Churn, attrition, turnover—whichever term you use, they all have one thing in common: departing staff members. This type of change is inevitable in business, but when too many employees are heading for the exit at the same time, it can be costly and disruptive.
Employee attrition isn't something we must eradicate; departures also pave the way for fresh talent and ideas. But understanding the reasons for employee attrition, who you're losing, and how regularly can help you make the right decisions to support your people and your organization. This article examines how top companies like Statista, Google, and Spotify deal with attrition, including how to implement a recognition program in your employee retention strategies.
Employee attrition happens when the size of a company's workforce gradually declines due to employees leaving faster than they're hired. This can happen for various reasons, including employee resignations, retirement, termination, or layoffs. Attrition is a natural part of any business; it's impossible to keep all employees forever. However, too much employee attrition can be problematic for companies.
A recent study by Resume.io highlights the companies that employees do and don’t want to leave:
There are common reasons why people leave an organization, each of which can have a different impact on the remaining employees:
According to Pew Research, 50.3% of US adults aged 55 and over were retired from the labor force, and this number will rise as more people reach retirement age. Although retirement is expected, it can create a knowledge gap, particularly if the retiring employee has worked at the company for many years.
6 in 10 US adults have a chronic disease, and 4 in 10 have two or more. Employees who have cancer, heart disease, diabetes, or other conditions may require extended time off work and, in some cases, may need to leave the organization entirely due to their condition.
Some people must leave the company for reasons they didn’t initiate, for example, layoffs, firing for performance issues, a company-wide restructuring, or a merger and acquisition. This type of attrition can cause shock and stress among your current employees and may even impact your employer brand, so it must be handled carefully.
When employees leave the organization for personal reasons, they may have found a better job opportunity, need to relocate to another location, or could be dissatisfied with their current role or the company culture.
As businesses evolve, some roles or entire departments may become obsolete as they're replaced by automation or other disruptive technologies. Another cause of high internal mobility is when team members are keen to move on from a particular department, which could indicate poor leadership. Finally, an employee may have just been promoted, so they leave their old role behind to be filled.
It's easy to believe that all attrition is bad, especially financially. We know that filling open roles can be expensive—SHRM's benchmarking data suggests the average cost per hire is $4,700, with some estimates putting it as high as three to four times a person's annual salary. But these numbers don't tell the whole story, so it's essential to understand the difference between positive and negative attrition.
Positive attrition happens when a team, manager, or entire organization breathes a collective sigh of relief about the change of faces. Not every departing team member will have contributed positively to the organization:
When these people leave, Regional Director Donna Harris Young explains that it's like spring cleaning, where space is freed up for new opportunities and new people:
“This fresh talent injection can breathe new life into a team and bring in some cool new perspectives. Plus, it gives existing employees a shot at climbing the career ladder since those empty slots need filling.”
Similarly, CEO Avi Noel recalls a conversation with a friend about his abrasive and arrogant colleague.
“They eventually quit the organization because they believed they were better than the people they reported to. But not before accusing all the team members of conspiring against them. I told him it was getting rid of a rotten tooth, hurts but it's better out than in.”
Negative attrition is the type of turnover you want to avoid. When a company’s top talent finds the exit, their departure creates a ripple effect that can be felt across multiple teams. The impacts of negative attrition include:
In these cases, it’s essential to understand why your experienced employees are leaving and whether there are steps you can take to retain them.
Employee attrition is a valuable metric you can track to understand the ebb and flow of your talent. Here’s a simple formula you can use:
The number of employees who have left the company and their vacant positions remain unfilled within a given period/total number of employees at the beginning of the period = attrition rate.
Example: Imagine you had 50 employees on staff at the start of January. If four people resigned during that month, and you were unable to replace them immediately, your formula would look like this:
4/50 = 0.08 or an 8% employee attrition rate for January.
Most companies prefer to track attrition over an entire year, but quarterly or monthly calculations can also be helpful. Monthly tracking allows you to identify trends and take corrective action before things get out of hand. In contrast, annual tracking provides a broader understanding of your organization’s health.
Employee attrition and turnover are two metrics used interchangeably to describe an organization's departure numbers. But there are some key differences between the two.
