How to create a better stream of candidates, and interview better, to reduce first year turnover.
A recent client engaged me to help them reorganize their recruiting process. The first thing I did was a workforce analysis so we could understand their staffing needs. This business had never done this kind of analysis before so we dug in.
In planning for the future it is important to assure that the business has the required manpower in place to support the business objectives. Otherwise they will be constantly chasing their tails to keep up with the recruiting demands.
Workforce analysis or manpower planning is a method of predicting how many employees are needed to achieve the business objectives.
We look at three areas: 1) The number of replacements we need to account for turnover; 2) The number of employees needed for business growth; and 3) The number needed to be eliminated for business shrinkage.
Let’s look at the information we need:
• This business has about 60 employees.
• The business leaders planned for 20% growth in 2015. It is reasonable to assume that the number of employees might grow by 20% or less to accommodate growth. That means they probably needed about 12 employees in 2015 to handle business growth.
• They guessed they had about 20% turnover in the prior year. I was not confident how they arrived at that number but I accepted it at first because I had an easy way to figure it out.
Then I gathered statistics. I needed the number of employees in each job title on January 1, 2014, the number of people who were hired in 2014 in each job title, the number of people who left the company for any reason in 2014 and the final number of employees in each job title on December 31, 2015.
We cannot just compare the headcount at the beginning and the end because we would miss all the action in between. This action or churn is turnover, the activity that takes up so much of the hiring managers’ time and energy.
The actual statistics revealed that the company experienced about 46% turnover in 2014, not 20% as they guessed. Turnover at that rate means the company should plan to hire an additional 27 people in 2015 just to account for 46% turnover.
That means that every employee working at the beginning of the year has about a 50/50 chance of working at the company at the end of the year. How can a company plan for growth when they cannot count on having trained employees available to execute the business plan? This is a major problem.
Another problem is that about half of that turnover happened in the first year, pointing to major problems with the hiring process and management skills. Turnover in the first year represents a complete waste of hiring and management time and should be avoided at all cost.
Turnover represents disruption to the business, impacting the bottom line. That is a lot of time you could be devoting to other activities. Turnover costs money in terms of hiring costs, loss of productivity and training costs. A good rule of thumb is turnover costs about half of the employee’s total salary.
In this case, the turnover occurred mainly in one of the jobs with a lot of incumbents earning about $30,000 per year. That means that each person who “turned over” in that job category cost the company about $15,000. This company’s 46% turnover at $15,000 per year for 27 people costs the company about $405,000! Are you shocked! The business leaders were shocked. They could think of many better ways to use $405,000 to support their business growth.
If the company can reduce turnover by half (a reasonable goal) it could avoid spending (or save) about $200,000, right to the bottom line!
If we couple 46% turnover calling for 27 people with 20% growth calling for 12 employees, the company can reasonably expect to hire 39 people in 2015. This is a huge undertaking that took the company by surprised!
Can you see how important it is to understand your department or company’s turnover for the prior year?