An employee's motivation is a direct result of the sum of interactions with his or her manager. -Bob Nelson
According to cambridge dictionary, "Attrition is the process of gradually making something weaker and destroying it." Employee attrition follows the same definition.
Employee attrition is the reduction of staff when employees leave the organization without emphasizing on their replacement.
So can you see the resemblance between the definition of attrition and employee attrition?
The loss of staff generally weakens the organization and the term has a negative connotation to it.
It is very evident in the professional world and there is a formula for calculating employee attrition.
Calculating Employee Attrition Rate: The Formula
Now calculate attrition without any hassle with the below-mentioned formula and check your organization’s attrition rate.
Attrition Rate = (No. of employees resigned/No. of employees at the start of the month + no. of employees joined - no. of employees resigned ) x 100
Suppose an organization has 100 employees working. In a particular month, 50 new employees join and subsequently, 30 employees leave the company.
Plugging the values in the formula (30/100+50-30)x100 = 25%. This is a very high attrition rate. Ideally, your attrition rate should be less than 10%
Attrition is also referred to as the loss of customers or clients due to a limitation in the product or service scope and are not replaced by the subsequent generation. This is usually referred to as customer attrition.
Types of Attrition
Attrition can be of different types and they include-
- Voluntary Resignation
- Involuntary Attrition
- Internal Attrition
Below is a brief explanation about what these types of attrition exactly mean.
1. Voluntary Resignation
It is the type of attrition where the employees leave on their own. The employees leaving the company generally have variety of reasons. Some of them are listed below:
- Better Pay in a different organization.
- Mismatch of job role and skill of the employee.
- Limited Growth opportunity.
- Lack of appreciation.
- Stress for an extended period of time.
These few points mentioned are very well known when it comes to voluntary resignation. But one key aspect which is generally overlooked is Job Shopping.
72% of millennials never think they can last in one organization for more than 2 years.
Ever realized why employee attrition is highest within the first two years of joining? The answer is millennials.
Most of them are experimenting with different career settings. Give them a reason to leave, they will gladly take that opportunity.
They are generally very flexible and have varied career aspirations. They are at an early stage in their career. Most of the Millennials have a common motto.
2. Involuntary Attrition
Involuntary attrition is when an employee gets terminated from his job due to a lack of performance or due to ethical misconduct.
These kinds of attrition can actually aid in your organization’s professional development as the less productive employees get filtered out of the system. That will indefinitely help the organization in improving the bottom-line.
One more untouched facet of involuntary attrition is retirement.
Employee retirement is usually a big blow to the company if they are not prepared for it. Think about it, the person retiring is generally a very experienced employee. It is not an easy task to fill his shoes.
Any potential employee getting ready for retirement should be identified before the 11th hour so that an organization can make the necessary moves to replace that employee as soon as possible.
4. Internal Attrition
Internal attrition occurs when an employee leaves their designated team or department to join another department.
In some cases, this attrition can be regarded as desirable attrition because employees can find their choice of the department where they can flourish.
However, if a certain department sees a higher attrition rate, then an investigation needs to be carried out to figure out the root cause of the problem.
5. Demographic Attrition
Demographic attrition simply means that employees of a single group like women, veterans, ethnic minorities, etc. start to leave a company.
If there is a significant rise of attrition in these numbers then an organization needs to quickly get to the root cause and formulate solutions to reduce the attrition rates.
How does attrition happen?
There are a few ways in which attrition happens.
1. Lack of Recognition
One of the most driving factors of a higher attrition rate is the lack of recognition employees receive during their tenure.
Recognition has turned out to be the pivotal force in employee retention and satisfaction of the highest order. Not only does recognition help morale but it enhances the engagement levels as well.
However, with diminishing recognition employees tend to lose their interest in completing their tasks eventually leading to increased attrition rates. It is indeed a signal to organizations how important it is to recognize and award the employees for their efforts.
2. Get More In Less Time
They leave somewhere between 1-2 years of working for a better opportunity, change in career, or higher studies.
A very dominant trend in today’s corporate scene is that a number of employees(millennials) generally go for a job for the sake of experience. After an experience of 1-2 years in a particular field, they tend to go for higher studies, generally MBA, to boost their career.
Giving rise to voluntary resignations during this period.
This is a very worrying sign for employers and companies as resources and manpower are being lost at a very high rate.
3. Lack of employee benefits
Who does not love their share of benefits? We all do, don’t we?
But what if we surprisingly remove all the benefits that an employee is entitled to and just compensate them with their salary? No employee wants that and they will never replace their benefits with money.
Suppose an organization lacks in providing the basic and necessary benefits to the employees. In that case, they are likely to see higher attrition rates and a workforce with the least levels of satisfaction.
One important thing to keep in mind is that an organization should never skip on the benefit that focuses on work-life balance. It is one of the most important benefits that an employee wants in their benefits package.
Employees will leave organizations searching for good benefits and a workplace that heeds on employee well-being. Which indefinitely increases turnover and attrition rates.
4. Absence of Training and Developmental programs
When an employee joins a company they expect the organization to provide them with the necessary training and development programs.
The employees need it to upskill and become more proficient in their respective fields. However, if an organization fails to do the same then an employee might feel dejected and less motivated to work. They will be in search of a different organization that can provide them with such training opportunities.
This surely will increase the employee attrition rate of a particular organization if they do not implement the necessary programs that the employees desire.
Difference between Employee Attrition and Turnover
While on the face of it, people find it very difficult to differentiate between attrition and turnover. They are quite similar in fact. But there is one very important distinction.
Employee Attrition is the abandonment of a post by an employee due to various reason. Attrition reduces the size of staff due to a lack of replacement.
Turnover refers to the replacement of employees in an organization. The means by which employees leave the organization is the same as that of attrition but in case of turnover, the size of the staff remains the same.
Suppose an organization has 100 employees and in a particular month 20 employees leave and immediately 20 replacements are hired. Then it is referred to as employee turnover. In this case employee turnover is 20%( employees resigned / total employees x 100).
In a different case assume among the 100 employees in the organization, 20 left. And there is no replacement for those employees leaving the company. Now, this is scenario can be termed as employee attrition. In this case, employee attrition is 25% (20/100-20 x100).
We all know how scary employee attrition can be. And it gets far scarier when the stats enters the play.
The Cost Of Attrition
The one factor that makes employee attrition so dangerous is that companies are not prepared. The loss stems from the fact that there is a big void in the company.
Employees who leave not just leave physically but they also take with them years of experience. The loss in experience creates additional pressure on the team and finally to the whole organization.
Companies have to go for an intensive training session with their new employee which adds to expenses.
Employees leaving the company adds additional pressure on the remaining employees in the company since there is no immediate replacement.
The remaining employees are often required to do overtime and extra work without any added compensation. This, in turn, creates a cyclic process of the remaining employees considering offers from other companies due to workplace stress.
The cost of professional development due to employee attrition is high.
Stress and chaos of employee attrition stem down to even customer attrition. Due to unproductivity at the workplace, the quality and/or quantity of service/product diminishes which aids customer attrition.
Customer attrition is similar to employee attrition. It is the loss of customers without any immediate replacement. If companies do not meet the expectation of the customers, the attrition rate is generally very high.
According to NGOdata, 95% of people share their bad experiences with others and 54% of people are likely to share their experiences with more than 5 people.
How To Reduce Employee Attrition?
Having a straightforward approach can help reduce attrition. Here are a few ways in which employee attrition gets minimised. Few pointers on how to deal with the cost of attrition.
1. Do Not Skim Out On The Compensation
We know it is not easy to reward your employees with a handsome paycheck. It takes a toll on the pockets of your company.
What we suggest is not to drop below the standard norms or the average compensation awarded by your competitors.
Educba found out that if your compensation is even 10% lower than your competitors, it is likely that your employees will look for voluntary resignation.
Have a statistical model of the compensation you are providing and compensation provided by your competitors. Balancing the model will see a dip in attrition and turnover rates of your company.
If there are considerable differences then you should consider re-evaluating your compensation structure.
2. Structured Retirement And Resignation Plans
Employers should have an idea about the employees who are about to retire or resign. In fact, it is desirable to have an estimate of the people who are retiring a few years in ahead.
This will give the company time to prepare and strategies for the layoff of the experienced employees.
But you should be careful while enquiring about the retirement of your employees. They might get the idea of you being bias against them due to their age.
The Age Discrimination in Employment Act (ADEA) protects employees above the age of 40 against possible discrimination. So you should really careful while developing a retirement structure.
3. Professional Recruitment Strategy
The recruitment is one of the more important areas you want to master in. This is the area in which human resource management should be very critical in dealing with.
An unclear requirement process sends mixed messages to your employee regarding his role and job due. This leads to a frustrating onboarding and work experience for the new employee and motivates him to search for alternate options.
Establish a proper connection with previous work experience to aid professional development. Any previous work experience in a field not related to yours should have a justifiable reason.
If the job requires handling finance or any tangible resources, then there should be a proper background check.
4. Change Of Departments
The most important factor of employee attrition is the fact that employees want a change in their career.
According to Gallup, 32% of employees leave their job due to a desire for change in career.
Having an option of a change of department in the company itself gives your employees lots of freedom. This should reduce some amount of voluntary resignation and turnover rates.
Having a clear and structured program for any employees who want to change departments goes a long way. Human resource management should be involved in this process to facilitate a smooth transition of departments.
5. Reward Astounding Effort And Failure
What makes the difference between success and failure? This is the questions your employees need to understand. Most people are so scared of failure and setbacks that they don't really strive for an imaginative project. And those who actually undertake these aspirational projects and fail, they are usually canned.
Astro Teller, the project head of Google Glass, laid the foundation for getting excited about failing.
When the first team that failed the project of Google Glass at Google, Astro Teller stood his team on stage and congratulated them. He said that the team had done to further innovation at Google by ending their projects than anyone else in the last quarter. And he was also giving his team bonuses for failing!
He even asked his team to take a vacation and get back to work on a fresh project. Everyone in the room thought he had lost his mind. But the 10th time, everyone just gave a standing ovation to the team which tried and failed.
This creates an atmosphere of acknowledgment and trust in the system of the employees. Potential employees who were planning for voluntary retirement for some period of time might change their minds.
6. Train Your Middle Managers
“ People leave their bosses, not their job.”
Do you want a shocking stat?
92% of employees leave their job due to unapologetic and rude bosses.
Your middle managers and supervisors should be properly trained to handle their subordinates to reduce attrition.
Conduct sessions for your middle managers with the human resource management team to develop people skills.
7. Engaging Your Employees
A great boss knows how to get his employees excited for even the mundane of activities. It is not possible to reduce employee turnover rates without practicing employee engagement.
Conduct periodic feedback sessions to evaluate the state of your employee.
According to Gallup, 52% of employees are not engaged and 18% are actively disengaged.
So you see, how important is period feedback sessions.
A disengaged employee is like a bad apple. The remaining employees are likely to feed on his negativity. Disengaged workforce increases the attrition rate.
Identify potential employees who are likely to leave. After identification comes rectification if any from your part.
You can also go for a reward-based system at your workforce to engage your employees further. On top of it, a general discount program will work wonders.
In a nutshell, an employee discount program is a platform where your employees can avail special and exclusive discounts that are not available in general. There are employee engagement platform tied up with various brands.
Those brands form an umbrella and provide discounts to the corporates associated with the platforms.
8. Professional Development Through Learning Atmosphere
According to Medium, 70% of millennials would quit their job if the learning potential was saturated.
Create an atmosphere of learning for all the departments. Introducing new techniques, providing accurate job descriptions, and technology at your workplace will not only aid professional growth but also help to keep in check the attrition rate.
Conduct seminars and short courses to enhance your employee's skill. This will not only reduce employee turnover but also make your company for new talents.
Take frequent feedback from employees on whether they are happy with their profession. Ask them the direction in which they would like to see their career move and whether the company is doing enough to satisfy their professional hunger.
9. Exit Interview? Yes Please!
One of the most neglected aspects of improving attrition rates in an organization in exit interviews.
So, what is an exit interview?
It is the interview, or rather the conversation after the employee has submitted the resignation letter. Exit interviews are basically done to get an idea of why the employee is leaving the company. It might be due to a different job opportunity, lack of adequate compensation or simply hostile work environment or work conditions.
Whatever the reason, an exit interview can provide you with insight into how to fix the problem of high turnover rates or attrition rates.
Sometimes the work culture is not at fault. Sometimes an employee is just a bad fit. This also gives you an idea of how to optimize your hiring process. Getting the perfect fit for your company is a great way to not only reduces the attrition rate but also improves the work environment of your company.
Compiling these points, here is a infographic for quick review.
Obviously, attrition cost a company a huge deal of money. But those costs are associated with almost every aspect of human resource management.
The real cost of attrition depends on how much it is going to cost your company to train the new employees due to retirement or resignation.
The blow happens when the employees leaving the company are the ones driving the revenue. You should make sure to successfully engage those employees as their replacement are hard to find. Even if you do find a suitable replacement, the period of time invested to get them to the same level is quite long.
With attention and creativity these costs can be minimized. You just need to focus on employee satisfaction, needs and create a motivating atmosphere.
There is going to be attrition, there is no doubt about that. But with proper planning, you can minimize the cost associated with high attrition. Also with proper communication and feedback, you can minimize attrition and turnover to a great extent.
Lastly, it should be clear in your organization that you value the remaining employees and focus on improving the bottom line.