Employee attrition refers to the natural and gradual reduction in an organization's employees through retirement, resignation, or other means. Crucially, the metric describes positions that are not refilled. In some cases, attrition is the goal. For example, during mergers and acquisitions, organizations may need to reduce the overall headcount to eliminate redundancies, reduce labor costs, and increase efficiency.
Employee turnover refers to the number or percentage of employees leaving an organization and being replaced by new employees within a given period. Some organizations or industries will have incredibly high employee turnover rates, but they won't be as impacted by attrition if they can recruit in equal numbers.
It's interesting to look at companies from the same industry and compare their churn rates. Why are workers 3.8 times more likely to quit Tesla than Ford or more than twice as likely to quit JetBlue than Southwest Airlines? While we can't speak specifically for the employees from these companies, most employees do not leave an organization behind. They leave bosses and toxic corporate cultures instead.
With this in mind, check out these top 11 strategies for retaining your people and reducing both attrition and turnover:
Employees who give their skills, energy, and commitment to an organization deserve praise for their contributions. But all too often, recognition falls by the wayside, as something bundled into annual performance reviews or forgotten altogether.
Employees can feel undervalued or underappreciated when this happens, leading to decreased motivation and loyalty. To avoid this, celebrate big and small achievements to make recognition a regular part of your organizational culture.
And when you nurture that encouraging, supportive company culture, the results are fantastic for employee retention. Nectar's employee recognition survey of 800 full-time employees reveals that a whopping 93.5% of employees would stay at a company for five years if the culture were great.
Another way to respect your employees is to let them speak up and voice their concerns or ideas. Open communication with employees fosters transparency and encourages loyal partnerships between staff members and leadership. Plus, it puts a megaphone to your employees' feedback so they can be heard by those who have the power to make change.
We spoke to Change Management Expert Amancay Moreels Scotto of Human-O-S, who is a huge advocate for allowing employees to express themselves, which strengthens the bond between workers and their managers. She told us:
"With all the stress and workload we manage every day, it is easy to fall into a dynamic of "my way or the highway." However, when leading a brilliant and educated group of individuals, communicating is the most efficient way to achieve the best results. It helps create a safe space where the individuals feel valued and are able to express their needs and wants, keeping the relationship between company and employee healthier and stronger."
Running parallel to the strategy of open communication is establishing an environment where employees feel psychologically safe expressing their views without fear of repercussion. This all boils down to the idea of trust, which should be a two-way street.
Amancay Moreels Scotto believes that trust is a human condition that gives us a sense of belonging and makes us feel safe. She explains how crucial reciprocal trust is in the work environment:
“As leaders, we expect our employees to demonstrate that they are committed to the company, and by doing so, “demonstrate that they are trustworthy” without checking if we are showing the same level of commitment or trustworthiness toward them. This can slowly create a sense of mistrust that can lead to the employee searching elsewhere.
Be genuinely committed to your team's well-being and growth, give them your trust, and see how you naturally get back the commitment, trustworthiness, and results you desire."
Employees will only remain with a company if they feel included and have a sense of belonging. Although many companies track overall attrition, they miss the step of drilling down into the data to understand how and why different groups of employees leave.
Google's Stay and Thrive Team is a shining example of how the company stays on top of its attrition data and then designs programs to retain Googlers, including:
This data-driven approach has improved retention for women globally and for Black+ and Latinx+ employees in the US.
Your company could boast a fantastic culture and amazing colleagues, but if you can't offer a competitive compensation package, your employees will likely find a company that can. For example, SHRM data reveals that 61% of Gen Z employees would leave a job to seek better mental health support.
According to Bureau of Labor Statistics data, when designing your compensation package, remember that your employees' salary will form 62-69% of your total compensation. The remainder will go toward employee benefits, which you should take care in planning.
You could offer your employees limitless perks and benefits, but chances are you won't be able to afford all of them. Instead, it's important to double down on the most essential benefits that will entice and retain talent at your organization. This is the conclusion that Gaby Israel Grinberg came to when assessing the benefits mix at Proofpoint Marketing: “Let's do fewer things, but do the big things really, really well."
If you're unsure where to start, try benchmarking your benefits offering against rivals in your industry to understand how competitive you are.
Not all perks and benefits have a price tag attached to them; for many employees, having the option to work remotely or choose flexible work hours can sway their decision to stay with your company long-term.
