Turnover: A Good Thing
A recent conversation with a healthcare executive reminded me that Jack Welch’s management rule of 20-70-10 inevitably increases turnover. 20% of your employees – top performers – are highly rewarded. 70% are being managed up or out. The bottom 10% is terminated or self-terminates.
The top reasons people leave your organization include:
- Perception of limited opportunities.
- Lack of senior leader role models.
- Excessive workload, especially attributed to bureaucratic and management inefficiencies.
- Non-competitive rewards and recognition.
- Lack of respect for personal life/desires.
The total costs of turnover range from 90%-200% of an employee’s annual salary.
Source: Turnover and Retention
Turnover is good:
Turnover is universally viewed as costly and detrimental. On the other hand, one could argue that turnover caused by weeding out poor performers’ – pruning – increases vitality.
- How much are poor performers costing?
- What about stagnant ideas? Nothing like new blood to fuel innovative thinking and challenge the status quo.
- Does managing the bottom 10% out of your organization energize performance cultures?
If turnover makes room for fresh blood, traditional employee orientation programs that train people to fit in aren’t helpful. They teach people to respect the establishment rather than challenge the status quo.
How about teaching them to stand out?
When organizations drain creativity from new people – and we know they do – bringing new people in won’t matter much. Additionally, nearly everyone looks down on new people. If they stand out too quickly, “Who do they think they are?”
Turnover is only good if new voices are heard, new eyes are looked through, and new talent utilized.
Tapping into new:
Notice the top two reasons people leave are lack of opportunity and poor leadership role models. What if new people were given opportunities and support (mentoring/coaching) to succeed or fail fast?
Would established employees resent or sabotage new people?
How might organizations give new employees more respect sooner?
To give new employees respect sooner would require exposing them to mentors and good role models sooner. It would require evaluating their talents prior to hiring, and actually making better use of the talents they already possess sooner. Training is needed in almost every field now, but we overlook innate talent and genius in people because it doesn’t fit into the “round hole.” But recognizing their uniqueness sooner generally gives people incentive to grow further, faster.
Will the other employees resent it? The easy answer would be no. But the human answer is yes. This is a shift that would have to take place at all levels of the organization. Only by incorporating those people who are already growing will they have incentive to stay as well.
Coming from a healthcare professional, your suggestions are challenging.
There are always places where everyone must “fit in.” You’re making me think that something like Strength Finders should be part of the selection process.
I always appreciate your comments,
I found out a year ago that turnover can be good. I have a small company about 8 employees, and a year ago for one reason or another all but two left. One moved, one we terminated and another got a better offer (or so she said) At the time dealing with it was awful and I looked as to why this happened. The one with a better offer actually went to work where another former employee was working because I refused to hire the one employee back.
However, in the process of turn over I learned that I had become to trusting and not following up on whether routine tasks were getting done. Things that were part of the job description had not been done for 3 to 6 months. It also allowed fresh blood into the office which in some instances had a better idea of how things should be done as opposed to how we always did it. So as painful as it was at the time, the staff turnover was the best thing that could have happened. We are actually running more efficiently with fewer employees
Thanks for sharing your story. Sounds like you turned a tough situation into good. Congratulations!
You make me think about the power of maintaining high standards.
Thanks for adding value,
I absolutely agree that top two reason why people leave the organizations. Besides, mismatch between effort and reward is the important reason. Turnover should be introspected from insider perspective. I do agree with the awareness and competitive world outside, but internal hiring system, induction program and training & development program need to be diagnosed from broader perspective. It is not always people who leave or stay are responsible for turn over. But when new employees turn over is more in-spite of good pay, cultural practices and lack of affection could be the reason for turn over.
Leaders need to strike right balance between expectation of different generations. Organization need to understand employees are equally important irrespective of position. Generally people with rigid ideas and trends creates shaky environment. Stagnation should devise reward measure in such way that creates clear bifurcation of performers and non performers. This can surely make culture good to work and retain employees.
Thanks for always being here to join the conversation and share your insights.
Tucked away in your comment is the important idea of understanding and embracing generational differences. Getting the most from people means understanding who they are.
You have my best,
Great point about generational management, it has been stated in recent studies (apologies for not referencing) that corporate gen-y employees have an average tenure of 2 years in a specific role. This has a significant impact on sales roles and other customer facing appointments, from experience clear direction in the first 6-12 months (documented and measured probation milestones), mentoring programs and clearly communication career development frameworks are essential to retain and motive gen-y appointments.
I agree that if the process is well managed some turnover can be a good thing, especially in large organizations. But a policy of “weeding out” the supposed bottom ten percent as per Welch can cause an environment where fear, anxiety, and mistrust are endemic (by at least some accounts, that was the GE environment under Welch). I’m quite certain that if one were to poll the Fortune magazine 100 Best Places to Work companies, not one of them would have a policy of routinely treating the bottom ten percent (however defined) as weeds needing to be weeded out.
