5 best employee turnover predictors and what leaders should do about them

Hiring and motivating your employees is more important and challenging than ever. Of 47 million people will leave their jobs in 2021an unemployment rate of 3.6 percent in April 2022, and 11.5 million jobs open in Marchit is imperative that business leaders attract and retain top talent.

If I wanted to help business leaders with this problem, I would study the sources of employee turnover and try to discover how companies with the highest employee retention rates manage their employees.

Fortunately, I don’t have to do such a study because it’s already been published. According to a January 2022 Sloan Management Review (SMR) article, Culture drives the great resignationfor the six months between April and September 2021, there were wide variations in churn in large, profitable companies in the US — from less than 2 percent to more than 30 percent between companies.

The dropout rates vary by industry. The labor sectors in the clothing retail, fast food and specialty stores had the highest turnover. Turnover was high in white-collar fields such as management consulting and business software, but less in medical device manufacturers and health insurers, SMR said.

What I found most interesting is that some of the most innovative companies had the highest employee turnover. Innovative companies — “such as SpaceX, Tesla, Nvidia, and Netflix — suffer higher turnover… than companies with a reputation for healthy culture, such as Southwest Airlines, Johnson & Johnson, Enterprise Rent-A-Car, and LinkedIn ” said SMR.

To investigate what caused all the layoffs, the co-authors analyzed more than 1.4 million Glassdoor reviews from the companies they studied. They counted “how often employees mentioned 172 topics and how positively they spoke about each topic.” From there, they determined which “topics best predicted a company’s industry-adapted course,” according to SMR.

Employee turnover is most strongly driven by toxic culture rather than unsatisfactory pay – which ranks 16th when it comes to forecasting employee turnover.

Here are the five biggest predictors of employee turnover during the big layoff, according to SMR, and how much more important they are than compensation:

• Toxic corporate culture (10.4 times more important than compensation in forecasting revenue). A toxic corporate culture – meaning “failure to promote diversity, equality and inclusion; disrespected employees and unethical behavior” – is the leading cause of employee departures.
• Job insecurity and reorganization (3.5x). When faced with bleak prospects, companies often lay off and reorganize employees. Employees in such companies — who expect to either be managed or, if not, have to take on a heavier workload — are more likely to leave the ship.
• High degree of innovation (3.2x). The most surprising finding of this study is that the more employees spoke positively about innovation, the more likely they were to quit. The reason may be that innovation is associated with longer hours, a faster work pace and a poor work-life balance
• Not recognizing achievements (2.9x). High-performing employees are most likely to resent a lack of recognition for their results. Companies that fail to recognize their higher productivity — informally and financially — suffer from increased revenue.
• Bad response to Covid-19 (1.8x). Workers who mentioned COVID-19 more often or described their company’s response to the pandemic negatively were more likely to quit.

While it is difficult for any company to change its culture quickly, SMR identified four short-term actions managers can take to reduce turnover.

Here, the four actions are ranked based on how well each action increases a company’s relative retention rate compared to compensation.

• Provide opportunities for lateral trajectory displacements (2.5 times more important than compensation in predicting relative retention). “If employees talk positively about lateral opportunities — new jobs that present new challenges without promotion — they’re less likely to quit. Lateral career opportunities are 12 times more predictive of employee retention than promotions are,” SMR noted.

• Offer remote working options (1.5x). Offering remote work options helps increase retention, but if industry competitors copy those options, they won’t just boost employee retention.

• Sponsor corporate social events (1.3x). Hosting corporate events — “happy hours, team-building excursions, and potluck dinners,” according to SMR — are effective ways to retain employees, although difficult when people work from home.
• Make schedules more predictable for frontline workers (1.2x). While this works well for blue colored employees, it is not effective for white-collar workers.