4If employees are to be products,
their shelf-lives are getting shorter”
In the best of worlds, employees would love their jobs, like their coworkers, work hard for their employers, get paid well for their work, have ample chances for advancement, and flexible schedules so they couldattend to personalor 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 coworkers, 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?
Defining Attrition: "A reduction in the number of employees through retirement, resignation or death"
Defining Attrition rate: "the rate of shrinkage in size or number"
Attrition is beginning to significantly affect offshore ROI. Just as businesses faced a scarcity of talented IT resources during the dotcom era, organizations in offshore countries such as India are experiencing similar pains. Skilled employees are hopping from job to job and taking with them the customer knowledge and technical expertise that any company needs. Their salaries are increasing, along with their perks, benefits, and bonuses.
Defining the attrition problem
Global outsourcing and the astounding amount of foreign direct investment pouring into China, Russia, and India have created tremendous opportunities and competition for talented IT professionals in those countries. The downside of this increased competition is a rising rate of attrition, particularly in India.
Reasons for attrition
It is not easy to find out as to who contributes and who has the control on the attrition of employees. Various studies/survey conducted indicates that every one is contributing to the prevailing attrition. Attrition does not happen for one or two reasons. The way the industry is projected and speed at which the companies are expanding has a major part in attrition.
The specific reasons for attrition are varied in nature and it is interesting to know why the people change jobs so quickly. Even today, the main reason for changing jobs is for higher salary and better benefits. While attrition cannot be attributed to employees alone, let us look at some of the possible reasons:
·Organizational matters
The employees always assess the management values, work culture, work practices and credibility of the organization. The Indian companies do have difficulties in getting the businesses and retain it for a long time. There are always ups and downs in the business. When there is no focus and in the absence of business plans, non-availability of the campaigns makes people to quickly move out of the organization.
·Working environment
Working environment is the most important cause of attrition. Today’s Gen Next employees expect a professional approach and an international style working environment. They expect a friendly and learning environment. Employees look for freedom, good treatment from the superiors, good encouragement, friendly approach from one and all, and good motivation.
·Job matters
No doubt the jobs today bring lots of pressure and stress is high. The employees often switch jobs if there is too much pressure on performance or any work related pressure. It is quite common that employees are moved from one process to another. They take time to get adjusted with the new processes while few employees find it difficult to adjust and consequently leave. Monotony sets in very quickly and this is one of the main reasons for attrition. Job hopping is very common among youngsters who look at jobs as being temporary. Another commonly looked option is to move to such other process where there is little or no pressure of sales and meeting service level agreements (SLA). The employees move out if there are strained relations with the superiors or with the subordinates or any slightest discontent.
·Salary and other benefits
Moving from one job to another for higher salary, better positions and better benefits are the most important reasons for attrition. The salaries and benefits offered by MNCs are generally higher than their Indian counterparts. The employees expect salary revision once in 4-6 months and if not they move to other organizations.
·Personal reasons
The personal reasons are many and only few are visible to us. They vary widely from getting married to relocating for health/family reasons. The next important personal reason is going for higher education. Health is another aspect, which contributes for attrition.
·Poaching
The demand for trained and competent manpower is very high. Poaching has become very common. The rise in the number of placement agencies has led to a boom in poaching. Most of the organizations have employee referral schemes and this makes people to spread message and refer known candidates from the previous companies and earn too.
·Employee’s advocate
One of the main reasons why employees leave companies is because of problems with their managers. An HR professional can be termed an employee’s advocate and a bridge between top management and employees at all levels. There is often a huge gap between HR professionals and employees in terms of understanding challenges and delivering requirements. HR sometimes does not really understand the problems associated with employees’ careers and jobs. The company’s overall plans and strategies also depend on HR professionals as they voice employees’ problems and requirements. The HR department should have genuine interest in the employees’ welfare; it is responsible for making sure that their expectations are met. By doing this it is easier to meet the company’s business targets.
Associated costs with high Attrition
·Talent cost: It includes the cost of lost knowledge, skills and contacts that the person who is leaving is taking with them out of your door.
·Recruitment cost
-The cost of advertisements; agency costs; employee referral costs; internet posting costs.
-Calculate the cost of the manager who has to understand what work remains, and how to cover that work until a replacement is found.
-Cost of the various candidate pre-employment tests to help assess candidates' skills, abilities, aptitude, attitude, values and behaviors.
·Training cost
-It includes the cost of orientation in terms of the new person's salary and the cost of the person who conducts the orientation.
-It also consists of the training.
-Calculate the cost of various training materials needed including company product manuals, computer or other technology equipment used in the delivery of the training.
·Motivational cost: It refers to the cost arises because of motivating the other employees to retain them in the organization in terms of increasing their salary and time.