I’m thankful you brought up work environment. During my talk with the executive I mentioned, this came up.
Welch gets a lot of push back on the %10 rule and he still maintains it works.
One thing is certain, an organization that wants a positive environment has to do MORE encouraging, training, and supporting than cutting if it wants to create a positive culture.
Thanks again for sharing your insights. They are an important component of this conversation.
Welch’s rule is idiotic and creates a culture of fear, silo building, and internal competitiveness in the organization which in turn leads to a lack of learning and innovation. It was this type of thinking that lead GE into the crisis they found themselves when they needed US government bailout money. So much for Good to Great – how about Good to Great to Government Bailout!
would making current employees mentors help them take new employees under their wing – giving them respect and allowing the newbies some creativity and power?
I think that would be helpful as long as current employees were honored for helping make others better.
In big organizations turnover can lead to a constant learning curve which keeps a helpful “beginners mind” in the culture, but also can be very tough to maintain the needed knowledge base. It’s also more difficult to establish the consistent culture and norms when turnover is high. I always approach hiring carefully and as slowly as needed to do it right, bring new folks in with love and attention, and help them to grow. Of course, this also means doing the tough-love thing when a person cannot or will not perform under this approach.
Thanks for using the term “big organizations.” You’ll see it in other comments, too. It’s definitely a factor.
As I wrote this post, I was thinking about some of the issues you raise. My only thought is a strong emphasis on values might help maintain organizational stability.
The challenge of the knowledge base is a big one, for sure. Processes and procedures might help and what about mentoring and coaching?
I’m thankful you shared your insights today.
On principle, I couldn’t agree more with you. Organizations and the individuals that comprise them are constantly going in and out of alignment. It’s the ancient buyer/supplier rule, i.e., they can never fully align. Hence, the organization should always be thinking about what it needs to be doing to deliver it’s strategy and goals through aligning ever more effectively with the staff’s goals. Staff meanwhile need to be constantly reminding themselves that they have a duty to make sure that they remain in alignment with the organization’s goals. Both the organization and the staff have the right to move on when the alignment fails.
This does not give the leadership the right to be lazy about firing people simply by making the alignment rule an excuse. When they fire staff, the board should be asking, ‘What did the leadership do wrong that those people fell out of alignment?’
Theoretical, I know. But, it’s a principle that’s worth keeping in mind.
In practice, I’d say that while the 10% rule is practical it is also beginning to be a bit outdated, not to mention lazy. The organization should constantly thinking about how to lower the 10% through hiring practices, etc. Staff should also be thinking, ‘What do I need to do to stay out of the 10% zone?’ It’s about shared accountability.
Thanks for your comment.
You bring up the important idea that if people need to be fired, where did management fall down. Your use of the term “lazy” powerfully suggests that observing the 10% rule places all the blame in one place.
Thank you for adding value to the conversation,
Our organization, Hewitt Associates, hired Peter Drucker several times for 1 day sessions with our partners. While somewhat interactive, most sessions evolved into listening to Peter, but usually after he listened to us. We were quite proud of our very low turnover and often bragged about it. Peter, at our second session together, obviously tired of hearing about our low turnover, speaking very slowly, said, “I wouldn’t be bragging too much about only having one bowel movement a month” Then, he went on to tell us the importance of higher turnover–not high, but higher than we had.
This had an impact on us. We confronted “just ok” employees earlier. We pushed for excellence more consistently. We viewed people leaving as opportunities for upgrading that spot.
Regarding the question of how to give new employees more respect sooner, we had a few practices that helped us integrate young people quickly into the firm: (It should be noted that we mostly hired people at a young age and developed them, as opposed to hiring experienced people and integrating them)
1. After someone accepted a job, we sent him or her, let’s say her, a letter saying how pleased we were she will be joining us and included material educating her about us and our goals.
2. On her first day, really spent some significant time introducing her around, hosting a lunch with her boss and fellow workers, when possible, describing the role of the group and how it fits in the organization and our goals, answer questions, etc. all of which encouraged her to feel part of the team, immediately.
3. We met with her several times that first week.
All of the above doesn’t sound (and in fact, isn’t) very special, but most company’s don’t make sure it actually happens to every employee.
If the first week goes well, it sets up a positive relationship and a clarity about what is important (clients,excellence and creating a satisfying work environment) that makes it much easier and less time consuming for the future.
At the end of the first week, almost every employee will talk to friends and/or parents and answer the question, “how it is going?”
You want every employee to answer that question—“great, they made me feel so welcome and important.”
