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INTRODUCTION
In the best of worlds, employees would love their jobs, like their co-workers,
work hard for their employers, get paid well for their work, have ample chances
for advancement, and flexible schedules so they could attend to personal or
family needs when necessary. And never leave.
But then there's the real world. And in the real world, employees, do leave,
either because they want more money, hate the working conditions, hate their
co-workers, want a change, or because their spouse gets a dream job in another
state. So, what does that entire turnover cost? And what employees are likely to
have the highest turnover? Who is likely to stay the longest?
It is however not an easy task for an HR manager to bridge the ever increasing
demand and supply gap of professionals. HR manager is not only required to
fulfil this responsibility, but also find the right kind of people who can keep
pace with the unique work patterns in industry. Adding to this is the issue of
maintaining consistency in performance and keeping the motivation levels high,
despite the monotonous work. The toughest concern for an HR manager is
however the high attrition rate.
ATTRITION
Meaning of attrition: “The wearing down of an adversary, making him weaker
by repeal attacking them or wearing down of resources i.e. the process of
reducing the number of people who are employed by an organization by
not replacing people who leave the job."
Defining attrition: "A reduction in the number of employees through
retirement, resignation or death"
“The action or process of gradually reducing the strength or effectiveness of
someone or something through sustained attack or pressure.”
“The gradual reduction of a workforce by employees' leaving and not being
replaced rather than by their being laid off”
ATTRITION RATE
Definition: The rate of shrinkage in size or number of employees is known as
Attrition rate. It is usually expressed in percentage.
An attrition rate, also known as a churn rate, can be a measure of two things. It
can be a measure of how many customers leave over a certain period of time or
how many employees leave over a certain period of time. An attrition rate can
also be a combination of these two factors.
Attrition rate in Indian IT industry has gone down and it has reached a level
which was there in this industry 3 years back. This dip in attrition rate is not
sudden. It happened to recent slowdown in world market. However experts are
saying that the main reasons of the downfall of attrition rate does lesser number
of new jobs in industry and companies prefer fresher’s over experienced
employees as fresher’s are very cheaper as compared to experienced employees.
HOW TO CALCULATE ATTRITION RATE?
“Ideally, attrition should be calculated on a monthly basis for companies that
have over 50 employees for the first five years of its business. Subsequently, a
quarterly index should be applied till a company’s 10th anniversary. After this,
annual attrition figures should be measured and accounted for. This is the
optimum within the services industry as companies tend to have different
challenges at different stages of their business lifecycle; also, maturity achieves
stability around a company’s 10th anniversary.”
WHAT IS THE HR ATTRITION RATE FORMULA?
The Most Commonly Used Formulae Are :
Total Number of Resigns per month (Whether voluntary or forced) X 100-----------------------------------------------------------------------------------------
(Total Number of employees at the beginning of the month + total number of new joiners - total number of resignations)
Number of employee separations-involuntary separations X 100-------------------------------------------------------------------------------------
*Average employee count(*Avg. employee count = January month strength + December month strength
Total Terminations in a month-------------------------------------------------------------------------------------
(Total Head Count at the beginning of the month) + (Total New Hires)
Total No.of employee left X 100-------------------------------------------Total No .Of employees present
ATTRITION CYCLE
((no. Of attritions x 100) / (Actual Employees + New Joined)) /100.
Attrition brings decreased productivity.
People leave causing others to work harder
This contributes to more attrition, which contributes to increased costs
and lower revenue
This forces additional cost reduction and austerity measures
This in turn makes working more difficult, causing the best performers
with the most external opportunities to leave
Employee attrition, a big cause for concern for firms, ranges between 15 per
cent and 20 per cent. A company is not hurt because a certain person has left.
The company is hurt because he/she takes away certain knowledge, and there is
no ready replacement in the market.
Attrition, as such, is not a bad phenomenon. It has been known to exist all
along. However, when jobs were scarce, the technology change was less rapid,
voluntary attrition was small and companies managed it. However, with
technology changing rapidly and manpower costs increasing, attrition is high
and hurts badly.
