This article originally appeared on ere.net
Perhaps the most alarming statistic of the year comes from recent research by The Predictive Index (TPI) revealing that “on average, 47% of high-performing employees left their company last year.” What could be worse news to your executives than learning that nearly half your firm’s high-performing employees quit?
The loss would be staggering not only because of the obvious loss of performance but also because these individuals were likely “the future of your company.” To make matters worse, executives in that same TPI study reported that 51% of the replacement employees were not good hires. My own research suggests that this same painfully high top-performer turnover rate and weak new-hire replacement rate are probably also happening at your organization.
I’m focusing in this article on the high-performer-turnover issue because of its extreme cost to the organization. I have calculated that the loss of each of these truly exceptional employees is likely to cost a minimum of three times their annual salary. Therefore, it’s not an understatement to declare that in large companies, tens of millions of dollars are literally walking out the door each year in the form of top employee turnover.
Unfortunately, most organizations will never know that these multimillion-dollar losses were occurring. The retention metrics at most organizations are so generalized and weak that they don’t even report high-performer or high-impact turnover. Perhaps, in part, if the percentage leaving and real dollar costs were known publicly, it might even negatively impact your stock price.
A Quick Glance at Why Losing High-Performers Is So Damaging
Losing any employee is expensive. However, you should be alarmed with the loss of such a large percentage of these high-impact employees who are probably each worth at least $1 million each because:
- Top performers may produce 90% of team value. Startling research from Google found that “90% or more of the value from your teams come from the top 10%.” So, with a 9 to 1 performance differential, it’s hard to underestimate the productivity loss because of the departure of anyone ranked in the top 10% of the team.
- The departed are probably also leaders. Obviously, losing nearly half of your high-performing employees each year will negatively impact organizational performance. It’s likely to be even more damaging to the company because these high-performers are also probably your current and future leaders and innovators. Their loss may be so significant that it may cause your firm to lose its competitive advantage in the marketplace because of the impact that their loss will have on delaying important projects and product development. If the departed employees directly generate revenue or work directly with major customers, the impact is likely to be even larger.
- They are likely also going to your competitors. They are not just leaving, but they are also likely taking their performance and their ideas to your direct competitors, which effectively drives up the cost of their loss by as much as a factor of two. In most cases, you can find out where they actually went by visiting their updated LinkedIn profiles.
- They will take others with them. Once there is a significant flow of top performers walking out the door, it is highly likely that other key employees will take it as a signal that it’s time for them to leave also. When your top performers go to a major competitor, you need to plan on them bringing three to five other performers along with them within a few months.
- More than half of turnover could have been prevented. Perhaps the saddest fact is that much of the high-performer turnover could have been prevented. At least two studies have shown that more than half of all turnover is relatively easy to prevent. Knowing that a good deal of the turnover was preventable is likely to further anger your executives.
- Their replacements aren’t likely to be nearly as good. In this highly competitive talent marketplace, you might not even be able to find equivalent replacement hires. If you do, these replacement hires are not likely to perform at the same level. In fact, the same TPI report reveals that, on average, a majority of last year’s hires (51%) were not considered by executives to be good hires. Your lost high-performers are likely to be seasoned professionals who operate smoothly within your culture. Even an equivalently skilled outside replacement is likely to struggle initially until they get fully acculturated.
Action Steps for Reducing High-Performer Turnover
Unfortunately, because most organizations lump all turnover into one single category, executives at your organization are not likely to even be aware of the fact that they are losing such a high percentage of top performers. If they do realize it, they will need to take proactive steps to minimize the turnover. Here are some proactive action steps to consider:
- Shift to a data-driven retention approach. A majority of corporate retention efforts rely on intuition in order to identify which employees are likely to leave. A significant percentage of firms also rely on the “peanut butter approach,” where all employees equally receive the same retention actions across the board. Both approaches have many flaws because they are not data-driven. The first and most critical step that leads to maximizing retention results is shifting your entire retention program to a data-driven model where you use data to identify high-impact employees, to identify those most likely to leave, and why they might leave. Use data to determine the highest ROI retention actions. I have found that the No. 1 underlying cause of preventable high-performer turnover is not applying a data-driven approach to retention.
- Calculate and report performance turnover. A top performer leaving has a larger impact than a normal departure. Weight your turnover based on the performance of the individual leaving. I call that performance turnover. Obviously, any departing top performer would be classified as regrettable turnover, so each should be assigned a higher weight in the overall turnover calculation based on their performance differential. Losing low performers might actually be considered a plus, so their turnover might not even be counted as a negative.
