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SECTION II: DETERMINING THE EXTENT OF YOUR PROBLEM
Although labor turnover has been studied in depth for only seventy years, it has produced a variety of formulas for its measurement. Here, we shall depict the most basic formulas necessary to install a meaningful program. The variations in formulas are due primarily to different researchers attempting to investigate different pieces of data.
For example, Frederick J. Gaudet in AMA Research Study 39 describes 25 formulas. Combinations of these lend themselves to deriving and analyzing different sets of information. Quit Rate, Discharge Rates, Wastage and Dilution Indices are only used toward clearly defined, specific areas of study. In turn, the programs developed to lower these rates become more and more sophisticated.
In this publication, only formulas will be discussed that are necessary for a company to determine the extent of its turnover and aid in the isolation of some of the causes. All study of labor mobility starts with certain basic data.
In order to have figures to put into a formula, a company needs to have some kind of a personnel recordkeeping system. Most companies of any significant population have all of the information necessary to install such a system.
The formulas presented are those used by the Unites States Department of Labor, Bureau of Labor Statistics (BLS). By using these, some consistency of information will be developed so that those companies wishing to do so will have consistent data to compare with industrial and geographic figures presented by that Department.
Prior to investigating the various basic and definitive formulas, it is necessary to define certain terms. These terms will also consistently aid in gathering the material over a long period of time, so that meaningful comparisons within the organization may be made.
1. Total Accessions – All the permanent additions to the employment population whether of new, or rehired employees. Those persons hired on a temporary basis for permanent jobs should be included. For example, student workers who take positions during the summer that would normally be filled by permanent employees would be included in the turnover accession rate.
Those organizations that have multi-plant operations should include permanent transfers from other plants in this figure. In this way, single plant data will be accurate. Personnel who have been recalled from layoff within a thirty-day period should not be included. Individuals returning from extended leaves of absence should not be counted, even though due to the extended period of absence, a replacement may have been employed. It should be kept in mind that the additions to permanent positions are what is to be determined.
2. Total Separation – Termination of persons who have quit or been terminated for reasons such as extended layoff, discharge, retirement, or military service. Individuals placed on a sick leave status, where disability is expected to last more than thirty days, should also be in the figure, if replacement is anticipated. In multi-plant establishments, personnel permanently transferred to another plant should be counted as a separation and will be included in accessions to the receiving plant.
If the purpose of turnover statistics is to determine the cost of separation and subsequent replacement of personnel, then retirement, deaths, and all other reasons for leaving employment should be included. If, however, a company is only attempting to determine the extent of its controllable turnover, then uncontrollable separations may be left out.
3. Quits – Employee initiated terminations for any reason except to retire, transfer, or enter into the armed forces. Persons who have failed to return from a leave-of-absence, or who are in an unauthorized absence situation, should also be included. The Bureau of Labor Statistics deems those persons who have been on unauthorized absence for over seven consecutive calendar days as quits. If only ‘in-plant' data are to be compared, each company should count for quit purposes all those who have failed to report for work within the time limit specified by the company policy. Comparisons with the BLS "quit rate" would be affected only slightly since most companies use a three or five day non-report period.
4. Layoffs – Suspensions from pay status expected to last for an extended period of time. Layoffs are initiated by the employer due to lack of work or reduction in personnel. An extended period of time may have whatever definition an individual company desires. However, the BLS uses seven consecutive calendar days as the time factor in counting layoffs. Companies generally prefer not to use this short period unless, upon recall, the employee fails to return. Again, a 30-day period is more appropriate.
The above definitions are those mostly used by employers as comparative data to that used by the BLS. In given situations where employers desire to use a company definition, it is advisable to maintain some consistency so that trend lines will give comparative data over an extended period of time regardless of comparability to BLS data. The fact of high turnover in a given geographic area or industry does not indicate that your particular company should have the same degree of turnover. Also the control of the input data by the BLS is most difficult. For example, many companies maintain internal statistics in their turnover programs. If an employee were deemed a quit, following three days of unauthorized absence within the company's statistical framework, it might well be that the personnel records would not be researched in order to give the BLS the specific data concerned with seven days of absence. This is not to say that companies do not make two studies, but it would seem that the BLS couldn't assure that this would not happen. In almost every category of accessions, separations, quits, and layoffs, it is really not so important to maintain the data consistent with BLS as to maintain the same information within company statistics. It is more meaningful to compare turnover within the individual company with its own data and policies than with some outside organization. Therefore, the definitions mentioned above are adaptable to most frames of reference of most companies. The individual or department responsible for the maintenance of data has only to assure itself that all information is maintained uniformly.
As will be seen under the discussion of the different formulas, these definitions may be revised, depending upon whether a company is attempting to discover and correct its anticipated/unanticipated, controllable/uncontrollable or other special problems such as quits or discharges. More sophistication in control becomes necessary as changes in such factors become necessary. When the company desires only to compare its figures to previously reported in-plant data, then the inclusion or exclusion of any item becomes an individual decision.
BLS, turnover rate calculation. The most common formula for computing net monthly turnover-and the one generally recommended by BLS-is S ÷ M x 100 = T, with each element defined as follows:
• S is the total number of separations occurring during the month. Separations include voluntary separations or quits; involuntary separations, such as discharges of permanent staff, layoffs lasting longer than a week or with no intent to rehire, and terminations of short-term or seasonal employees; and other separations, such as deaths, retirements, transfers to other locations, and separation due to disability.
