Measuring Retention Rather Than Turnover: A Different and Complementary HR Calculus

By Waldman, J. Deane; Arora, Sanjeev | Human Resource Planning, September 2004 | Go to article overview

Measuring Retention Rather Than Turnover: A Different and Complementary HR Calculus


Waldman, J. Deane, Arora, Sanjeev, Human Resource Planning


Retention rate is not simply the inverse of turnover. Retention rate measures what is wanted rather than what is undesirable. It is easy to calculate. For the line manager or workforce planner, retention rate complements the determination of turnover, particularly for highly skilled employees. Additionally, the combination of retention rate and turnover offers a more complete view of worker movement that either does alone. It can tell us exactly who leaves, and from that we learn more about why they leave, what it really costs the organization, and what to do about it.

For at least 30 years, some have suggested we look at the wrong things by studying turnover (Van der Merwe, 1971). Yet because it has been easy to measure, it has been the dominant way of thinking about movement out of organizations. Instead, we should focus our attention on the leavers. Who goes, when they leave, how long they stayed, how much knowledge they take with them, and how this impacts the organization. Rather than measuring something we do not want--turnover--we should track what we do want--employee retention.

In this article, we look at retention in health care, an industry in which skilled practitioners are in short supply. Retaining them is crucial to sound clinical and financial outcomes. Moreover, the situation in health care generalizes to many fields requiring highly skilled and experienced people.

We begin by calculating the average annual total turnover and new-hire turnover during a five-year period, by job group, in a major medical center. Turnover is calculated as the number of employee terminations in a given period--voluntary, involuntary or both--divided by the average number of active employees during the same period (Saratoga Institute definition).

New hires are much more likely to leave than established employees. Can things be done early in a career to help the right people stay?

As displayed in Exhibit 1, the average annual employee turnover from 1997 through 2001 at the medical center was 21 percent, with a range of 8 percent for physicians to 30 percent for support personnel. The new-hire average annual turnovers ranged from 15 percent to 60 percent (Column B). This is an aggregate number.

We compare these turnover results to retention rate. To measure retention, we looked at specific individuals in each job group and measured how long they stayed. Retention must decline over time, unless no one ever left an organization. We can see the progressive decline in the retention of employees over five years from an average net one-year retention rate of 60 percent to an average net five-year retention rate of 33 percent (range: 17%-59%). Of more interest, and more open to intervention, is the wide variation among job groups and individuals in who stays. Can we ensure that more valuable employees stay longer? Additionally, and of no surprise, is that new hires are much more likely to leave than established employees. Can things be done early in a career to help the right people stay?

To address these questions, we need a way to identify and track who stays and who goes. Exhibit 2 shows how to do this.

Consider an organization with an employee flow chart as shown in the scenario depicted in Exhibit 2. Each worker is uniquely designated by the year of hire and a letter: 1A is Person A hired in Year 1 and 3C is Person C hired in Year 3. "T" refers to the termination of that employee, voluntary or forced, graphically placed in the year of the termination. The workforce is divided into newly hired individuals and retained workers.

HR measurements are given below each scenario, including annual turnover, new hire one-year retention, and net retention by year of hire. In Scenario 1 the company hires 10 people in Year 1. During the first year, seven stay and three leave. During the second year, all seven stay but the three new hires from Year 2 leave. …

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