Don’t Get In a Twist About Human Capital Turnover

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Expert Perspective Form Grahall’s OmniMedia Editorial Board

Jon Picoult made some sensible points in his recent article published in the New York Times (Here Comes a Turnover Storm) but in a few important ways he missed the boat.  No doubt there will be turnover when the job market picks up and perhaps most of that is due to employee discontent. But more importantly, before people  begin leaving (because they always do), a company should design its reward and retention programs to hold onto those, frankly, very few, who are the most important to the company. These few, in most cases not more than 15% of the workforce, are those individuals who contribute to the competitive advantage the company offers.  The remaining employees’ jobs are equivalent to “keeping the lights turned on” so the elite group can get the real work done.   The small groups of key employees are those on whom companies must focus their attention.  This may sound harsh, but resources are scarce – especially those used for employee retention strategies:  Time and Money.  

The best companies and those who have weathered the recession and will recover (or already have) are those who know specifically the jobs and positions that are critical to the success of the enterprise. They have those positions staffed with top performing individuals whose compensation, mentoring, development opportunities and other rewards reflects their efforts and their importance to the company.   Grahall’s Michael Graham adds:  “Most companies find that only 15% of jobs are mission critical to their success. The employees in these jobs are the company’s most important assets and should be rewarded accordingly.  Anything else is an ineffective allocation of resources and does a company disfavor.”

So that raises the question of how to control turnover costs for the other 85% of an organization when  allocating scarce resources to key positions, and the remaining 85% of employees may be paid below the 50th percentile.  We wouldn’t, as Picoult suggests, worry that the “term that many companies use to describe their people, ‘human capital,’ is inherently dehumanizing”.  We find it absurd to blame employee disengagement on lingo.  Instead companies need to consider that, as we have said before, the employer/employee loyalty contract is broken.  As we said on our blog Who Are You?, for employees it’s “all about me.”   Regardless of generational differences, more and more workers are “free agents.”   They expect the company to “do the right thing” and by that mean “the right thing for them.”   Employees will continue with a company for as long as it feels “right” to them, and often not a moment longer.   Employers will retain workers for as long as they provide value, and not a moment longer. 

The best way to address turnover costs for the bulk of the workforce is to build systems and processes that allow a company to efficiently on-board, train, deploy and manage the performance of these employees.   Clear job descriptions, responsibilities, accountabilities, goals, and regular performance feedback can help reduce turnover  across all job families. 

Companies must couple this with an understanding that “the workforce” has changed.  In fact, for the majority of companies it’s not even one workforce any longer.  It may be 10 or even 100 different workforces that are aligned like layers of an onion.  A single planning, management, rewards system or communications program doesn’t work in these complex environments.  Workforce differences can be geographic, generational, economic, educational, and now more than ever before based on employment status.  Use of temporary, contingent and part-time workers has begun to outpace the hiring of full-time and permanent workers.   And this cohort of contingent or temporary workers can be a powerful tool to help companies address turnover in non-critical jobs. 

Last but not least, Joe Davidson adds: “Companies need to understand the cost of turnover”.  Picoult’s generalization of this cost being 50% to 400% of salaries is at best just wrong.  Joe continues: “The cost of turnover is identifiable.  With segmentation and proper analytics a company can calculate the cost of turnover for any segment or element of its workforce.”  This data is important and will help to inform decisions about where to  invest in “human capital” and where to  allocate scarce resources.

Contact Grahall’s OmniMedia Editorial Board at edie.kingston@grahall.com

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