Pete, good stuff. The majority of what your are talking about is helping people to fit. It is such a key. In addition to Dan’s information, I have seen where the majority of people leave not because of skill, but because they didn’t fit. It is not complex, but many departments and organizations don’t remember or don’t think about what it was like to be new. It’s a key opportunity to boost early engagement and productivity.
Love the Drucker story! Thanks for sharing it.
Thank you for helping us see that showing respect sooner isn’t rocket science.
No one sees better than a new person… building them up and then listening attentively should yield great results.
I hope to see you again soon,
That little bit of warm and fuzzy can make a difference. I know with my personality, I like percise answers to my questions right now (aka is there a system in place or do I blaze a new trail?) and then I can go on with my day. But if you have someone who is new and they sit around wondering what is supposed to be going on simply because they do not know there is a procedure in place or who to ask…it can shake the confidence in the emplooyee that they are working for an actual company and not some entity pretending to be a company, that has just not closed down yet. I have known some ot these entities that stumble blindly for years and then final screw something up and get in legal trouble and close down. First impressions are important for small businesses and large companies. Dave
Great post this morning Dan! I think it is a great idea to give employees the opportunity to succeed or fail fast. Obviously it gives them a fantastic feeling if they can succeed sooner, and it will benefit the organization if others fail in short-order and they can be moved out without investing too much time, money and energy on them.
In terms of how can organizations show them respect sooner…. Just CARE Dan. Show them that they are part of something bigger, and if they work their butt off, they will be rewarded for their efforts. Also, create an atmosphere of learning, team work & most importantly fun!
Thanks for the good word and for the heart in your comment.
You are more than welcome Dan! Once again, I really enjoyed the post. It gives us all a lot to think about today. Have a great weekend…
Another great post Dan, you get me thinking and that’s usually a good thing unless you ask my wife!!
While I agree that some turnover is good, that can usually take care of itself through performance management. I suggest that the real issue is preventing the turnover of your key performers – your superstars and giving that (70%) the opportunity to grow and succeed in the company. Sure, some will leave for valid reasons – spouse relocation, career progression etc. The challenge is to retain your high performers and the other (70%) and if we as leaders do the opposite of the “5 reasons employees leave” noted above,I suggest that would improve retention and turnover greatly.
Ajay’s comment on generational differences strikes a cord. There is a lot of knowledge being held by the Baby Boomers that we as leaders should tap into for the betterment of all generations and the company. Baby Boomers can be great mentors, coaches or preceptors (healthcare term) for new hires and employees who want to grow in their profession. Conversely, there is a great amount of “new” knowlegdge that Boomers can certainly learn from the younger generations (X,Y, is there a Z yet?) as well. Without our younger tech savy employees I wouldn’t know half as much about technology as I do, so learning can and should be both ways which greatly beneifts the company as well.
“How might organizations give new employees more respect sooner?”
Your closing sentence triggered a sequence of responses with me:
1. Yeah, that’s a beautiful excuse to remain passive.
2. “The organisation” is nobody, is anonymous.
3. This blog is about leadership. Now where’s the leader in this?
4. What’s in this for me? I’m at the bottom of the management pyramid.
5. Wait a minute, even though I don’t hold a management position, I can still do that. Last time I looked I still was a human being.
6. Thinking about pyramids, where is respect in Maslow’s pyramid?
7. I sometimes crave for respect. Why would others be different?
8. Why limit this to new hires?
9. What if you made it your mission to ruthlessly pursue alignment of people’s role in the organisation with their personal values (and be an living example yourself)?
10. This may look like a 180 degree turn in perspective, but would it turn you backwards?
9. Stop, I want myself to rephrase #9. What if _I_ made it _my_ mission to ruthlessly pursue alignment of people’s role in the organisation with their personal values (and be an living example myself)?
11. This might even increase turnover, but not for the ugly reasons listed in the article.
12. Hey, who am I to think about this. I’m only the object in a sentence with ‘management’ used as a verb.
All organizations hire duds. The problem is that some don’t get rid of them. That’s the problem with Tenure, Seniority, bumping, etc,.
I agree low turnover is a terrible measure. Turnover of top performers, however, is a much more accurate gauge.
Exhibit A: The Government.
I rest my case.
I enjoyed this and the commenting adds additional dimension!
I always looked at this whole deal as a dance. The employee has responsibility and accountability, and so does the leadership/employer.
Before I went on my own, I’d done all the roles, from engaged high-performer, to gradually losing interest, to staying to long for my own wellbeing and that of my employer. Having also infuenced the range from various roles, I come to this question: Why would we want an employee in a role for one day longer than they are engaged from the inside out?
