HR Administration

Calculating Turnover

By Kris Dunn

Feb. 23, 2015

Let's say you’re an HR leader responsible for recruiting and retention in the entry-level parts of your company, and your turnover rate is the death by a thousand cuts.

Sure, you have a great retention month every once in a while (the lucky odds of probability), but most months are grim when you look at turnover in those entry-level positions.

What do you do? Commission a study of turnover? Go on a listening tour? Hire new leadership?

You could do all of those things, or maybe you could just write a check.

Insurance giant Aetna recently decided to write the check in anattempt to buy its way out of a turnover problem. Aetna CEO Mark Bertolini recently toldemployees the company is raising its minimum wage to $16 per hour in April 2015.

That move represents a pay increase for about 5,700 of Aetna’s 47,000 employees, and Bertolini cited the wage increase as a direct effort to retain staff, making direct references to struggles with turnover and the lost productivity that recruiting entry-level replacements creates in a company like Aetna.

That, my friends, is a company deciding to do something about turnover in jobs where paying a living wage matters related to retention. The pay raise largely benefits call-center workers and people in billing, claims administration, health care customer service and claims processors.

At some point, you have to decide if there’s a better way to manage a workforce than just trading call center workers every 12 months with other call centers in your area by paying $12 an hour. Want more detail on the Aetna decision? I thought you’d never ask.

On average, affected workers at Aetna will get an 11 percent increase, with some seeing a raise of as much as 33 percent (moving from $12 to $16 per hour). A full-time employee making the new minimum wage would make $33,280 annually.

Let’s do the math: If Aetna is giving on average a $2 increase to 5,700 employees, that equates to almost $24 million annually — not a shabby investment in people and turnover reduction. But, the last revenue figure I have for Aetna is $47 billion, which means this investment equates into 0.0005 of revenue, which is a fraction of a percentage point.

Put another way, you now have a metric for attempting to solve your entry-level workforce turnover problem. A company with access to all the data, analytics and consulting help in the world (Aetna) has decided that an investment of 0.0005 of revenue is warranted to stop the organizational bleeding related to entry-level turnover.

So if your company generates $100 million in revenue annually, making an Aetna-like call to invest in turnover reduction would require a budgetary commitment of $50,000.

If you know turnover, you suddenly realize an Aetna-sized investment using revenue as a guide isn’t going to be enough; you need more.

Regardless of how much money you would need to address turnover, do you believe this type of increase plan will bring a return on investment? That all comes down to what you believe related to the cost of turnover, so let’s examine that.

Aetna pushed its increase plan out to 5,700 employees. Let’s imagine an environment where that group was experiencing 50 percent turnover, meaning Aetna theoretically would have to recruit 2,850 new employees just to keep up.

Let’s assume that wage increase plan helped them drop turnover to 30 percent, which means they have to recruit 1,140 fewer entry-level associates as a result. Calculating the savings using that number and the $24 million price tag of the program means the cost per saved employee is approximately $21,000 in the first year of the program.

The numbers get better if Aetna has a hardcore turnover problem. Assuming a current turnover rate of 100 percent dropped to 50 percent in the affected group gets you to a cost-per-saved employee in the first year of $8,400.

The good news is that the effect of the program isn’t measured in one year — the true payoff comes across multiple years — meaning the cost per saved employee is much less.

But the “cost per saved employee” underscores an important point: Your belief in a retention program involving mass salary increases like Aetna’s ultimately comes down to how much you think it costs to replace an employee.

We know massive turnover is bad. But opinions related to the cost of turnover vary incredibly. You need the cost of turnover to accurately determine if a plan like Aetna’s could work. Which means you’re left with one question.

How much do you think a saved employee is worth?

Good luck with that one.

Kris Dunn, the chief human resources officer at Kinetix, is a Workforce contributing editor.

About Workforce.com

blog workforce

We build robust scheduling & attendance software for businesses with 500+ frontline workers. With custom BI reporting and demand-driven scheduling, we help our customers reduce labor spend and increase profitability across their business. It's as simple as that.

Book a call
See the software

Related Articles

workforce blog

HR Administration

Policy management: What is it and what does it look like for HR?

Summary Policy management involves the creation and maintenance of administrative procedures and guidel...

hr policy, policy automation, policy management

workforce blog

Compliance

Minimum Wage by State in 2022 – All You Need to Know

Summary The federal minimum wage rate is $7.25, but the rate is higher in 30 states, along with Washing...

federal law, minimum wage, pay rates, state law, wage law compliance

workforce blog

HR Administration

Rest and lunch break laws in every US state

Summary Federal law does not require meal or rest breaks Some states have laws requiring meal and rest ...