In this blog, we will help you make sense of Employee Attrition. We cover the analytics, strategies and methods to reduce and manage it so that your business doesn't feel the heat.
The characteristic feature of any successful company is its ability to keep its workforce engaged and happily functioning to achieve what may be set as a common goal. However, a happy employee clan doesn’t always mean that people won’t be leaving the organization - over time, there will always be changes in the company’s employee pool.
There may be some employees that brave the days of perspiration and heat and also stay back for the gloomy winters of the company — starting and retiring from their professional career in a loyal stride. But in an evident development over the years, we witness a culture of job-hopping becoming more and more apparent, especially among the younger workforce.
In this article, we are hoping to familiarise the reader with the concept of employee attrition. We will be covering the numbers to assess the rate of employee attrition, strategies and tips to manage it an ideal attrition rate for your company and some examples of the ways leading companies tackle the concept in their management.
Are you looking for ways to motivate your employees through the week? Here is our article on 200 Life Changing Monday Motivation Quotes to Start the Week to help your organization deal with Monday blues!
Attrition by a simple quoted definition is the process of reducing something's strength or effectiveness through sustained attack or pressure. Apply this to the context of a company and you get a hint that employee attrition refers to the reduction in a company’s strength over long periods of time.
It is essentially a measure of the long-standing vacancies in a company that may have been created by resignations, voluntary exits or company-wide layoffs. Employee attrition takes into account only those employee departures which are not replaced through rehires — they simply remain empty or the role is eliminated.
The definition that we borrowed from Oxford presents a fairly negative connotation to the concept of employee attrition. And while a high employee attrition rate may be a reason to frown over the expensive damage control and assess weak branches in the network, employee attrition can also be indicative of obsolete roles being terminated and allow for newer skills and talents being incorporated into the workforce.
So, while the number-crunching for the employee attrition rate (which we will shed light on further in the blog) may reveal an unexpected and shocking result, it is essential to look at the details and understand whether it reflects a pitiable talent loss or a much-needed clean out.
Fun Fact - A leap was seen in the number of people quitting jobs from 3.3 million in 2021 to 4.25 million in January 2022, according to the US Bureau of Labor Statistics.
Employee attrition could be a result of voluntary exits due to dissatisfaction of work environment or unfortunate personal circumstances or arise from the company’s decision to sack personnel. Based on the different reasons or sections in which employee attrition occurs, it can be classified into the five following types:
When an employee decides to leave the company of their own accord, it results in voluntary attrition. The factors inspiring this departure might be beyond the control of the employer such as an unexpected illness, a move across states to be close to loved ones or it could even be a better job offer at a different company. However, more often than not, the voluntary exit might be a preventable affair within the control of the management like a lack of promotional growth in the company or overwork leading to destroyed work-life balance.
Such an attrition calls for attention to management issues that may be plaguing your company’s environment.
This type of attrition occurs when employees are sacked by the company. This might occur as a part of the company-wide layoff strategy, or result from the employee’s poor performance/some specific offence committed by them like stealing or embezzlement. Very often, involuntary attrition occurs out of role elimination when a particular position becomes obsolete or in need of a transitional revamping for e.g. technological advancements might lead to some departmental profiles losing their relevance creating a need to cut down on the staff.
The company wouldn’t necessarily backfill the position vacancies created by this kind of attrition.
Internal attritions occur when employees move from one department to another within the company. While there might not be a company loss in this category, it’s still imperative that it be accounted for. This is because there might be certain unnoticed reasons that may lead to department switches apart from professional rerouting, including disagreements with the management or dissatisfaction with pay or even discriminatory grounds. Such undesirable activities must be investigated and rectified before it costs the organization.
A lot of times the company may be losing a specific demographic from their workforce, could be women, religious or racial minorities, people with special abilities or the older professionals within the organization. Looking far into this kind of attrition might be crucial to ensure that the work environment is accommodating people’s differences and is generally felt to be safe and conducive for all the employees. It may be of special concern if the loss of a particular demographic is very high, suggesting a strong unpleasantness to be present.
