Why Employees Leave and How to Prevent It (2024)

There’s no better time to search for a new position than when you’re gainfully employed:Studies consistently show that employers look more favorably on applicants who already havejobs—especially if they see an opportunity to poach talent from a competitor.

It’s not surprising, then, that retention is always a major focus for HR teams and businessleaders. Besides the disruption of losing a good worker and the hard costs to recruit, hireand train a replacement, when a longtime employee leaves, institutional and customerknowledge walk out the door as well.

The upshot is that even a modest investment in keeping your talent can pay off in tangibleand intangible ways.

What Is Employee Turnover?

Tracking employee turnover rates is a data-driven way to gauge how many people are leavingthe company and under what circ*mstances. Turnover refers to totalseparations from the company and includes both voluntary and involuntary turnover.Voluntary turnover represents people who left the company on their ownaccord—for a new job, for personal reasons, to pursue educational opportunities or toretire, for example. Involuntary turnover accounts for people who wereterminated for performance issues or behavior as well as those who are part of a seasonallayoff or overall reduction in force.

Why Is Employee Turnover Bad?

High voluntary turnover—with “high” viewed within the context of what’s normal for yourindustry—is generally considered an unfavorable KPI.It means you’re losing good employees, sometimes to competitors. Causes include problemswith the company’s culture, its benefits and compensation structure, its career path andtraining, managers and much more.

High voluntary turnover impacts profitability and, often, customer satisfaction. On thetangible side, it’s costly to recruit new people. Studies done over the past few years onthe cost of new hires point to between $4,000 and $5,000, on average; for executives, thatnumber about triples. You can use this worksheet to do a back-of-the-envelope calculation ofyour costs.

Involuntary turnover, while necessary, isn’t favorable either. While layoffs may beunavoidable, bad hires are a common and expensive mistake. It’s well worth taking steps toavoid bringing on the wrong person: Bad hires affect productivity, waste recruiters’ andhiring managers’ time, and often compromise the quality of work. Spend some time on behavioral interviews and thorough background andreference checks, and involve a variety of people in the interview process, including futurecoworkers. Consider a formal probationary period or, if feasible, have top applicantscomplete a project on a contractual basis.

What Is a Good Employee Turnover Rate?

Like many benchmarks, good and poor turnover KPIs differ widely by industry, role, evengeography.

A recently released study by analyst firm Mercer pegged average U.S. annual turnover at about20%, with about two-thirds of that voluntary. If your business is in retail, hospitality orwholesale distribution, turnover is likely to trend higher than, for example, education orfinance. Mercer says the job functions with the highest annual voluntary turnover arecontact center/customer service (17%), manufacturing and operations (15%), and sales (14%).

Bottom line, look to industry sources and analysts for trends in your vertical. The U.S.Department of Labor also tracks jobopenings and labor turnover data on an ongoing basis.

What Causes High Employee Turnover?

Most voluntary turnover is caused by people seeking—in no particular order—more money, betterbenefits, an improved work/life balance, more opportunities to progress in their careers,time to address personal issues like health problems or relocations, increased flexibility,or to escape a toxic or ineffective manager or workplace.

HR should encourage all leavers to take part in an exit interview. In fact, a vital part oftalent management is more deeply understanding the reasons for voluntary turnover —andfinding ways to fix problems that are addressable. HR can encourage employees to be honestin exit interviews by assuring them that responses will be confidential and won’t affect howthe company responds to requests for references or to confirm employment.

10 Main Causes of Employee Turnover & How to Reduce Them

Here’s the good news: Excessive employee turnover is preventable. Taking steps to chip awayat top causes for your company can have a major impact. Here are some top contributors topeople leaving.

1. Lack of employee purpose: “Workism,” the belief that work “is not onlynecessary to economic production, but also the centerpiece of one’s identity and life’spurpose” is a real thing, especially for college-educated professionals. Think about it—whenwe engage in small talk with new acquaintances, “So, what do you do?” is a top conversationstarter. No wonder then that high performers consider it important to work for a company andin a role they can be proud of.

What that means varies, but LinkedIn’s Talent Trends Survey shows that companies withpurposeful missions saw 49% lower attrition. Companies with “purposefulmissions” are exceptional at motivating their employees, such that their people becomeextensions of the brand itself. These firms have strong cultures, connect the dots as to howtheir product or service makes the world a better place and “walk the walk” in supportingcharitable causes and giving back to the community. Even companies with low employeeengagement can often retain talent if its people back its mission and purpose—with employeesdrawing motivation from the importance of the work the business does.

