagues Job Security Issues with Line Manager Employers generally believe that employees leave for a variety of reasons. The traditional importance of pay and benefits as a decision-making factor however is assumed to remain key. The feedback received from employees reveals a marked difference. The top 3 reasons for employees leaving are: 1. Lack of opportunities for personal and career development 2. Issues with working experience 3. Salary & benefits In the view of employees, it is the lack of opportunity for personal and career development that is clearly the most important factor. This is three times as influential as any other factor in employees decisions to leave. Salary and benefits are rated as only the third most important factor. Respondents who left because of a lack of development opportunities rated the following factors as key to their decision to leave: The role did not allow me to fully use my skills and abilities The role provided insufficient training opportunities The role offered only limited opportunities for progression The role was not challenging enough Reed Consulting www.reed.co.uk/consulting 5
The high importance attributed to issues with the working experience is largely due to the number of respondents who left because the role did not match their expectations. 63% of our respondents said that this was one of their 5 main reasons for leaving. This factor is likely to have played a major role in accounting for the peak of respondents who had left their organisation within six months. Organisational Factors and Reasons for Leaving We have already seen that organisational factors can influence average job tenure. Perhaps surprisingly, employees reasons for leaving remain consistent across different industry sectors and different sized organisations. Employees leaving industries with high turnover do so for the same reasons as leavers from other industries, however they leave after shorter periods. This suggests that the high turnover in these industries is due to factors endemic to the industry sector, organisation size, location and potentially other industry specific factors rather than the actual working environment for example the transferability of industry skills. The greatest variation in reasons for leaving is shown in the figures for the public sector. Leavers from the public sector are more likely than leavers from any other industry to leave because of a lack of development opportunities. Conversely, they are the least likely to leave to improve their salary and benefits prospects. It is often argued that public sector employees choose to work in the public sector because of their social duty rather than for personal gain. Our research supports these assumptions. Retention strategies within the public sector should focus on providing adequate opportunities for development for their employees rather than relying on financial incentives. Reasons for Leaving Implications for Retention Strategies Our research into employees reasons for leaving has revealed a number of contributory factors. Many employers were unaware of the real causes of employee attrition. This highlights the importance of employers ensuring they understand and pro-actively manage the most influential HR practices to reduce employee attrition. Although not the major cause of turnover, pay and reward does remain an important factor in the retention issue. Organisations that pay employees below the market rate are likely to experience high levels of turnover. Retention strategies which financially incentivise employees to stay however are unlikely to secure anything more than shortterm commitment to the organisation. A lack of development opportunities was the most important factor in employees decisions to leave their previous organisation. Matching development opportunities to individual employee s career aspirations is likely to have the most positive influence on staff retention. 6 www.reed.co.uk/consulting
Managing Employee Attrition This section is written by Katie Dodsworth, Occupational Pyschologist for Reed Consulting. As an Occupational Psychologist, I have worked with a variety of organisations including Vodafone, Housing Corporation and Barclays to reduce employee turnover, advocating an holistic approach to address retention at each stage of the Working Lifecycle TM. The task of managing employee attrition can be split into three stages: 1. Identify the level and cost of turnover and benchmarking it against competitors 2. Understand why employees leave 3. Implement retention strategies 1. Identify the level and cost of turnover When does employee turnover become a cause for concern? Labour turnover varies across industry sectors, and different organisation sizes. Furthermore, the cost and impact of attrition varies dependent on the geographic location and the labour market in which the organisation is competing. Identifying your employee turnover rates and benchmarking this figure against similar organisations is one way to assess significance, however the key determinant of whether retention is a cause for concern is how difficult and/or costly it is to replace leavers. Comparing employee turnover costs with costs of implementing an employee retention strategy will prioritise the action required. RADar free online employee retention diagnostic tool RADar is a free tool developed by Reed Consulting to help organisations gain a greater understanding of employee attrition at their organisation. Radar enables organisations to: Calculate their employee attrition rate and its associated costs Benchmark their attrition against similar organisations Identify potential causes of their staff turnover Highlight possible solutions to try to improve their staff retention To access RADar for free, visit www.reedconsulting.co.uk/radar and enter the promotional code RADeasAR What are the costs of attrition? The CIPD estimate that the recruitment and training costs of replacing the average employee is 4,300 1. The true cost of attrition to the organisation is often substantially higher, as this figure does not include: Cost of lost productivity (during notice period, time to recruit and induction) Cost of lost knowledge, expertise and business relationships (perhaps picked up by a competitor) Reed Consulting www.reed.co.uk/consulting 7