Retirements are not necessarily always a cause of concern, for it may only be one or two people retiring from the organization in a particular year. However, if it is recorded that older employees are opting for earlier retirements and a large chunk of the professionals are retiring together, then it might be worth looking into.
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According to a report by the World Economic Forum, over 41% of the workforce is led to hand in their resignation notice due to inflexible, location-centred arrangements at their workplace.
Ever since the pandemic, most companies have moved to the hybrid arrangement and very efficiently so. It not only allows employees to take a break from the travel for a few days at work but also a change in the environment for work has proved to increase productivity among the workforce as well.
So, more and more employees, especially those with responsibilities and children at home, are opting to work for organizations that offer flexibility and comfort.
Attrition can be quite the vicious circle. As employees leave creating gaps in the organization that are unfulfilled due to financial reasons or a lack of skilled applicant pool, other employees are burdened with more work to compensate. This can be very damaging for the company if a shortage of workforce leads to exceedingly heavy work loads on the existing employees.
It is not only unsustainable but would also lead to even more people quitting and vacancies being created, thus, making it a never-ending fiasco for the company.
Notably, it is an increasing problem for the millennial workforce with as much as 84% of the audience in a survey conducted by Deloitte seemed to be experiencing burnout, and nearly half of them have left a job due to this.
A very common factor leading to attrition is employees feeling stuck in their position in the organization. Any individual working for a company hopes to be promoted and compensated as the time they spend and the experience they gain in the organization increases.
A company devoid of a formal career promotional plan for the employees can motivate them to quit and look for other opportunities with better remuneration and incentives. Such a move is common to observe as people usually receive an immediate 10-20% bump in their salaries from switching jobs as opposed to the average 3% annual boost obtained by staying in the same company.
Having a stable and sustainable work-life balance allows employees to feel happy, satisfied and motivated to stay in the company for longer. It boosts mental health and makes employees want to wake up and clock in work, thus, increasing productivity and overall well-being of the organization.
As younger people join workplaces, they expect to have a work environment that is conducive to completing their daily tasks but also is open to promoting mental health with break rooms and rest areas at work. They are fuelled by innovation and purpose, and depressed by mundane, lacklustre tasks. They are thus more likely to indulge in job-hopping and quit work if they are not excited at the organization.
There is an increased desire to be involved in solving complex problems or contributing to something bigger for society, and a deficit of such purpose in the organization is very likely to push Millennials and GenZ away.
Usually, a workplace environment devoid of measures meant to promote inclusion and a sense of belonging, but rather swelled with discriminatory practices can lead to adverse employee loss.
Nobody would like to walk in an office where they don’t feel safe and are instead judged for their cultural or racial differences. Companies must include measures to curb discrimination and promote a healthy, diverse workplace in their human resources strategy. A lack of such planning can lead to a toxic, stressful arrangement for certain demographics in the organization resulting in voluntary exits.
The overly interchangeable usage of the terms ‘attrition’ and ‘turnover’ have unfortunately made them almost synonymous to each other for the layman. However, it must be noted that the two terminologies are sufficiently different - while ‘turnover’ accounts for all sorts of departure from the organization including those that are refilled, ‘attrition’ only takes into view only those employees that leave behind positions that are not filled up or get eliminated.
Attrition is a concept that oversees long periods of the organization’s employee loss and its value implies that employees leave at a rate that is faster than the hiring process adopted by the business. Handling a company’s attrition, especially when it is concerningly high, requires big-picture thinking and focussed planning by the management.
Turnover is a short-term concept - an annual concern so to speak, and can be quickly tackled with immediate measures and hiring to avoid creating skill or resource holes in the company.
Layoff is an altogether different concern for the organization’s HR and is witnessed most when a business is met with a financial crisis. Another event when layoffs might become essential is when an organization overestimates their need for people and goes on a hiring spree only to realize the need for scaling down later. The company might strategize to conduct organization-wide layoffs without the intention to rehire or to hire staff with lower wage demands.