2. Poor compensation: When people leave a company, compensation and benefitsare a major reason, especially for younger workers: The LinkedIn survey found thatcompensation and benefits as the No. 1 reason they change jobs.

Higher base pay has a strong impact on retention for a few reasons. First, paying people wellis a tangible way to show you value their contributions. And, it makes it less likely that acompetitor looking to poach top performers can lure them away with purely financialincentives. Glassdoor found that workers earn on average 5.2% more when they change jobs. Ifyour company pays toward the top of the scale, you make headhunting a pricey proposition.

How can you ensure compensation is in line, or above, for the market and role? First,continue to provide annual base pay increases. Monitor what other companies are paying on anannual basis, more frequently for hard-to-fill jobs. Many organizations tie bonus pay toproject completion—and paying more for hot skills is a trend that continues to increase.Finally, implement talent management processes that identify top performers, and correct payimbalances by conducting a racial and gender pay equity analysis. PayScale publishes anannual Compensation Best Practices report that can provide good guidance.

3. Being overworked: Burnout happens when employees are asked to performtasks without being given the resources to succeed, when they feel a lack of control or whenthey consistently face more daily stress than is manageable. Burnout combines emotional andphysical exhaustion with a sense of hopelessness and self-blame and can manifest inbehavioral and physical issues.

Ask: Do we regularly ask or expect employees to work on the weekends or after hours? Is a“normal” workweek 50 hours or more, on average? Do we provide the appropriate technologiesand other resources for people to succeed?

Reducing burnout involves looking at six factors, a University of California study found:Demand overload, lack of control, insufficient reward, socially toxic workplaces, lack offairness and value conflicts. Imbalances in any of those areas will put people at more riskfor experiencing burnout. HR teams and managers should ask employees for feedback on theirworkloads—and actually listen, make changes as needed and commit to properly resourcingtheir people.

4. Bad managers: Plenty has been written about toxic managers—people whotake credit for others’ ideas, play favorites, even abuse their reports. And companiesdefinitely need to weed these people out. However, less obvious are managers who are simplybad at their jobs.

Many of the top reasons for turnover—poor compensation or work-life balance, little trainingand scant career advancement opportunities—hinge on the manager, so HR teams need toidentify supervisors who flat out lack the competence to manage people and either transitionthem to new roles or provide support and training.

Good managers see themselves as career developers; they know their employees well enough touncover their skills and motivations. Harvard Business Review research by Marcus Buckingham,who surveyed 80,000 managers and devoted two years studying a few topperformers, found one quality that sets managers apart: “They discover what is unique abouteach person and then capitalize on it. Average managers play checkers, while great managersplay chess. Great managers know and value the unique abilities and even the eccentricitiesof their employees, and they learn how best to integrate them into a coordinated plan ofattack.”

5. Little to no feedback or recognition: Many employees report not gettingthe right kind of manager feedback: A Gallup survey shows workers whose managers’ feedbackleft them with positive feelings are about four times more likely to be engaged, and only3.6% are actively looking for new jobs.

Feedback doesn’t always need to be praise, but aim to frame comments in a positive light.Managers should start with wins, focus on specifics, pair encouragement with constructiveadvice on how to improve weaknesses and have frequent conversations and check-ins.

What’s more, feedback and recognition don’t need to come only from the manager to make a bigimpact. Peer-to-peer recognition programs are successful, particularly when they leveragetechnology. For instance, at Fisher Unitech, digitizing a manual kudos program gave thecompany the ability to automate employee recognition, making it more visible and seamless,and in the process, doubling participationrates. The company now chooses an employee of the month based on kudos.

Oh, and the only thing worse than bad feedback is no feedback, such that employeeslack guidance or how to develop their skills or are blindsided by a negative review.

6. Poor work/life balance: Work/life balance sits solidly in the Top 3reasons people leave companies, across studies. Besides avoiding the aforementioned issue ofoverwork, organizations should aim for scheduling flexibility that allows people to be asproductive as possible. Bureau of Labor Statistics data from 2019 shows that about 25% ofwage and salaried workers were able to work from home at least occasionally, and 57% hadflexible schedules in which they could vary the times they started and stopped working. TheWFH trend accelerated in 2020, and that’s good news for people who once had long, drainingcommutes.

When it’s impossible to allow flexibility in start and stop times, as with shift workers, thenext best thing is issuing schedules as far in advance, and being as open to swaps, aspossible. Companies with strong workforcemanagement capabilities use technology to optimize scheduling, automate time-offrequests and manage absences and often see improvements in employee work/life balancescores.