- Calculate and report the business impacts of turnover in dollars. Even when you report weighted performance turnover, it might not get the attention of executives who won’t act because they assume everyone is having high turnover. Instead, work with the CFO’s office to calculate the business impacts in dollars of all regrettable turnover. And instead of just reporting that you lost Mary Smith, report that her loss will cost your organization $1.2 million over the next year. As mentioned previously, I estimate the cost of high-performer turnover to be at least three times their salary. If the departing employee was diverse, the cost could increase. If the individual went directly to a competitor, you might need to double that dollar amount.
- Prioritize your regrettable employees. If you have limited resources, it makes sense to prioritize your employees. Normally, you start by designating three classes of “regrettables.” Start by identifying top-performing and hard-to-replace employees who you would deeply regret leaving. In addition, you should designate high-impact jobs (like machine learning and cybersecurity) where you would “regret” losing any employee working in one of these jobs. Prioritized employees would receive the most retention actions.
- Use data to predict which regrettable employees are likely to leave. Many corporate retention efforts treat all employees equally, even though they don’t have the same probability of leaving. It’s important to realize that among your regrettable employees, not everyone has the same probability of leaving. It makes sense to target your retention efforts on regrettable employees where you have an indication that they are even slightly unhappy. Unhappy top performers will be the primary laser focus of external recruiters who raid companies. An important step is to develop a data-driven approach and a formula for identifying which targeted regrettable employees are most likely to leave within the next 18 months. Those who are likely to leave are called flight risks. IBM’s predictive attrition program, for example, found that it was possible to predict upcoming turnover (flight risks) with an amazing 95% accuracy rate.
- Utilize stay interviews to identify the potential causes of turnover among regrettable employees. Instead of using intuition, you need to use a data-driven approach to identify specifically why an individual regrettable employee might leave. The most effective approach by far is called a “stay interview,” where you hold one-on-one conversations periodically with at-risk employees to identify the “sticky factors” that cause them to stay. Reinforcing those “stay factors” usually has a greater impact on retention than trying to eliminate their frustration factors. LinkedIn, for example, found that utilizing stay interviews could help reduce turnover by as much as 38%.
- Mass personalize your retention solutions. The next, but perhaps the most important, action is to mass-personalize your retention efforts. That is necessary because the key to success in retention is to avoid across-the-board solutions that are applied to everyone. Instead, because everyone leaves for a different set of reasons, any successful attempt to keep them must be personalized. Start by reinforcing the “sticky factors” that were identified in the stay interview. In severe cases, you also try to mitigate or eliminate the “frustration factors” that are further driving each individual’s unhappiness.
- Utilize post-exit interviews on regrettable employees that left. Whenever a regrettable employee leaves, it makes sense to use data to identify the underlying reasons why they left. Traditional last-day exit interviews are fraught with problems. Instead, rely on post-exit interviews to determine the real causes of turnover. These interviews are delayed several months so that the former employee can settle into their new job. These post-exit interviews have been found to improve the accuracy of answers related to turnover causes by at least 40%.
- Calculate and report preventable turnover. After a regrettable employee has left and you have conducted post-exit interviews to determine the real underlying causes, and because over 50% of turnover is preventable, it makes sense to make a determination if this one could have been reasonably prevented. Make a list of turnover causes for each individual and compare it to a checklist of reasons that you have predetermined to be preventable. After the end of each business quarter, calculate and report what percent of all regrettable turnover was preventable and the dollar loss that occurred because the right preventative actions were not taken.
Final Thoughts
Perhaps the only turnover news more startling than losing 47% of your high performers would be if LeBron quit your basketball team. Even after hearing startling turnover news, executives often don’t act. It happened to me years ago when I was chief talent officer at Agilent Technologies. A report came across my desk indicating that more than half of our departing employees were ranked as top performers. I was flabbergasted. Unfortunately, even after presenting the business case, HR blocked any action based on the lame excuse that “those numbers couldn’t be right.”
In this current case, the numbers in this credible survey are right. And in addition, the study also found that when companies implemented what TPI calls “talent optimization practices,” their high-performer attrition rate dropped to an average of only 17%. It’s critical that senior leaders in TA and HR act immediately to determine if the same high-performer turnover phenomena are occurring right now within your organization. In my view, losing any more than 20% of your stars each year is simply unacceptable.