In certain cases like management/organizational structure changes or mergers, layoffs could lead to complete removal of departments that may be redundant. These departments could later be revived when the need arises or become completely irrelevant to the organization.
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The employee attrition rate is a necessary parameter worth calculating to achieve a quantitative estimate of the company’s attrition. It requires some easy number-crunching, and can give you an insight into whether your attrition goals are being met. Companies that might be looking to reduce their existing employee pool might be hoping for a high attrition rate, while other businesses that might be concerned about their employee loss beyond what they would want might hope for a low attrition rate.
The rate at which employees depart from a particular organization can calculated using this employee attrition rate formula:
Attrition Rate = (Number of employees who left the organization in a given period {leaving behind position vacancies} / Average number of employees in the period) x 100
For example, let us assume that 300 people left an organization in a particular year.
Now for the calculation of average number of employees:
You ought to take a count of the number of employees the company started with in the particular year, say 1000. And add it to the total count of employees that were present at the end of the year including those that were hired during, so assuming that 500 people were hired, the final year-end count would be 1500. Now, dividing the sum by 2 would give the average number of employees for that year i.e., (1500+1000)/2 = 1250.
Finally, calculating the number of employees that left with position vacancies as a percentage of the average number of employees that year would give us the attrition rate as:
Attrition Rate = 300/1250 x 100 = 24%.
There are a few inferences that can be drawn from this calculation:
Employee attrition is an ever-going phenomenon that even the largest of companies cannot run away from. However, the world today is experiencing what has been termed as the Great Resignation. Demands from companies to adopt flexible and hybrid work-cultures, and provide better compensation and benefits are constantly making the rounds post the pandemic.
And a lack of action to meet these demands have led to widespread departures of the workforce. An example of this was the mass-resignations of employees faced by Twitter - one of the biggest companies worldwide, as the infamous change of top tier executives pushed for an end to the hybrid work environment. In such a scenario,companies are in dire need to strategize a plan of action to deal with employee attrition, especially the smaller and progressing ones as they fight for surging talent in the market.
Some great employee retention strategies which help manage attrition rates include:
For more tips at improving the employee life cycle, read our blog article on 7 tips that will help HRs optimise their employee lifecycle
Oftentimes, we don’t know where to start in the process of strategy formulation for combatting a complex issue in their organizations. In such situations, looking at examples of companies that have been there and come out of the rubble successfully can be a great help.
So, here we have some case studies of companies like Schneider Electric that looked at the expensive problem of employee attrition straight in the eye and fought head-on armed with innovation and creativity.
A company with unparalleled magnanimity as Schneider Electric was once met with the sticky problem of employee attrition but their move was creative and inspiring. Their combative strategy against workforce shrinkage is nothing short of a complete revolution of the core of organizational structure.
They took serious notice of the reason behind employee exit, being a lack of professional growth inside the company. And then, sat down to devise a plan to facilitate employee retention by upskilling and nurturing their talent pool through a mobile organizational structure. They handed to the employees the key to their career development in the form of an internal talent marketplace called the Open Talent Market.
To put simply, they used an Artificial Intelligence-empowered mechanism to offer their widespread workforce the opportunity to jump around in the organization picking up different projects and mentorship gigs. The model allowed employees to set up their unique professional portfolios detailing their experience, skills and career aspirations. And within 30 seconds, they are aligned with an array of career, project and mentorship gigs put up by managers within the organization.
It turned out to be a tremendous success with employees gaining access to diverse training experiences to advance their careers and managers being offered a skilled and suitable group of staff to work on their projects. In this manner, they solved one dooming problem shrouding the growth of their company by listening to and satisfying their employees and simultaneously, created a talent shop for the company to utilize without the need to outsource resources.
To expect exceptional attrition stats from an organization in the retail business is plain stupid owing to the unpredictable working hours and a lack of professional growth scheme. But Whole Foods Market, despite being in the grocery business, has proved otherwise with their strategic and employee-centric philosophy.