7. Boredom: It’s a classic scene in “Office Space:” Ron Livingstone, in answeringa consultant’s question on how he spends his workday, says, “Yeah, I just stare at my desk,but it looks like I’m working. I do that for probably another hour after lunch, too. I’d sayin a given week I probably only do about fifteen minutes of real, actual, work.”

Of all generations, the LinkedIn Talent Trends survey found that Generation X is most likelyto leave an organization because of a lack of challenging work that keeps them engaged and,well, awake. Again, the manager plays a huge role here. Managers should encourage theirteams to meet existing goals but also assign challenging projects. Push employees out oftheir comfort zones, and foster a “growth mindset” in team members that values skillsdevelopment and encourages taking calculated risks. A culture that can accept failure is akey part of this process.

8. No opportunity for growth or development: Another factor solidly in theTop 3 reasons people leave jobs is that they don’t see a future for themselves in thecompany. In fact, consultancy PWC’s Future of Recruiting report found that U.S. job seekersare willing to forgo up to 12% of their salaries for development opportunities, includingmore training.

A culture of employee development is a key part of talentmanagement. Go beyond skills-based training to offer continuing education andtuition reimbursem*nt, career development services and coaching, mentoring and leadershipdevelopment programs. Think outside the box on what training looks like as well.

To evaluate your company’s program, ask yourself:

• Is there a clear path for career growth and advancement? Does senior leadership fullybuy in to our employee development strategy?
• Do we have formal learning and development programs in place? If not internally, are weable to provide access to third-party opportunities that will help employees gain newskills?
• Do we have defined programs to mentor employees, and is there flexibility for employeesto explore different departments and functions?
• Do we align our business goals with employee career goals?

9. Bad hiring procedures: When short-term retention rates are low, look forproblems in your hiring and onboarding processes.

You have a short-term retention problem when people leave within the first six months,especially to take on lateral roles at other companies. A high termination rate also signalsproblems with the hiring process.

LinkedIn recommends being honest in the hiring process about the company’s culture. Don’ttell people what you think they want to hear—present reality as it is.

10. Toxic or negative culture: Here’s a staggering stat from SHRM: About 25% of U.S. employees actually dread going towork. They don’t feel safe expressing their opinions, and they don’t feel valued fortheir efforts. That costs companies billions in avoidable turnover.

No organization sets out to create a toxic work culture. Often, it’s a combination of many ofthe factors we’ve just discussed.

Leadership consultancy The Clemmer Group defines culture as “the sum total of the commonattitudes and beliefs held by people based on their experiences. These experiences theninfluence the behavior and willingness of everyone to work with or against the systems andprocesses.”

If you suspect that your culture is contributing to high turnover, take a look at how openlyand frequently executives communicate with employees. Do people feel respected, empowered todo their jobs without being micromanaged and free to take the PTO they’ve earned? Domanagers trust employees enough to delegate? Do we have a culture of inclusion?

Efforts to change culture often start with good intentions: Teams define the company’smission and values and how they want people to talk about the organization and put in placeprocesses to make that happen. But improving culture is a tough nut to crack without buy-infrom leadership.

Monitoring Employee Turnover with HR Software

The formula for calculating employee turnover is straightforward, but getting the numbersbehind it—and ensuring they’re accurate, timely and can be understood by variousstakeholders—is challenging. Human capital management (HCM) software automates collectionof data, reporting around it and provides tools to analyze and act on it.

Turnover Rate for GivenPeriod = Number of Separations / Avg. Number of Employees x 100

For instance, HCM software can break down turnover trends by year, quarter, voluntary andinvoluntary, business unit, department, geography, and demographics. The latter candetermine turnover by age, ethnicity, gender and more.

There is best-of-breed software that focuses only on retention. But the best strategies toreduce turnover view the employee experience as holistic—from recruiting to onboarding toperformance management and development through succession planning. For instance, when itcomes to performance management, software can help facilitate the types of manager/employeeinteractions that will encourage career development and retention.

When considering software to minimize turnover, look for out-of-the-box KPIs to tie goals tobusiness performance metrics, such as percent of sales wins or billable hours. That way,managers and employees are no longer passing around a spreadsheet and tracking goals throughemail. Performance reviews become dynamic and help employees progress in their careers.

When it comes time to review annual compensation and bonuses, software makes it easier forperformance review committees to track individual progress and how people map to others intheir departments or the company as a whole.

Lowering turnover isn’t an insurmountable task. There are small changes that can make a bigdifference in retention—once the business has data-driven insights into turnover trends andcan develop solutions aimed at the particular problems driving good employees out the door.