• M is the average number of employees on payroll during the month.
• T is the net turnover rate per 100 employees.
EXAMPLE: The turnover rate for an employer with an average of 200 employees in a month and 15 separations during that month is 7.5 percent (15 ÷ 200 = .075; .075 x 100 = 7.5 percent).
The formula for calculating the annual turnover rate is the same (S÷ M x 100), except that S is the total number of separations occurring during the year and M is the average annual employment.
BNA, turnover rate calculation. The definition of separations excludes not only leaves of absence, but also job eliminations, reductions-in-force, layoffs, or departures of temporary staff.
Avoidable turnover rate calculation. Some experts believe that including both voluntary and involuntary separations in turnover calculations can overstate the extent of a turnover problem. To obtain a more accurate picture, they suggest excluding unavoidable separations from calculations and instead examining only avoidable turnover-that is, employees who leave voluntarily due to dissatisfaction with pay, advancement opportunities, working conditions, or some other aspect of their jobs.
The formula for calculating avoidable turnover is (S - US) ÷ M x100 = T, where:
• S is the total number of separations occurring during the month,
• US is the number of unavoidable separations occurring during the month,
• M is the average number of employees on the payroll during the month, and
• T is the net avoidable turnover rate per 100 employees.
EXAMPLE: For an employer with an average of 200 employees and 15 separations-10 of which are avoidable and five unavoidable-in a given month, the rate of avoidable turnovers is 5 percent (15 - 5 = 10; 10 ÷ 200 = .05; .05 x 100 = 5 percent.
Critical Skills Inventory
Companies that feel that, in general, their turnover is within the tolerance they expect, might wish to consider a "Critical Skills" program. In most organizations, some employee functions are filled by specialized, highly skilled and professional personnel, for example specialty engineers, scientists, research or medical technicians. Often the employment and training of this level of individual involves expenditure of much money, time and energy. Any turnover, in the critical skills category is not only expensive but difficult because it places hardships on the organization during the replacement period.
A study of critical units starts with the identification of who they are, how many there are, and a simple separation formula. Where a turnover of 3% might be acceptable in the general employee population, close scrutiny will indicate that even a turnover of 1.0% in these categories might be prohibitively costly.
Once the determination of the scope of the problem has been made of critical worker units, the company might wish to appropriate a budget to make in-depth analysis of causes and cures.
Some companies specialize in administering and interpreting psychological interviews, personality and biographical inventories, interest tests, and other tools that aid in determining the turnover prone person.
Others have developed and validated opinion surveys, attitude analysis and other devices to determine the morale of an organization not only as a whole, but of its various departments and functional units as well. Whereas, companies use these devices as desirable in general terms, given specific objectives, their findings may be even more beneficial and productive. Value of findings increases where defined problems are indicated.
Organizational inventories and manning tables also perform a service by indicating impending turnover trouble spots in critical skill areas. A location heavily populated with high growth potential employees may have accompanying limitations for advancement. One can easily see that mobility will begin to be a problem as the individual sense that a "dead end" has been reached and that no further goals can be met. By planning for organizational and personal growth, those responsible could head off a period of significant turnover. At worst, selective "weeding" could take place to reduce the overall effect of the changes in the work force. It is far better to indicate to individuals that their potential for advancement is limited at the right time, than to have several key people leave at unexpected and critical periods.
Critical Time Span
Another application of formulas to turnover-oriented companies is the critical time-span concept. Periods of high production activity, on the part of any functional unit, can be predicted with minimal margin of error through planning. As part of the overall plan, predictable turnover should considered. All things being equal (political and economic climate), by analyzing historical turnover records, one can determine, within reasonable limits, what to expect at a future point in time.
Assume that sales forecasts indicate high productive activity in an assembly department six months from now. By studying turnover trends, we know we can expect 3% turnover during the high production months. Annually for several years, this has occurred. If the period is to last three months and we have 50 employees, we can reasonably expect four or five employees to leave. Although we have many alternatives from which to choose, we shall make the decision as if only three were available. First, programmed acquisition prior to actual requirements would smooth out integration of the work force without the prohibitive cost of too much overlap. Management can employ 4 to 5 additional people in time to train them for the period in which we are concerned. Attrition will reduce the employee population to the desired level as time passes. In this way, we will avoid major group disruption during the critical period.
Secondly, we can hire additional employees, as needed, for replacement. However, group disorientation takes place with each new employee and it would seem that the calculated risk to productive cohesiveness is too great to assume. Also, training the new employees will remove the supervisor from the group during the peak production period.
The third possibility is to use overtime. Barring material or equipment problems, schedules can be maintained by the use of overtime as needed. During the first month, the time of three people must be filled and during the final month, four or five people will be necessary.
By "costing out" alternatives one through three, the best financial possibility can be chosen. By having historical turnover records, information is available to aid decision-making in a very significant way. Increased refinement of data can be utilized as a company finds more and better methods for the application of turnover formulas to management's decision-making process.
Companies that have not been controlling turnover on an organized basis, need only take a few simple steps to determine whether a problem exists for them:
- Accumulate Accession and Separation Rates;
- Determine if the Replacement Rate (Net Labor Turnover) has been higher than the organization should expect;
- Quickly review where the turnover is occurring, by department, section, or critical skills areas.
Following these steps, an in-depth study of the areas generating concern will indicate possible alternatives for reducing turnover and saving money.
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