When we think of supermarkets or grocery stores, the image that comes to mind is an army of uniform-clad, moody and snippy folk ringing out bags of stuff with a scowl on their face. Well, Whole Foods is anything but that, with their no-uniform rule and a commitment to letting employees be their true selves at work. This, they believe contributes greatly to employee satisfaction and a paucity of stress on the workers’ heads, as they let themselves free.
Another impactful tenet of CEO John Mackey’s business philosophy is autonomy and engagement. The organization has aimed to magnetise their employee force towards achieving a common goal, creating a sense of inclusion and purpose in their minds. The company breaks through traditionalist ideas of organization with a lack of bureaucratic hierarchies in their structure.
Rather, employees are broken into siloes and trust is placed in effective communication between the local managers and employees that would allow for collective decisions to be taken. From in-store investments to organizational changes, all the important decisions are made through collaboration at Whole Foods. This three-fold strategy has helped the business have a commendable hold on their employees, who stay with the organization for a long time.
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Employee attrition is not a new concept - but its importance is heavily undermined. It is but a significant measure while assessing the growth of a company, but is often confused with terms like turnover or layoff. Assessing the employee attrition rate presents to businesses a reason to look deep into the veins of the company’s networks and weed out unrealized problems that may be spoiling the crop.
We hope that this article familiarised you with the idea of employee attrition and the factors that contribute to impossibly high attrition rates. As established throughout the blog, there is no cookie cutter way to manage unwanted employee attrition. However, constant monitoring of the workplace environment and carrying out in-depth people analysis can be your biggest armour against the metric.
Above all, keeping your employees motivated and happy to be in the organization is key. So, you are now equipped to establish a well-analyzed and well-thought out plan for your company’s attrition goals and monitor the progress year-by-year to keep the attrition curve from bending too far!
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A high employee attrition rate can be concerning for any company, big or small, and necessitates meticulous formulation of long-term measures to tackle it. Few strategies that could help in employee retention include creating a continuous feedback loop with prompt action to handle complaints; ensuring inclusion and diversity training is made mandatory and everyone feels safe in the workplace; and establishing a formal, promotional plan for employees to feel motivated about their potential progress in the company. An extensive list of tips is present in the ‘Best practices and strategies to manage attrition rate’ section of this blog.
Disengaged employees can be the greatest threat to an organization and is the greatest contributor to employee attrition. Not only does disengagement of the workforce lead to terrible customer experiences, it is also coupled with receded productivity and motivation to work for the company’s growth. When employees lose interest in their designated work either due to lack of purpose or mundanity, it can result in an increase in their absenteeism from the organization and pull them away from feeling dedicated to help the company reach its goals. Ultimately, employees then exit from the company due to disinterest.
Employee attrition cannot be improved overnight, it requires slow and dedicated steps in the right direction. It is important that employees feel that they are rewarded for their work, and have a significant role in the organization. If not, they tend to feel disengaged and quit. So, measures such as a monthly reward system or a provision of diverse work opportunities to keep them interested, must be established in this case. A good example of this strategy is the Schneider Electric company with their Open Talent Market. Apart from this, an array of measures to manage attrition are listed in the ‘Best practices and strategies to manage attrition rate’ section of this blog.
It is close to impossible and rather meaningless to designate a definite number as a good employee attrition rate. Simply put, it varies heavily from industry to industry and even among the same industry from company to company, depending on the circumstances and goals of the organization. For e.g, a good employee attrition rate for the retail industry is between 2 and 4%, on the other hand, the average employee attrition rate for the technology sector is around 13.2%. However, ideally, a good employee attrition rate could be taken as 10% or below.
A survey conducted by the recruitment agency Michael Page predicted that certain countries including India, Indonesia, Philippines and Malaysia were going to have the highest attrition rates in the year 2022 as the world came to terms with the Great Resignation brought in by the Covid-19 pandemic. Although, it must be noted that attrition rates can vary greatly between industries where one country could have a high attrition rate for a particular industry and a low rate for another. So, it must be compared through a case by case perspective.
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