The Effects of High Turnover in Companies

High turnover means your company is losing a relatively high percentage of employees each year compared with the number of people you hire and employ. While losing poor performers may have benefits, effects of high turnover are typically negative. Understanding how turnover affects your business and developing strategies to combat it is a critical part of human resource management.

High turnover is expensive for companies to manage. Losing an employee may bring costs such as severance pay and administrative tasks such as exit interviews. More critically, you have to go through the recruitment, selection and hiring process all over again. Once you find a new employee, you have to train him, which also costs time and money. Plus, you typically have opportunity costs that result because a new employee can't immediately deliver the same sales or production results as the former one.

Morale in high-turnover companies is typically weak. Organizational culture is the shared norms and value of a collection of employees who work together. Motivating your employees to share the vision of your business and perform at high levels is difficult when colleagues and co-workers are vanishing all around them. Workplace relationships are key to an employee's satisfaction with work. As friends and co-workers leave, remaining employees constantly have to cycle through the process of getting to know new employees.

High turnover means the basic level of experience across your organization is lower than it otherwise would be. Employees with less knowledge and less experience in your business and with their jobs won't produce as well as those who know more about what they are doing. In a production job, the efficiency of production is likely lower. In sales and service jobs, sales results and service satisfaction ratings are affected. The major challenge is that high turnover contributes to a downward spiral that is tough to get out of, since poor performance leads to poor business results, which often forces your company to freeze salaries or cut back on training.

Managers quickly get frustrated with the constantly revolving door of employees. In retail, for instance, a manager finds himself spending so much time hiring and training new employees he can't coach and develop those who have been around. This contributes to longer-term employees getting upset and leaving. Plus, poorly equipped and developed employees place more burden on the manager to work hands-on in the business or store. This takes away from his decision-making and supervisory duties.

One of the worst effects of high turnover is that it requires focus to fix. Some businesses hire consultants to help get out of a turnover rut. As you invest time, money and resources to correct high turnover, you take away from diversifying your business, marketing to new customers and improving on performance.