This initiative has garnered excellent results for Spotify, which introduced its "work from anywhere" policy in February 2021. Eighteen months later, 2% of the company's employees have moved to a different country while continuing to work for Spotify. And almost double that amount has relocated within the US.
Most importantly, the WFA policy has radically improved Spotify's attrition rate, down 15% in Q2 of 2022 compared to the same period in 2019.
For those employees who prefer or are required to work in-house, the promise of luxury premises can be a strong retention tool. But the key is to ensure that these new workspaces are designed with collaboration in mind so your employees can thrive individually and as part of a team.
Speaking on the Punk CX podcast, Co-Founder and CEO Jose Herrera shares how Hire Horatio's impressive office spaces contribute toward the company's low attrition rate of just 5%.
"We have a running track inside the office. We built an office space in Latin America that no one has ever seen before that mimics the Googles and Amazons of the world and mimics any fast-growing startup. Our offices are bright; they're open; they feel like coworking spaces built around collaboration, so that teammates can ask questions, interact with their peers, exchange ideas."
Another way to hang on to your people is to upskill them continuously. LinkedIn reports that 94% of people would stay at a company longer if it invested in learning and development. Employees constantly advancing within their roles have more professional growth opportunities and are more likely to stay with a company long-term. Jose Herrera explains the importance of career development opportunities to Hire Horatio's talent:
"The majority of our employees are super young; they're Gen Zers or millennials like myself, and they want to feel challenged by the companies they work with. They want to understand that there's room for growth within their career. And so, we built out a very strong learning and development team that works very closely with our associates to make sure that they are meeting their professional goals but also their personal goals.
We understand that this industry is not for everyone and that some people may be with us for a couple of years, but we want to make sure that their experience here serves a purpose for their long-term career goals or personal goals. So employees are routinely encouraged to continue to pursue their interests, and we try to find their individual strengths to make sure that they have a strong career path."
We've all experienced bad managers in our careers. Those who pay no attention to us have double standards or are unsympathetic to our needs. These types of managers can be the primary reason for employees wanting to depart, so investing in your leadership team’s development is vital if you're committed to reducing attrition.
Leadership training can take many forms, including peer mentoring from other leaders and upskilling in communication and interpersonal skills. Leadership development programs also play a pivotal role, as illustrated by analyst Toni Sacconaghi from Bernstein, who used 2019 data to examine the impact of specific CEOs on the executives who report to them. At the time, the average turnover rate at this level in Silicon Valley was 9%. But this increased to 44% when execs reported to CEO Elon Musk at Tesla and 22% at Lyft.
As technology advances, it's tempting to cut operational costs by automating processes, eliminating the need for manual workers. Although this type of attrition might seem like a byproduct of progress as businesses adopt more AI tools, we must be careful not to dehumanize the workplace. Employees who feel they're just another cog in the machine will be less likely to stay with a company than those who work in an environment that prioritizes human interaction and support. Jose Herrera explains how his company balances technology and humanity for the good of its people and customers.
"Since we started the company, we've been using AI to make the lives of our agents easier. And that is something we're super proud of to be at the forefront of technology. That being said, the human connection is something that we are firm believers is not going away anytime soon. We're leveraging AI to make the lives of our agents easier and also try to automate things that can make the lives of the consumer easier. But there are certain aspects of the customer journey and the customer experience that need to be handled by a human. There is a point in the conversation where the human touch and the human element is needed, and we aim to build that synergy between the human agents and the AI tools that we're using nowadays."
While we value regular, open, and honest conversations with our people, less frequent stay and exit interviews are also essential for understanding employee attrition.
Multiple factors can influence your organization's employee attrition, and some will require significant investment or even leadership changes to turn the situation around. But if you're looking for an easy win, consider following in the footsteps of Statista, who adopted Nectar's recognition program for its people.
Nectar offers several tools to engage your workforce, acknowledge their contributions, and reward them for their hard work. Use tools like:
So, how do these features impact employee turnover? For Statista, their 93% participation rate in Nectar led to the company’s 100 employees sending 655 shoutouts and 453 comments on those shoutouts. By building a culture of frequent recognition, Statista’s people-centric approach has skyrocketed employee engagement, which has led to a 29% decrease in turnover between 2021 and 2022.
Want to see how Nectar could turn the tide on turnover in your organization? Book a free demo today.
