Should You Panic When Staff Resign?

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business woman overwhelmed with frustration pulling her hair All this talk of talent wars, global talent mismatches and brain drains has created a kind of frenzied state in talent management with HR teams upgrading, repairing, and turbo boosting their talent retention initiatives for fear of their top talent walking away in droves.

But, of course in the more circumspect moments, most professionals realize that staff turnover is a natural part of the business cycle, and that it would be statistically abnormal for a business to have 100 percent staff retention. In fact, a world of 100 percent staff retention would be a bizarre place; the job market would pretty much die and you’d only be able to hire 16 and 21-year-old school and college leavers, respectively.

It’s also worth noting that not only is staff turnover normal, the right amount of staff turnover can also lead to increased productivity and shareholder value. I realize you all see the potential value in transitioning a poor performer and potentially replacing them with a better cheaper performer, but did you know that there is actually a kind of organizational statistical sweet spot for staff turnover, where productivity is optimized? So, what is it?

Of course, one indication of healthy employee turnover is to look at the industry turnover norms and averages and use this is an indication of healthy turnover. However, just because it is the industry norm doesn’t necessarily mean it’s the healthiest turnover level. Ideally, you’d need to segment this data and find out what the average turnover levels are within the companies who have delivered the best performance over the past few years. Of course, this would just be a correlation and not necessarily direct cause and effect, but it would be still be pretty convincing.

While I couldn’t find a turnover study that was exactly like this, I have found one by the University of Melbourne, which showed that the optimal turnover rate for a business in order to maximize productivity is 0.33. This optimal turnover rate did vary according to the sector, and non-manufacturing had a higher optimal turnover rate of 0.38, but manufacturing firms have a lower one of 0.27.

(Employee turnover rate is measured by the average of new employees and ceased non-casual employees divided by average non-casual employees at the end of year t and t-1.)

As you can see, turnover is necessary in business to maximize productivity. There is a clear optimal point for turnover in businesses and this figure varies according to broad industry sector and company size. This data gives you a good idea of optimal turnover for productivity, and I believe this a better figure to be looking at rather than industry norms.

Of course, to get the most reliable figures and understand the exact turnover sweet spot for your organization, you’d want to do a big data (or maybe even a small data) analysis of productivity in your business over the last few years and compare this against staff turnover levels.

So, while it’s okay to get anxious about staff turnover levels, HR professionals shouldn’t be concerned just because turnover exists; they should be concerned about how far turnover levels are deviating from the optimal turnover point.

By Kazim Ladimeji