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Tuesday, October 09, 2007

Turnover (Not Apple or Cherry, Unfortunately)

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 na├»ve, 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.

8 comments:

Dean Dad said...

Anybody who thinks turnover is always a bad thing is invited to manage tenured faculty for a while.

"But we've always done it that way" is almost a religion.

Evil HR Lady said...

dean dad--I knew I should have asked your opinion.

Founder: Lea Setegn said...

Evil, you've struck a topic close to MY heart -- Kodak. I'm from Rochester and I grew up in Kodak Park. My Dad worked at Kodak for 30+ years; he took the early retirement buyout in 2004.

My Dad is from Ethoipia, and when he came here in 1973, everyone in Rochester told him to get a job with Kodak and he'd be set for life. Then came the layoffs. From 1983 through 2004, my Mom worried that Dad would be the next to get laid off, which was not a fun way to live. Dad kept his skills updated and changed areas of the company every 5 to 8 years or so, eventually becoming a computer specialist. He stayed viable even while Kodak did not.

The destruction of the neighborhood where I grew up breaks my heart, because it's also the destruction of Rochester. The city is dying -- there are few jobs available, tons of houses are for sale, and businesses everywhere that relied on Kodak employees are closing.

From my perspective, it wasn't Kodak's attitude toward wages and benefits that was the problem -- it was the company's inability to change its products for the times. Kodak made its money from film, not cameras, and digital technology has made film all but obsolete. Could you make the argument that new blood in Kodak might have helped execs see the handwriting on the wall sooner? Perhaps. But Kodak also had something like four CEOs in a decade -- now that's some bad turnover. There was no consistent leadership at the top, no vision. Perhaps another problem was that Kodak failed to grow its own CEO.

HR Wench said...

Promoting good turn over by decreasing annual raises in targeted departments is a weak strategy in my opinion.

Of course how to tackle the project depends upon the company culture, the "legacy" of former leaders, size, current policies, etc. Not knowing anything about the organization...I am inclined to think HR should work with the managers of the targeted depts to identify employees that need to be managed out of the company via performance management/progressive discipline or layoff. Of course those situations cost money - but so does waiting for Bobby Joe in AR who has worked there 20 years to get fed up enough to quit on you. Low morale leads to more workers comp claims, performance issues, higher healthcare experience ratings, FMLA use/abuse and so on and so forth. Plus, I just like the idea of a more direct, laser like approach.

Evil HR Lady said...

lea--but their lack of good products comes from having the wrong people on board. They were so good at retention that many people, unlike your father, knew they'd have a job for life so they didn't change with the market.

With the right people, they'd have different products.

Evil HRISguy said...

One of the problems with turnover statistics/rates/etc is that management will often focus on the overall percent change from one period to another , and not on the fact that a portion of that percent might be a good thing.

pawnking said...

An excellent post, EHRL.

Figure 8 said...

So was the typo "Circut City" a Freudian slip?