Large players often use money power to lure talent from smaller players.
Companies also use the `location' bait to attract employees. While a certain
percentage of manpower turnover is desirable to keep fresh blood coming in,
and removing dead wood, higher percentages are definitely not good indicators
of an organization's culture and people practices.
It is a challenge to find the right talent within constraints such as location,
nature of work, compensation and benefits.
Fresh graduates joining an organization make it a point to leave within the first
year. They equip themselves not for performing their current job but for
attracting a new one. Many a time, there is migration from bigger companies to
smaller companies too, mainly because of the prestige associated with a certain
project or a particular client. In some cases, smaller companies are even better
paymasters than larger brands.
The success rates of retention programs are much higher if the management
uses a direct, employee-focused, approach and is ready to invest resources for
the same.
Factors Affecting Attrition
There are various reasons why people leave their current job. These reasons
may vary from individual to individual and when data are collected from a large
number of individuals leaving or who have left an organization, some
consistencies may be observed-providing more insights as to why people leave
in large numbers. If these are controllable-one attempts to control. If these are
not within the control of the organization, the organization should prepare itself
for managing attrition.
Managing attrition does not mean reducing attrition only. It could also mean
bringing down the negative effects of attrition and increasing the positive
effects of attrition. To increase the positive effects of attrition and reduce the
negative effects, appropriate retention and capacity utilization or talent
utilization tactics should be used. In one of the organizations, attrition has been
used as brand building opportunity. Thus an organization may say that we
provide talent for other companies or they may say that if you join us your
brand value goes up and you get good jobs etc.
Today when a person leaves it causes a lot of disturbances in the organization.
If it is a small organization the disturbance is even greater. Hence it is important
to understand and manage attrition. There can be various reasons for people
leaving their current jobs.
WHAT IS ATTRITION ANALYSIS?
Attrition analysis is a study in which an analysis gives the data on what is
the current attrition trend in the company. It’s an analysis done by taking time,
manpower strength & no. of people resigned into consideration to derive the
final outcome.
i.e., Attrition % = (No. of separations/Total employees) *100
:: A MODEL OF THE TURNOVER PROCESS::
Actual turnover
Intension to quitCompare alternative
Looking for alternative
Thinking about leaving
Causes of job dissatisfaction
Job dissatisfaction
Reasons for Leaving the Organization:
1) Supervisor relations :
The quality of the supervision an employee receives is critical to
employee retention. People leave managers and supervisors more often
than they leave companies or jobs. It is not enough that the supervisor is
well-liked or a nice person, starting with clear expectations of the
employee, the supervisor has a critical role to play in retention. Anything
the supervisor does to make an employee feel unvalued will contribute to
turnover. Frequent employee complaints center on these areas.
Lack of clarity about expectations
Lack of clarity about earning potential
Lack of feedback about performance
Failure to hold scheduled meetings, and
Failure to provide a framework within which the employee perceives he
can succeed.
2) Pay & benefits:
Over half made changes based on exit interview information, and these included
reviewing salary structures, forming employee retention committees,
establishing alternative work schedules, and introducing bonus plans. The
survey also asked the HR professionals to rank the effectiveness of several
retention tools. Traditional benefits apparently work the best. The respondents
ranked health care benefits as the most effective retention tool, followed by
competitive salaries, competitive salary increases, and competitive vacation and
holiday benefits. Interestingly, some of the newer and trendier benefits did not
fare as well. Based on the survey findings, the best action for employers trying
to boost their retention rates is to analyze salary and benefits packages to
determine if they measure up to the competition. Policies and Benefits Can
Reduce Turnover
3). Corporate communications:
The ability of the employee to speak his or her mind freely within the
organization is another key factor in employee retention. Does your
organization solicit ideas and provide an environment in which people are
comfortable providing feedback? If so, employees offer ideas, feel free to
criticize and commit to continuous improvement. If not, they bite their tongues
or find themselves constantly "in trouble" - until they leave
4) Performance Management System:
There may be very few performance appraisal exercises that are devoid of
criticism of bias any subjectivity however, most of the efforts to dispel the bias
and subjectivity are restricted to changing appraisal formats & systems that
include switching over to techniques like 360 Degree Appraisal & Team
Assessment using MBO criteria or modern approach Balanced Scorecard.
