Better Leaders Reduce the High Cost of Turnover

Posted by John Rutkiewicz - Guest Blogger on Apr 20, 2018

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You may have heard it before: People join companies, they leave leaders. Through decades of working with leaders at all levels in organizations around the county, we’ve found this claim to be true. Employees most often leave because of their immediate manager.

Research also supports this fact. Gallup has conducted more than 30 years of research into employee engagement and productivity. They have concluded that upwards of 70% of the reasons for voluntary turnover relate to elements that can be influenced by managers.

A survey conducted in the U.K. by Approved Index showed that 42% of employees admitted having left a job because of a bad boss. 

"42% of employees admitted having left a job because of a bad boss"

We all know the headaches that turnover brings – time and energy spent enlisting search firms, reviewing resumes, interviewing candidates, on-boarding new hires. Besides the headaches, the process of replacing lost talent comes with a significant price tag.

If organizations focused more on building strong and capable leaders at all levels, perhaps they would suffer less of the high price of turnover.

The Cost of Turnover Is Significant

Both hard and soft costs come about when replacing talent. While the search is on, there are costs of advertising, recruiting, screening applicants, interviewing and testing, along with lost productivity and lower team efficiency during the vacancy. 

After hire, there are costs of onboarding, certifications, on-the-job training and the inefficiencies (and potential errors) that come about as new hires get up to speed.

Numerous studies and analyses have examined the costs associated with voluntary employee turnover. Researchers agree that costs are high. But what does this mean in real dollars?

"What does this mean in real dollars?"

The Center for American Progress examined 30 case studies from research on the cost of employee turnover. They found the median cost of turnover is 21% of the individual’s annual salary. 

Across salary ranges, the cost to replace employees is:

  • 16 percent of annual salary for jobs paying $30,000 a year or less. For example, a worker making $12 per hour would cost $3,394 to replace.
  • 20 percent of annual salary for jobs paying $30,000 to $75,000 a year. A manager making $60,000 would cost $12,000 to replace.
  • 213 percent for senior or executive-level roles. An executive making $200,000 could cost up to $426,000 to replace.

A convenient calculator that reflects these percentages is available through international staffing firm Addeco. 

Four Ways You and Your Leaders Can Keep Great Talent

1) Build People-Focused Leaders at Every Level

Through decades of worldwide research, Zenger Folkman has concluded: “The quickest and most reliable way of increasing employee satisfaction and commitment is to provide employees with a more effective leader.”

Consider how your leaders, managers and supervisors lead their teams – day in and day out. Certainly, leaders throughout your organization need to drive results. The question is, How do they do that? The “how” of leadership impacts people. And your people are the chief means by which you achieve results.

If leaders in your organization are overly aggressive, pushy or downright mean, they will drive people away. “No one wants to work for a grouch,” as Dan Goleman said. “Research has proven it: Optimistic, enthusiastic leaders more easily retain their people, compared with those bosses who tend toward negative moods.” 

2) Build a Leadership Culture from the Top Down

Culture starts at the top, then it winds its way through your organization. Training junior managers and supervisors to lead more effectively will not create cultural change on its own. Senior leaders must clearly know what good leadership looks like, and they must be willing to learn, change and adapt their behaviors in ways that support a culture where people want to stay.

Dr. Peter Fuda calls this phenomenon the “Snowball.” When senior leaders commit to a path of effective leadership, it creates a “mutually reinforcing cycle of accountability that develops between leaders and their subordinates.” Over time, this cycle of accountability for effective leadership builds momentum and permeates the organization.

3) Teach Leaders to Design Jobs That Are Too Good to Leave

A recent study by Adam Grant of the Wharton School, along with colleagues at his client, Facebook, examined this notion of why people leave and its relationship to the boss. Since they had worked hard to build effective leaders and managers throughout the business, they wondered why people still left from time to time. 

Their research found three job-specific elements that cause people to leave. Yet, the link to managers was clear; these key job elements are influenced by the boss:

  • Match people to the work they enjoy. If people are not energized, motivated and engaged by their work, they stagnate and lose interest.
  • Let people use their strengths. People enjoy doing things they’re good at. If a team member is good at training others, giving presentations or building spreadsheets, craft her job to enable her to do more of it.
  • Help people integrate their professional and personal lives. Leaders and managers who work to minimize the trade-offs between work and home win hearts and minds.

Grant summed it up this way: “When you have a manager who cares about your happiness and your success, your career and your life, you end up with a better job, and it’s hard to imagine working anywhere else.”

4) Teach Leaders How to Correct Poor Performance

All this talk about retention does not mean you should retain ineffective or unproductive employees at all costs. Not only do such employees fail to deliver results for the organization, they negatively impact engagement for the rest of the team. 

Employees who are allowed to continue poor performance drag down morale of high performers and whittle away at the trust in leadership. In the end, it can create turnover among those you want to keep.

Ensure that you and your leaders are skilled at addressing poor performance in respectful and engaging ways. Teach your leaders how to set clear expectations, coach and develop employees, and give effective feedback. These are crucial leadership skills for maximizing performance and retention of top talent.

Please welcome Lemberg Guest Blogger, John Rutkiewicz. John has more than 30 years of experience as a leader and manager in fields ranging from sales and marketing to customer service, financial services and human resources. Since 1993, he has provided facilitation, training, coaching and leadership-development support to hundreds of leaders, from front-line supervisors to C-suite executives. John is a facilitator and certified coach for Living As A Leader in Brookfield, WI. Follow John on LinkedIn