·Lost Productivity Costs: As the new employee is learning the new job, the company policies and practices, etc. they are not fully productive.
Attrition in Insurance Industry
While job attrition rates ranging between 15 per cent and 20 per cent is commonplace in the software sector, these pale in comparison to the kind of turnover that the insurance industry witnesses with its agency force.
Conservative estimates put the attrition rates at 35-40 per cent.
The opening up of the sector five years ago provided insurance agents with new opportunities and an image makeover as "life insurance advisors".
But little has changed in the basic nature of the business - insurance still needs to be sold to a reluctant populace. Most agents or advisors who join in enthusiastically, spurred by dreams of "working at one's own hours, getting full reward for the hard work" and other such motivational spiel, meet reality soon enough. Once the initial list of potential customers such as close relatives, friends and neighbors is exhausted, the climb for an agent is uphill.
When the rejections start and the doors start getting banged in the face, new agents confront failure. The dropouts begin. Most people think that they can make a lot of money in a short span of time. Besides, one has to acknowledge that it is a high-pressure job. Sustenance requires constant networking and acquiring new relationships for your business. This requires a lot of discipline.
Insurance companies believe that adequate training will help to contain the problem in some measure. In a business such as insurance one has to accept the fact that 20 per cent of the work force will bring in 80 per cent of their business.
Hiring from each other is a common practice amongst insurance companies. Employees, especially in middle and junior levels of the sales function, tend to move amongst insurance companies. Availability of quality talent is still scarce. Given the huge demand for talent, and since not all of this requirement can be met by freshers, companies tend to poach from competitors.
Calculating employee attrition
The high attrition rate in the industry has always been the greatest concern, and a subject of much analysis and debate. Organisations use different methodologies for calculating their turnover rate. It is a known fact that turnover calculation is a grey area which does not always depict the true picture. While a few techniques are common, there are no proven theories. Furthermore, the approach to this calculation might vary from organisation to organisation. Disclosure of the figure not only has a direct impact on the business, but also affects employee morale and productivity. Significantly, it might also trigger off a chain reaction-a high attrition rate will lead to more people leaving the organisation, while a lower rate will act as a retention strategy. It is not surprising that most industry observers are skeptical when organizations disclose their employee turnover.
A high attrition reflects poorly on an organization’s ability to hold on to its people. Unfortunately, attrition is viewed as a management flaw, when in fact; it could well be a recruitment error. In some cases it can be simply seen as an organization’s competitor appreciating its quality of hires and the output, post-training-almost a backhanded compliment!
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. Post this, annual attrition figures should be measured and accounted for. This is optimal within the services industry as companies tend to have different challenges at different stages of their business life-cycle, and also maturity achieves stability around a company's 10th anniversary.
Different theories
The attrition rate remains a debatable area, as there is no standard formula to calculate it. A few of them are listed below:
·The employee base changes each month. So if a company has 1,000 employees in April 2004 and 2,000 in March 2005, then they may take their base as 2,000 or as 1,500 (average for the year). If the number of employees who left is 300, then the attrition figure could be 15% or 20% depending on what base you take.
·Many firms may not include attrition of freshers due to higher studies or attrition within three months of joining.
·In some cases attrition of poor performers may also not be treated as attrition.
·Essentially the attrition number is also a PR or stock/analyst statement and is prone to 'dressing' up.
Varied theories are also applied as organizations like to brand themselves differently as far as their HR and recruitment strategy is concerned. Each company positions itself uniquely in a common market place on account of having exceptional HR policies, procedures and management styles that directly impact retention or attrition and hence the absence of a homogenous system. Also, in scenarios where a common attrition measurement formula is applied, companies find a way to justify their results to position their statistics differently from their peers on account of having differing operating practices.
Formula for Attrition
While different organizations follow different formulae for calculating attrition depending on their size and nature of services, some of the commonly used formulae to calculate attrition are as follows:
1.) Attrition Rate = (No of employees resigned/Average manpower)*100
where, Average Manpower = (Opening Manpower + Closing manpower)/2
(opening/closing manpower could be either the calendar year beginning or financial year beginning whichever followed)
2.) Attrition = employees left * 100 / (opening balance in a month + number of employees joined in a month + number of employees left + no of employees at the end of the month
Employee attrition & retention strategies
Retention of efficient employees is one of the most critical challenges faced by many corporates worldwide and our Indian companies are no exception to this phenomenon. The HR managers have been facing a tough time finding a suitable replacement with required experience and ability, to fill up the vacancies created on account of exit of key employees. The reasons can be varied like shortage of skilled manpower, growth in opportunities as a result of economic reforms and liberalized policies pursued by successive governments at the Centre. Attrition level can also be more due to rigid and unpopular HR policies pursued by the corporates.