5) Organization Policies and Strategies:
No matter the circumstances, never, ever threaten an employee's job or income.
Even if you know layoffs loom if you fail to meet production or sales goals, it is
a mistake to foreshadow this information with employees. It makes them
nervous; no matter how you phrase the information; no matter how you explain
the information, even if you're absolutely correct, your best staff members will
update their resumes. I'm not advocating keeping solid information away from
people, however, think before you say anything that makes people feel they
need to search for another job.
6) Likelihood to stay:
Your staff members must feel rewarded, recognized and appreciated. Frequently
saying thank you goes a long way. Monetary rewards, bonuses and gifts make
the thank you even more appreciated. Understandable raises, tied to
accomplishments and achievement, help retain staff. Commissions and bonuses
that are easily calculated on a daily basis, and easily understood, raise
motivation and help retain staff. You can bet that work is about the money and
almost every individual wants more.
7) Opportunity:
Talent and skill utilization is another environmental factor your key employees
seek in your workplace. A motivated employee wants to contribute to work
areas outside of his specific job description. How many people could contribute
far more than they currently do? You just need to know their skills, talent and
experience, and take the time to tap into it. As an example, in a small company,
a manager pursued a new marketing plan and logo with the help of external
consultants. An internal sales rep, with seven years of ad agency and logo
development experience, repeatedly offered to help. His offer was ignored and
he cited this as one reason why he quit his job. In fact, the recognition that the
company didn't want to take advantage of his knowledge and capabilities helped
precipitate his job search
8) Recognition:
A common place complaint or lament we hear during an exit interview is that
the employee never felt senior managers knew he existed. By senior managers I
refer to the president of a small company or a department or division head in a
larger company. Take time to meet with new employees to learn about their
talents, abilities and skills. Meet with each employee periodically. You'll have
more useful information and keep your fingers on the pulse of your
organization. It's a critical tool to help employees feel welcomed, acknowledged
and loyal.
9) Learning Organization:
Your best employees, those employees you want to retain, seek frequent
opportunities to learn and grow in their careers, knowledge and skill. Without
the opportunity to try new opportunities, sit on challenging committees, attend
seminars and read and discuss books, they feel they will stagnate. A career-
oriented, valued employee must experience growth opportunities within your
organization. The easiest to solve, and the ones most affecting employee
retention, are tools, time and training. The employee must have the tools, time
and training necessary to do their job well or they will move to an employer
who provides them
Today when a person leaves it causes a lot of disturbances in the organization.
If it is a small organization the disturbance is even greater. Hence it is important
to understand and manage attrition. There can be various reasons for people
leaving their current jobs.
: EMPLOYEE ATTRITION IN INDIA:
Staff attrition (or turnover) represents significant costs to technology and
business process outsourcing (BPO) companies. High attrition rates drive up
training costs, and increase human resources, recruiting, and productivity costs.
They also increase the prospect of customer service complaints or quality
problems, and create substantial continuity problems for longer-lived projects.
There are many causes for attrition including, retirement and death. However,
most attrition is due to employee turnover. Employees leave their jobs for a
number of reasons including: wanting more money, poor working conditions,
irregular working hours, lack of advancement opportunities, lack of job
security, difficulties with coworkers, desire for change, better opportunities, and
family reasons. High wage inflation is another major factor in job hopping.
:: ATTRITION RATES & COST IN INDIA::
In India, the average annual attrition rate in the business process outsourcing
(BPO) sector hit a high of close to 50% a few years ago. Better attrition
management and the 2008-2009 global economic slowdown have helped reduce
the figure to 24-30%, but this still has a significant impact on costs and quality.
