In both weak and strong job markets, turnover can hinder a company from growing and competing effectively. Turnover occurs when an employee leaves a job involuntarily or voluntarily. Involuntary turnover occurs when employees are terminated by cause or layoff. Voluntary turnover occurs when employees resign or retire. Voluntary turnover, in particular, must be closely watched and managed.

Why is turnover important to measure? It is really a two-edged sword.

1. Turnover is Too High
   If turnover is too high, it is extremely difficult for a company to maintain any semblance of efficiency and effectiveness. For example, a company with a compensation plan that pays below market or has a poor benefit plan will risk losing key employees. As soon as employees become fully productive in their jobs, they leave for other opportunities. Employee morale suffers, recruiting and training costs skyrocket, and supervisors spend more time recruiting and training than on more productive activities. If the organization is attempting to grow, losses due to termination offset growth and magnify these costs.
   
   Competitive job markets, such as technology and life sciences, have higher voluntary turnover rates than most other sectors. It is critical for companies that depend on technical and scientific talent to measure turnover and understand why top talent leaves.

2. Turnover is Too Low
   On the other hand, if turnover is too low, it may indicate that a company is doing some things too well. A company with a compensation plan that pays above market or a rich benefit plan will typically retain more employees and have lower turnover. However, “above market” compensation and benefits plans also increase expenses, which in turn make it more difficult to hire new employees and maintain necessary staffing levels.
   
   Another problem that corresponds with too-low turnover is what is sometimes called organizational arterial sclerosis. To some degree, every organization needs new blood so that new ideas, approaches, and perspectives are continually added. Organizations with too-low turnover often have groups of employees who are retired-in-place. Their productivity -- and that of the overall organization -- is far below what it should be; yet, they remain in place.

To hedge against turnover becoming too high or too low, companies should regularly evaluate practices and policies that retain, motive, and engage employees, including compensation & benefit plans, incentives, career development opportunities, and work-life balance.

Turnover Trends
From 2007 to 2009, average voluntary turnover dropped from 14 percent to 7 percent, while involuntary turnover increased from 4 percent to 10 percent. During the same period, layoffs climbed from 4 percent to 7 percent (Figure 1).

In 2009, voluntary turnover was higher for technology (7%) and life science (8%) companies than companies in other sectors (5%).

These trends are a stark demonstration of the impact the recent global recession had on the job market. While many workers were getting laid off, others stayed at jobs that they might have left in rosier economic times.

In competitive and healthy job markets, voluntary turnover is significantly higher than involuntary turnover. Based on historical trends and headcount growth projections, we expect voluntary turnover to exceed involuntary turnover in 2010.

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Data Source: Culpepper Trends Survey of 191 participating organizations.
Survey Dates: January 8 through March 26, 2010

Breakdown by Sector:
Technology 58%, Life Sciences 18%, Other 24%

Participant Breakdown by Number of Employees:
Up to 100: 31%, 101 to  500: 30%, 501 to 2,500: 21%, 2,500 to 10,000: 12%, Over 10,000: 6%

Participant Breakdown by Ownership/Corporate Status:
Public 31%, Private 59%, Non-Profit 9%, Other 1%

Participant Breakdown by Country:
United States 91%, Canada 4%, Other 5%