Recent initiatives from Indian Companies to address attrition problem are as follows:-
·Company managements are increasingly concerned about retaining qualified experienced managers and lot of debate has taken place about the increasing trend in employees' attrition, more particularly in knowledge-based industry like software and mutual fund industry. Faced with a continuing shortage of trained personnel, the Indian mutual fund industry, for example, is beginning to use employee stock options to attract and retain quality employees. In addition some of the mutual funds have announced plans to institute a stock ownership program and are looking at employee stock option plans (ESOPs) as part of their overall human resource management process.
·One of the leading AMCs recently granted its employees -- with a minimum service period -- an ESOP package with retroactivity from calendar year 1999. The ESOP plan, which has a vesting period of three years, is contingent upon the Asset Management Company achieving business plan goals. As well, the valuation of the options is based on a pre-set formula. The idea of the ESOP program is to align the individual with corporate goals. Some of the leading AMCs /MNCs are sending their employees to reputed institutes in foreign countries to upgrade their skills as well as to reward and motivate the performing employees further.
·Some of the leading MNCs and financial institutions have also made arrangement with local management institutes to design tailor-made courses for training their employees.
·Recently some of the companies started giving joining bonus to attract good managers with good track record.
·Besides there are other ways of tackling the problem by providing congenial work environment, career path, and performance linked financial incentives and also rewarding the performing employees by way of rewards in cash/ kind etc. But there are some limitations as all the companies can not provide all the incentives to satisfy the increasing expectations of the present day managers as they have to consider their size and their affordability.
Employee attrition continues to affect organizations large and small, local and multinational and may impact the growth and prosperity of the company. Similarly, the exit of experienced fund managers also affects the performance of the fund temporarily as the style differs from one fund manager to another. Intimate knowledge about the corporate world is very vital for the fund
The employee attrition problem is a global issue and at times may be difficult to manage but can be tackled by careful planning and well thought out proactive HRD policies.
The True picture
The attrition rate that is generally disclosed by most organizations does not always show the correct picture. This is because the figure has direct impact on stock markets, employee morale and customer confidence. Attrition rate has always been a sensitive issue for all organizations as it can have major fallout on the bottom-line. This is because the attrition rate is an indicator to many things intrinsic to the organization, and revealing it may affect it negatively. In fact at times, disclosing this data can be like a self-fulfilling prophecy-if you tell the fact that the attrition is high, it may actually become higher. It is also not uncommon to find companies proclaiming an attrition rate that is much less than the others in the industry or their competitor's turnover rate.
Companies often project their attrition rate incorrectly as it tends to affect their brand image both internally and externally. Internally, it sends a wrong signal to their employees and the board of members and externally, it can affect in various ways such as developing a bad image or dissuading talent. However companies do not realize that hiding their attrition rate is never a solution in reducing the same.
Cause & analysis
Calculating employee turnover is not a matter of simple mathematical method. It is necessary to take into account the root of the problem, by going back to the hiring stage. Most organizations in practice do not evolve robust measurements for calculating cost of a bad hire or labor turnover. The detail of information required and the measurement metrics are not common formulae, but have to be designed dependent on the nature of business and function. As a result most organizations do not intend to mislead by disclosing statistics which may not be true, it is just that perhaps they believe those to be true.
Organizations will however know what their real attrition figures are as this has a huge impact on business. Like with most data, attrition too can be interpreted in different ways and it is up to each organization how and what they wish to share. Organisations are generally much concerned about regretted voluntary attrition. These are people who leave at their own will and those whom the organisation would have loved to retain. Similarly, organizations measure managed attrition. These are people made redundant, laid off or exited. Though managed attrition is non-regretted by the organisation, the trend of managed attrition if on the higher side may show the organisation in poor light and does have an impact on the organization’s health.
Attrition does not only reflect the hiring policies of an organisation, but also induction and retention strategies, training methodologies, work culture and many other factors. It costs the company valuable time, money and often credibility (especially where employees develop relationships with customers). Some companies just look at the employee turnover in terms of the cost involved in the hiring and training of the individuals. While others look at the opportunity lost and cost.
Organisations aim to reduce voluntary attrition of productive employees and encourage unproductive staff to leave its fold. It makes way for career progression, new thinking and innovation.
The Brighter Side of Attrition
Some employee turnover positively benefits organizations. This happens whenever a poor performer is replaced by a more effective employee, and can happen when a senior retirement allows the promotion or acquisition of welcome 'fresh blood'. Moderate levels of staff turnover can also help to reduce staff costs in organizations where business levels are unpredictable month on month. In such situations when business is slack it is straightforward to hold off filling recently created vacancies for some weeks.
From India, Mumbai
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