Turnover Ratio

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Staff turnover-roughly speaking, some measure (of organizational performance) based on the number of staff who leave during a given period-can be mathematically conceived in various ways. Perhaps the simplest-the number of people who leave an organization during a specified period-is also one unlikely to be used. That's because it won't distinguish the ominous departure of 10 people in a company with 12 employees from 10 departing a company with 500 employees, where it actually is minor turnover. It also won't record any replacements, which, of course, will make a huge difference in operational efficiency.

That's why a "turnover ratio"-the proportion of staff departing in a given time period (including or excluding new or replacement hires in that period, or based on average staff size during the same period)-is a more useful measure, because it provides a percentage from which inferences can be drawn and investigations launched when too many (or too few) staff leave.

It's also more useful than the difference between departures (D) and new hires (H), even though D-H>0 can be a red flag for the company. That difference-based calculation is also less useful, because it too fails to suggest what it means regarding company stability. If a company with five people has a net difference of zero, it could mean that everybody left and was replaced-which would suggest a major upheaval, or could mean that no one left and no one was hired, or that one left and was replaced, etc. The same analysis applies to much larger companies as well.

Hence the reliance on turnover ratios.

"Turnover ratio" refers to the percentage of employees leaving compared to the total number of employees in the organization within a reported period. Also known as "separation rate" or "crude wastage rate", the ratio is calculated as follows:

(number of employees leaving within the reported period / number of employed staff within the reported period) x 100

Another way at looking at this issue is to use the "Stability Index", which is the reverse of the turnover ratio. An index which measures how much of the experienced staff is being retained, it is calculated as follows:

(number of employees with one or more years of service at present / number employed one year ago ) x 100

There are several patterns of the turnover phenomenon. Generally, the longer an employee stays within an organization, the more likely it is that he will stay on. This is because (s)he has proved himself or herself, has adapted well to the working culture, is familiar and comfortable with his colleagues and duties, has probably been promoted or had pay increases, or actually likes the job.

Inertia arising from such familiarity and comfort, as well as the reluctance to leave due to the fear of the unknown or inability to get a similar senior position, will usually make long-term employees stay on. On the other hand, more likely to leave an organization are those who have only recently joined, e.g., because of an evident mismatch. Hence, they have much less to lose by leaving and are likely feel that it is better to leave sooner than later (and voluntarily, rather than otherwise).

A good way for HR staff to determine whether the organization's turnover rate is healthy or not is to compare it with both the industry standards and past data to see whether the organization is experiencing an abnormal turnover rate relative to its own history and circumstances, or relative to the industry as a whole (which means that there may be some underlying issues to be addressed), or is merely experiencing rates comparable to those prevailing in the sector or the economy as a whole at the time or over time.
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