Furthermore, attrition rates in India’s business process outsourcing (BPO)
industry are about 8 percent higher than the national average.
Some companies believe that the attrition rates in India—and the costs
associated with them—are so high that they can override the benefits of lower
wage costs. For example; while wages in call centers in Indian are less than
one-eighth of those in Northern Europe, it has been reported that Hewlett-
Packard have found the cost per ‘ticket’ (the cost of processing a query) was
double in India “due to the inability of the staff to resolve customer queries
efficiently because of language barriers and inexperience”. The issue is not with
the quality or education of the staff and still less with the investment in
technology. It is simply attrition—people do not stay long enough to be taught
or to learn the job.
India’s government is acutely aware of the attrition issue and has introduced
several initiatives to create BPO jobs in rural areas of the country.
:: MANAGING ATTRITION IN INDIA ::
To ensure that attrition rates are kept to a minimum, businesses need to redesign
their reward and recognition packages to help the industry hold onto staff and to
find the right kind of people who can keep pace with the unique work patterns.
According to Oscar De Mello, country head of Hay Group’s Reward
Information Services in India, adjusting pay might not automatically lead to
higher operating costs for BPO companies. By creatively designing their total
reward package towards more short-term incentives and benefits, and linking
the package to performance, companies can ensure that they get higher
productivity without hefty increases in salary costs and minimize attrition costs
and issues at the same time. Hay’s Group recommends providing a better
balance of short- and long-term benefits such as performance bonuses,
employee stock option plans and retention bonuses; effectively communicating
details of compensation plans to encourage employee buy-in; and promoting
non-financial benefits such as career development, job rotation and transparent
performance management systems.
First, if you are working on a longer-term project, understand your partner’s
attrition rates and their management practices. Some firms manage attrition
well, while others simply try to hide it. Second, review your team structure and
ensure that there is sufficient information sharing and collaboration so that the
loss of any one person does not set you back. Finally, get to know your key
team members. Not only will this help reduce attrition, but help you minimize
the down side if you do lose a key team member
COSTS OF TURNOVER
The impact of employee turnover on company performance is often understated
by organizations. This describes how the cost of turnover is can be calculated
using some basic organizational parameters. The purpose of this document is to
provide talent cost of turnover calculator with insight into how costs are
calculated and the reasons why certain costs were include or excluded form the
calculator. The calculator should only be used as a guide in understanding the
impact of turnover on a company. If the desire is to understand the true cost of
turnover then it is suggested that a greater degree of analytical work is
undertaken.
The key areas used in the calculation of turnover are:
New Hire costs
Once a person has been employed an organization generally spends significant
resources in the induction and administration of bringing them into the
organization.
Lost productivity
The hidden costs associated with lost productivity of employees prior to leaving
the organization and new less skilled employees are one the largest components
of the total cost associated with turnover.
Dysfunctional and avoidable turnover
Determining the level of dysfunctional and avoidable attrition provides a
perspective on the scope of control that a company has to manage their turnover
costs. Determining the cost of turnover is the first step in the process of
developing a management plan. To deal with an attrition issue effectively the
reasons for turnover and an understanding of the demographics of turnover need
to be understood.
Undoubtedly, the financial costs of turnover have attracted the attention of
academics and practitioners alike. Besides the more familiar costs associated
with the administration of terminated employees the economic costs such as
productivity losses need to be included in any calculation. In particular,
departure of employees - especially experienced or talented ones - may threaten
overall firm productivity or client retention. Furthermore, personnel losses may
endanger the firm’s future opportunities in the marketplace or the morale of
their remaining work force. Human resource accounting experts Cascio, Hom
and Griffith define exit expenses as having two main components - direct and
indirect costs. A company incurs both direct and indirect costs that result in
losses in production dollars and overall production volume, as well as increased
administrative costs. Direct Costs are actual dollars spent each time an employer
has to attract, select, and induct a replacement for an employee who leaves the
organization. Indirect costs are those expenditures attributable to turnovers
affects on production - that is costs for incomplete or disrupted work, loss of
quality, etc.
The cost of turnover can be calculated by measuring the time taken to
administer each activity plus the direct costs such as advertising costs. The
turnover costs calculated using the calculator represent dollars spent. The
potential loss of revenue if these dollars were invested elsewhere or through lost
productivity is not calculated. Therefore, the figures are an indication of the
minimum costs that the organization is subjected to when an individual leaves
the company.
Administration & Sourcing costs
The most visible cost of turnover is incurred by organizations in the area of
recruitment administration and sourcing. The time associated with processing
terminated employees and recruits places a burden on organizations where staff
turnover is excessively high. The assumption is that this is largely an
administrative task conducted by people at 80% of the average company salary.
In addition the direct costs to a company for recruitment agency and advertising
costs are highly transparent.
1. Process Administration:
Resignation Administration -
The time taken to administer a resignation will include activities such as:
conducting exit interviews & processing of administrative tasks. The time taken
to perform these activities is ideally measured as a result of analyzing the
processes involved.
Recruitment Administration -
A large amount of time is often spent in administering the recruitment process.
Writing the job ad, posting it onto job boards, organizing agencies and reference
checking all require the use of organizational resources, whether internal staff or
outsourced. The hours spent involved in these activities does need to be factored
into the cost of turnover.
2. Sourcing Costs:
Agency expenses -
The cost of sourcing a successful applicant from an agency may be one of the
largest single direct costs associated with recruitment.
Advertising costs -
The cost associated with posting job ads to job boards or traditional media such
as newspapers can be significant. The average cost per vacancies is used within
the calculation.
3. Interview Costs:
Interview -
A core component of recruitment administration is the cost associated with
interviewing applicants. Interviews make use internal resources. The more
interviews held and the greater the number of candidates interviewed the larger
the costs associated with these activities.
Testing -
Companies are making greater use of psychometric and aptitude testing in their
recruitment processes. These tests can be costly to administer and as such need
to be factored into the overall attrition costs.
Travel -
Companies may pay the costs associated with bringing an applicant to the
interview location. Although this may not be done for every candidate an
average is used in the I4 calculator.
FACTORS TO CONSIDER IN THE COST OF ATTRITION
What You Want To Identify Are Your Organization's Costs For:
New employee recruitment, especially for recruiting the kind of diverse staff a
great organization wants?
Management time for trips to job fairs & colleges, screening applications time,
interviewing, meetings to make decisions?
Newspaper, journal, Internet and other ads
Technology specialist time for placing recruitment and job info on the
organization web site
Brochure and flyer printing, folding, addressing, and mailing
Personnel staff time processing applications, answering phones, dealing with
certifications, and other inquiries, etc.
New employee initial orientation
New employee training during the first year or two? (both that just for new
employees and all other organization training)
Reduced results when an employee leaves with what they have learned from
trial and error, and a different new employee is hired without that hard won
experience and starts over at the beginning again.
Loss of work flow continuity when employees leave or are not rehired
because they are not as successful as required?
:: CONSEQUENCES OF ATTRITION::
The labour turnover can have a number of serious consequences, both negative
and positive.
On The Negative Side, Turnover Can Have The Following Consequences:
Management time spent orienting, evaluating, coaching, developing, and
supporting new employees who are not retained?
Significant replacement costs.
Significant operational disruption.
Loss of key skills, knowledge and experience.
Employee dissatisfaction and loss of morale.
Further turnover may be stimulated by an increase in the workload, or
pressure on, those who remain.
A service contractor’s ability to take on new work may be impeded.
Productivity and creativity may diminish.
On The Positive Side, However, Turnover May Have The Following
Consequences:
Vacant posts provide opportunities for re-structuring sections or departments.
Vacancies in key posts will increase internal promotion prospects.
Promotion of innovation, flexibility.
Reduction of playbill costs – initial employment cost of replacement staff
may be lower.
Displacement of poor performers.
Adjustment of staffing mix to provide greater flexibility.
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