Turnover (Not Apple or Cherry, Unfortunately)

by Evil HR Lady on October 9, 2007

Dear Evil HR lady,

I’ve been reading your blog for a few months, and feel like you give honest, straightforward answers, so hopefully you can help me understand my HR department’s strategy.

I have learned that our HR department has been looking at company turnover. I realize that turnover is a hot topic in the business world, but from what I’ve been told it’s a bad thing. The cost to recruit and train new employees is expensive, and we need to try to keep the employees we have. But recently our HR department is looking at departments with a low turnover rate and plan to increase turnover by decreasing annual raises within these departments.

Is this practical? Here’s were I’m confused. If you have a long term employee that has many years of experience and a wealth of knowledge that isn’t planning on quitting anytime soon, why would you want to get rid of them and hire someone that doesn’t know the job, train them, and risk having them leave after a year? I’m sure the motive is money, but bottom line I don’t see the big savings with this strategy.

Maybe I’m naïve, and you can shed some light on the subject from an HR prospective.

This is a subject close to my little HR heart. One cannot make a blanket statement that turnover is good or bad. Some turnover is good. Some turnover is bad.

Why would a company want a long term employee to leave? Well, let’s pick an example. You have a long term employee in accounts receivable. She’s been there 20 years. Never taken a class to update her skills. Complains about the new system that has been put into place. She knows a great deal, but refuses to share her information with others on the team, for fear that if they know how to do it, she won’t be as valuable. Makes a ton more money than the current market rate for the job. If she leaves, that’s good turnover.

For bad turnover, you have a long term employee in accounts receivable. She’s been there 20 years. She takes frequent classes to upgrade her skills. She was the department lead on the new system implementation. She knows everything inside and out and actively teaches others. Makes a ton more money than the current market rate for the job, but because of all her additional skills and knowledge, management thinks it’s totally worth it. If she leaves, that’s bad turnover.

Now, granted, some companies get bees in their little bonnets and want to have the cheapest labor possible. That’s when they start firing long time employees (or encouraging them to leave) and either bringing in new, cheap labor or outsourcing. Sometimes this is an effective business tool. If you look at the first lady above, she does nothing to justify her high salary. I’ve seen the second type get laid off as well, because someone from corporate doesn’t understand her true value.

Sometimes, managers just want new blood in a department. Old and stable companies sometimes need a shake-up. Without that, they can easily be destroyed from within. Someone who is frequently heard to say, “but we’ve always done it that way,” is probably someone who needs a boot out the door.

But, sometimes managers just want new blood because they want new blood–not that the people in the department have stale ideas. You frequently see this at the top of an organization. If a new VP is hired, the AVPs start freshening up their resumes. Why? The new VP may love you and she may not. If not, you are out the door. Managers at lower levels often don’t have the flexibility to remove staff they dislike.

Recruiting and training is expensive. More expensive is having the wrong players on board. I fully admit, some managers absolutely refuse to see the talent of the people they have. They just want new. Some managers are lousy hirers as well. That’s life.

Some companies have made bad compensation policies and can only correct them by eliminating current staff. Circut City, for example.

Some companies were protective of their staff and ended up suffering for it later. Kodak for instance. Here’s a quote about their pay and benefits:

Since the company’s founding, Kodak had maintained a policy of treating its employees fairly and with respect, earning the nickname of the ‘Great Yellow Father.’ It was George Eastman’s belief that an organization’s prosperity was not necessarily due to its technological achievements, but more to its workers’ goodwill and loyalty. As a result, company benefits were well above average, morale had always remained high, and employees never felt the need to unionize.

Well, that’s just swell, you say. Then read the next line in the article:

This protective culture came to an end in 1983, however, when the company was forced to reduce its workforce by five percent to cut costs.

If you go to Rochester, NY (Kodak’s HQ) go see old Kodak Park to see what happens when you keep the wrong people on board. (Here is a preview.)

So, turnover. Good? Yes. Bad? Yes. Companies sometimes encourage it when they shouldn’t and discourage it when they should be encouraging it. It’s a tough game. A good HR department will help avoid those situations. Which is why HR needs to understand the business, not just have warm fuzzy feelings towards the employees.

Previous post:

Next post: