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TURNOVER COSTS New

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									  Organizational Behavior Course
              Model
OB Outcomes: Attitudes       Influenced by Managers
 and Behaviors                 Using
Effort                       Application of Individual
Job Satisfaction               Differences
Absenteeism                          •   Perceptions
Turnover                             •   Attributions
                                     •   Attitude change
Stress                               •   Values
Workplace Violence                   •   Personality
Organizational Citizenship   Group Dynamics
   Behavior and Commitment   Reward Systems
Employee Theft               Job Design
Safety and Accidents         Leadership
Sexual Harassment
Grievances
            Motivations to Manage Turnover
1. Economic Trends
    • Directly related to economic conditions
      ∙ Unemployment rate Aug. 2011: Nation 9.0% Iowa 6.1%
      ∙ Unemployment rate Aug. 2007: Nation 4.6% Iowa 3.6%
    • Turnover high when unemployment is low
    • Turnover low during poor economic times

2. Demographic Trends
    • Retirement patterns
    • Low number of workforce entrants
    • Next generation may prefer to work
      fewer hours

3. Changing Employment Patterns
    ∙ Shorter job tenures
    • Ages 18 to 32: 8.6 jobs
    • Overall, employees changing jobs every 4 years
             Motivations to Manage Turnover

4. Normal Turnover?
 ● Need industry specific data: BLS, Fortune magazine,
    CompData Surveys
    Some industries (manufacturing) are lower: 5.9%/year
    Some are higher (hospitality): 24.1%
    Better companies have lower rates; average is 15%

● Fortune Magazine’s 100 Best Companies (next 2 slides)

● Company rate or level may not be ideal anyway (AZ
  Council)
Turnover
Rates by
Industry
   Fortune’s 100 Best Firms Demonstrate Low Voluntary
                         Turnover
Company                  Top 100 Ranking in  2011/12
                           2011 and 2012    % Turnover
SAS Institute                   1/3             2/2
DPR Construction               22/13            2/3
NuStar Energy                  30/15            2/3
Intel                          51/46            3/2
Atlantic Health                54/65            2/3
Hasbro                         59/82            2/3
General Mills                  58/63            2/3
Publix Super Markets           67/78            3/3
 Fortune
Turnover Rates: Mental Health Jobs
        Human Resource Assistant
                                                              66
                         Secretary
                                              14
              Maintenance Worker
                                                                                           200
                            Driver
                                                   27
                         Therapist
                                      0
                             Cook
                                                    34
                    Case Manager
                                                     40
                         Teachers
                                                       47
      Behavioral Health Technician
                                                                   92
                    Teachers Aide
                                              16
                        Supervisor
                  Clinical Director
                                                             60
                       Accountant                   36
                     HR Manager                                     100
                        Controller                  33
                Executive Director                           60
                                      0

                                          0             50         100      150        200       250
                                                                   Annual Turnover Rates
                Motivations to Manage Turnover

5. Need to Consider Customer Satisfaction
    Sears also linked T/O to customer satisfaction
           ▲Stores w/high customer sat: 54% turnover
           ▲Stores w/low customer satisfaction: 83% turnover


6. Need to Manage (but not eliminate) Turnover
    ▪ Who is quitting? ▪ What are the replacement costs?


7. Need to Reduce High Replacement Costs (next slide)
           ▪ Direct           ▪ Indirect
                           TURNOVER COSTS
                                                   Based on Entry Level Salary of $48,463*

Replacement Acquisition
  - Direct hiring costs                                                          $1130
  - Other hiring costs                                                             713

Replacement Training
  - Pre-assignment                                                                2967
  - Learning curve                                                                 818
          (see learning curve graph)



Other costs
  - Unabsorbed burden                                                            2,623
  - Lost profit contribution                                                     1,494
                                      TOTAL                                    $9,745
*Entry level salary of Fortune 500 employee (2011 figures)
                                             Hypothetical Learning Curve for New Hires
Percent of Standard Proficiency Attained   100

                                            80

                                            60

                                            40

                                            20

                                             0
                                                  1       25        50         75     100

                                                         Employment Duration (Days)
                                        TURNOVER COST EXAMPLES BY
                                                COMPANY AND POSITION

                                                 Company            Position            Cost

                                       State govt, (LA)      Protective services      $25,000
                                                             (police, wildlife &
                                                             fisheries, guards)

                                       Call center           Call center employee     $ 8,000
                                                             Supermarket cashier      $ 3,637
                                       Retail
                                                             Manager                  $ 79,672
                                       Insurance

                                                             Project Leader           $ 32,160
                                       Software
                                                             Systems engineer         $ 34,365
                                                             Hotel front desk-Miami   $ 5,688
                                       Hospitality           Hotel front desk-NY      $ 11,609


                                       Fast-food chain       Store Manager            $ 20,765
                                                             Counter Person           $ 1,204


Source: Kepner & Tregoe, Jan. 1999 (Saratoga
Institute Turnover Costing Model), SASHA Corp
2011
 Turnover Rates Among Fortune 100’s Best
Potential Savings
 Company1                  Number of                 Turnover              Estimated                       Reducing
                           Employees                   Rate              Turnover Cost                   Turnover 1%
                             (US)                                        per employee2                   Savings / year
     Merck                     39,489                     9%                    $7592                      $2,765,000
     Cerner                    2,953                     14%                    $8000                       $240,000
    Charles                    18,863                    12%                    $8329                      $1,512,000
    Schwab
   MBNA                        16,960                    15%                    $4800                      $1,000,000
   America
    Bank
 Average US                    10,000                  15.6%                    $5000                       $500,000
  Company
Notes:
1. Based on Public Data from Fortune Magazine’s 100 Best Companies to work for January 2001.
2. Estimated Turnover Costs Calculated at 20% of most common entry level salary as provided in note 1.
Forms of Turnover
         • Nonvoluntary:
           Employer controlled
           (layoffs, terminations,
           downsizing)
         • Voluntary: Employee
           controlled (quits,
           retirements)
         • Gray Area: (spouse
           relocation, child/elder
           care issue, performance
           problem)
CAUSES OF TURNOVER IN NURSING SAMPLE
                               Reasons Unknown                   10
                                Personal Reasons                        15
                                            Death    0
                                       Retirement    0
                                      Poor Health    0
                              Temporary Position     0
         Completed Prescribed Service or Course      0
     Geographic Factors:Job Too Far, Leaving City                                            30
                   Family Illness or Home Duties     0
                                   To Stay Home          5
                                To Attend School         5
                                        Pregnancy    0
                                         Marriage                              20
                            Enter Military Service   0
                     Unsatisfactory Work Hours           5
                                                     0
   Work Too Difficult; Misunderstanding of Duties
                                                     0
                       General Job Dissatisfaction
                                                     0
                        Present Wages Inadequate
                                                                 10
                               Other Employment
                                                     0   5      10    15     20     25      30    35
                                                             Percent of Voluntary Leavers
 Analyzing Forms of Turnover
Among Nurses from A Managerial
         Perspective

                     Turnover
                      14.6%



               Voluntary                     Involuntary
                 87%                            13%



  Functional                 Dysfunctional
     42%              58% (7.37% rather than 14.6%)
                     Turnover Measures

1. Separation Rate
                     # of employees who left during period
             =       avg. # of employees during period     X 100

      a. Jan. 1 - 20 employees 7 quit and are replaced, 2 new hires
         Jan 31 - 22 employees

             7/(20 + 22)/2 = 7/21 = 1/3 = .33 .33 x 100 = 33%


      b. Growth scenario
      Feb. 1 - 22 employees 16 new hires, 7 quit & are replaced
      Feb. 28 - 38 employees

             7/(22 + 38)/2 = 7/30 = .23 or 23%
                   Turnover Measures (Continued)
II. Instability Rate
                 # of initial employees who leave during a period
           =     # of initial employees                           X 100

a. Jan.: 7/20 = .35 or 35%

b. Feb.: 7/22 = .32 or 32%

III. Wastage Rate
                # of new employees who leave during a period
           =    # of new members                             X 100

a. Between Feb. 1 & 28, 8 new hires quit: 8/16 = .50 or 50%


IV. Avg. Length of Service = Sum of length of service for each employee
                              # of members
                        Hom-Griffeth Model of Turnover
                    Satisfaction Influences:            Commitment Influences:
                    •Job Complexity                     •Procedural Justice
                    •Role Stress                        •Attraction of Internal Roles
                    •Group Cohesion                     •Job Security
                    •Compensation                       •Job Investments
                    •Leader-Member Relations            •Extra Organizational Conflicts
                    •Met Expectations                   •Conditions of Job Entry
                    •Negative Affectivity               •Commitment Propensity


                              Job                                 Organiza-
                          Satisfaction                             tional
                                                                 Commitment
Labor Market:                                                                             Shocks
•Unemployment
•Knowledge of
 Other Jobs                                                       Decisions to
•Relocation Costs                                                    Quit
                        Job-Seeking
                        Costs &
                        Benefits:
                        Turnover
                        Costs &
                        Benefits                Job
                                               Search
                                                               Evaluate
                                                              Alternatives
                                                                                     Resignation
          Predictors of Voluntary Turnover
1.  Age  Turnover
        (around ρ = -.14)

2. Length of service
   ↑ Length → ↓ T/O; but why?

3. Sex & family size
    Men & women quit at similar rates
   ↑ # of dependents → ↓ T/O


4. Pre-employment predictors:
   ▪ ↑ prior turnover behavior → ↑ T/O
   ▪ ↑ time (months) on prior job → ↓ T/O
   ▪ ↑ employee referral → ↓ T/O
   ▪ ↑ # friends/family present in org. → ↓ T/O
   ▪ ↑ “overt” intent to stay (ask ‘em!) → ↓ T/O
   ▪ ↑ desire for the job (ask ‘em!) → ↓ T/O
         Predictors of Voluntary Turnover

5. Personality
   ▪ ↑ Conscientiousness (& decisiveness) → ↓ T/O
   ▪ ↑ Emotional stability → ↓ T/O
   ▪ ↑ Agreeableness → ↓ T/O
   ▪ ↑ Openness to new experience → ↑ T/O
   ▪ ↑ Self-confidence → ↓ T/O

6. Union presence

7. Attitudes (job satisfaction,
   organizational commitment)

8. Pre-employment interventions: RJPs
Providing Job Candidates With Accurate and Complete Information
              About the New Job Reduces Turnover


           Sewing Machine                                                              40
                                               11.1
           Operators
                                               11.5
                                     6
           West Point Cadets
                                                                                             50
                                                                               33.8
           Telephone Operators
                                                                        27
                                                           19
           Insurance Agents
                                                                                35
                                                      15
           Bank Tellers
                                                                              33.1
                                                                 22.4
           U.S. Marines                                                                      Control Group
                                                                21.1                         RJP Group
                                         8.5
           Nurses
                                 0       10                20           30            40    50               60
                                                                   Turnover Rates
         Predictors of Voluntary Turnover
 9. Work group size

10. Job enrichment

11. Task repetitiveness

12. Considerate leadership

13. Stress

14. Perceived job availability

15. Withdrawal behaviors: Lateness (very weak)
    and absenteeism (moderate, ↑ abs → ↑ T/O )

16. Job performance (low performers quit more than
    high performers but low and high performers
    quit more than avg. performers)
              POSSIBLE POSITIVE
          CONSEQUENCES OF TURNOVER

1. Displacement of poor performers

2. Increased satisfaction among stayers

3. Infusion of new knowledge/technology via replacements

4. Facilitate organizational change

5. Increased internal mobility opportunities

6. Decrease in other “withdrawal” behaviors

7. Opportunities for cost reduction
            PRACTICAL STRATEGIES FOR
              MANAGING TURNOVER
1.  Hire more carefully
2.   Use pre-employment interventions (see example)
3.  Promote job satisfaction
4.  Promote job autonomy through job enrichment
5.  Use small work groups
6.  Reduce task repetitiveness
7.  Improve human relations skills of supervisors
8.  Reduce stress
9.  Promote organizational commitment (e.g., career counseling;
    side bets)
10. Emphasize person/job fit
11. Address non-work sources of turnover (e.g., EAPs)
Demonstrating Cost Savings of RJP Retention Strategy

  Practical Application of a Control Group Evaluation
  Comparison         Turnover                 Turnover      Total Turnover
     Groups         Rates (%)                 Cost    per     Costs ($)
                                              Leaver ($)

 Control New            17                  6,018              102,306
 Hires (N=100)

 Realistic Job           5                  6,018              30,090
 Preview
 Recipients
 (N=100)

 Cost Savings                                                  72,216
 (Difference)
Based on public accounting firm case study, 1999

								
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