Most answers to this question are those that include some kind of delusion (e.g., that a high-performer can be bought), wishful thinking (e.g., that the increasingly apathetic employee will get better once “this project” is over), or personal, petty, agenda (e.g., “I don’t want to reduce my headcount and therefore my power”), or fear (e.g., “We can’t afford to replace her”).
I’m not suggesting “pink slips” at the first sign of loss of engagement, but only using the question philosophically to become more mindful of hiring and leadership choices.
Of course, on the employee side, a similar question is at hand and it might go something like this:: “What will staying one day longer than I am engaged and challenged and happy do to my wellbeing over time… and where do I want to go from here?” An earnest look and honest answer will point to some kind of change…
Excellent post – my other half is facing the first 2 challenges at the moment.
Thanks for the good word Stuartart … Always glad to see you and best wishes to your other half.
Hi Dan, great conversation and post. Turnover is a perennial metric which most organizations monitor. We have a pretty intense onboarding program for all levels. With Physicians and Mid Levels we have the Harbin Connect Program that helps the new staff member acclimate not only to the work environment but also the community. We discovered long ago that developing roots in the community is critically important in decreasing turnover. We must never forget that recruiting the candidate is important but recruiting the spouse is almost more of an imperative.
On the Jack Welch thing and the comment shared regarding Peter Drucker I am not sure I can agree. I know both of these fine leaders are icons and from an organizational perspective are probably correct and woe little me to disagree. Someone a lot smarter said “If you can’t do the things you believe in you can never be happy.” (Freya Stark) Well religiously cutting 10% of your staff every year is certainly not something I can believe in or subscribe to. I know the concept of “curving” performance has been around for a long time but I don’t believe that MO will work for the 21st Century or with genX and genY folks. The new business imperative is collaboration at all levels and performance should never be the only reason to let a person go.
If we do our homework right and invest a lot of resources on the front end your attrition rate will be very low. In the Book “hiring for attitude” (not sure if that is correct) the author states that statistically and by a wide margin the most common reason for employees to either leave or be let go is because of lack of cultural fit and attitude.
We spend most of our energy on discovering cultural attitudes that fit with our V/M/V. You can always teach skills and you can even role model certain values but attitude is the exclusive domain of the individual and that is what we try to hone in on.
I believe one of the comments talked about how the GE MO would be instilling fear and paranoia in the work place. Well the new paradigm in our mind stipulates the exact opposite: Creating safe space and inculcating a blame free culture is what we are after. We do our best to re-train, change job descriptions, modify work hours etc before we will give up. If Leadership’s mantra is to have an organization that functions as one big family then members will act and behave accordingly.
On the other hand disruptive people that fell through the “cracks” need to be dealt with swiftly or you will have a “toxic” environment which may spill over on those you are helping and working with.
Sorry for the long comment but starting the Lean process with the absolute imperative of no one losing their job has made us reconfirm our view on attrition, hiring and firing.
We are all smart just smart at different things and it is the responsibility of leadership to discover what we are good at.
I really like what you’ve written here. I completely agree on the “religious 10%” thing, and believe the kinds of sweeping approaches that Welch proposed can lead to perverse incentive.
I also fully support your idea of doing the homework up front.
In the real world, people change. As employees grow and employers evolve, a former “match” can turn into something limited for either or both.
In my perfect world, natural attrition occurs in a healthy way, with employees making beneficial moves before a “push or shove” is necessary, and employers having a level of transparency and care for employees (and a culture) that embraces the idea of natural, mutual growth, and supports expanded career choice within the company… or outside it. To be a bit extreme, most if not all reasons to act otherwise include some kind of fear. 🙂
Hey Mark, thanks for the encouragement. You are so right to bring up the fact that people change and that is so true. That is a far cry from uniformly “dumping” people in the bottom 10%. If the employee has a different set of goals that are outside the organization’s vision then we wish them well and move on. We like you total adhere to natural attrition as you describe. Fear has no place in the work place or outside for that matter. It is all about serving and being generous in a healthy and safe environment. A safe community unravels all sorts of hidden buried talent. Happy Fathers Day to all Dads out there. Peace. 🙂
4.Non-competitive rewards and recognition.
5.Lack of respect for personal life/desires.
I still remember being at community college and my professors saying the 90% 10% rule. 90% of your revenue/work will be generated/done by 10% of your employees and they are the ones you need to keep.
As I was reading about the best getting hired away or trying to hire the best from your competition, I did not see any examples of HOW to do that.
So I want to throw out there for consideration, Key person benefits, Golden Handcuffs, making them part of your succession plan.
If you have a nice deferred comp package with Golden Handcuffs or they are supposed to buy the business from you in 5-10 years, it is much less likely they will leave for the competition. Particularly if they have become less healthy.
Food for thought.
Leadership Freak, while I have been on wordpress for only two weeks, I am glad I found you and enjoy your posts.