Employee turnover is a natural part of doing business. There are costs associated with the process, but when companies control the turnover, they can also control the costs. Involuntary turnover is in a company’s control – company leaders make business decisions to let employees go, whether due to poor performance, downsizing or other reasons. Voluntary turnover, however, is not as cut and dry – it might be functional or dysfunctional. The difference between functional and dysfunctional voluntary turnover is based on how the company is impacted when employees decide to leave.
Functional turnover doesn’t hurt the company. Employees who elect to leave their jobs might be part-time employees without unique skills, or they’re simply not top performers. The loss of their talents doesn’t prevent work from getting done effectively. If they’re poor performers, the company can even benefit by replacing them with better performers and improving the quality outcome of the affected jobs. With functional turnover, the benefits gained by replacing outgoing employees exceed the costs incurred.
Dysfunctional turnover does hurt the company. The costs exceed any potential benefits. Some employees who are leaving might be top performers whose work has proved to have a direct impact on profitability. Others might have unique skills that are hard to come by, making it difficult – and costly – to recruit and hire replacements. Losing too many minority group members can affect the diversity of a company’s workforce. When a company loses too many employees that fit any of these scenarios, the costs associated with replacing them combine with other costs, such as those associated with quality problems and customer complaints.
Avoidable or Unavoidable
Dysfunctional turnover can be avoidable or unavoidable. The turnover might be unavoidable if it is caused by employees leaving to address family or health issues, to move to new locations, to go to school full-time, or for other reasons over which the company has no control. The turnover is avoidable when the company does have control – employees choose to leave because the company is not satisfying their job or career needs. Examples of avoidable turnover might include poor pay scales or the lack of opportunities to advance.
Companies that make efforts to reduce employee turnover can make gains in market value through sales growth and improvements to profitability (see SHRM, page 4). Since all turnover is not harmful, and not all harmful turnover is avoidable, focus should be given to reducing turnover that is both dysfunctional and avoidable. Business leaders who want to take action should pay close attention to exit interviews and benchmarking research. Find out why key resources are leaving and do what is necessary to stop it from happening.
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