2. Understand why employees leave Exit interviews are an ideal way of recording and analysing the factors that have led staff to leave the organisation. They allow an organisation to collate quantitative and qualitative data regarding reasons for leaving and underlying issues. Our survey highlighted a further benefit of conducting exit interviews. Very Positive As can be seen above, the employees who received an exit interview as part of their leaving process left with a more positive opinion of the organisation than those who did not. Overall, the perception of the former employer was improved by 15.3% where exit interviews were used. Ensuring leavers retain a positive opinion of the organisation is important to protect your employer brand and is a key part of retaining your remaining employees. Maximising the success of staff interviews The success of any staff interview depends on employees willingness to give full and honest feedback. Some survey respondents expressed concern about their individual experiences. Common complaints included: Perception of Organisation of those who had an Exit Interview 15% differential Perception of Organisation of those who didn t have an Exit Interview I was uncomfortable giving honest feedback Very Negative - The interview was carried out by a line manager/colleague I did not feel comfortable discussing our working relationship - The interview was carried out by a senior director which was quite intimidating - The interview was carried out by the HR department - I was concerned that my feedback could affect my future references The process did not allow me to express my true opinions - The interview was structured and the questions were phrased in a way which restricted me from revealing my true feelings No action was taken following my feedback - Feedback forms were simply filed away and disregarded - HR had little power to implement employees suggestions The best way to gain staff buy-in is to ensure that: The process is implemented by someone who is seen as impartial The employee is given the opportunity to speak freely about their opinions Employee feedback is acted upon Reed Consulting can design and deliver exit interviews and staff satisfaction surveys which capture full and honest feedback from employees. Whilst we have the skills and capabilities to simply deliver geographically dispersed, high volume surveys, Reed Consulting can also input throughout the whole process. We offer a flexible delivery mechanism via either: Face-to-face interview Telephone interview Online or paper-based questionnaire Staff satisfaction surveys can be another excellent way of collecting staff opinion. Tracking employee motivation and opinions over time helps the organisation address motivation issues before they become retention issues. For further information on the exit interview and survey services available from Reed Consulting, please contact us: Tel: 0870 720 0513 Email: reed.consulting@reed.co.uk Web: www.reedconsulting.co.uk 8 www.reed.co.uk/consulting
3. Implementing a retention strategy As the causes of staff turnover are varied, likewise, there are a number of potential solutions. The most effective solution is to adopt a holistic approach to dealing with attrition. An effective retention strategy will seek to ensure: Attraction and recruitment strategies enable selection of the right candidate for each role/organisation New employees initial experiences of the organisation are positive Appropriate development opportunities are available to employees, and that they are kept aware of their likely career path with the organisation The organisation s reward strategy reflects the employee drivers The leaving process is managed effectively Whatever the reason for your employees leaving, Reed Consulting has a solution to both help minimise your attrition levels and also reduce the impact on your organisation when employees do leave. All of our services are delivered by professionally qualified consultants. They combine in-depth knowledge of delivering specific HR services with wide-ranging industry experience. Further Information For further information on this report, or any of Reed Consulting s services, please contact us: Tel: 0870 720 0513 Email: reed.consulting@reed.co.uk Web: www.reedconsulting.co.uk Specific Retention Strategies The survey research Reed Consulting undertook revealed the reasons why employees leave organisations. These differed from the reasons why employers thought employees left. To ensure you implement the right retention strategy, Reed Consulting can undertake an independent audit of your new joiners, current employees and leavers views. This will give you a real picture of how you should prioritise your retention interventions. Reed Consulting www.reed.co.uk/consulting 9
TM RADar - revolutionising staff retention Try our free new online tool at www.reedconsulting.co.uk Revolutionising staff retention