Dysfunctional Turnover & 9 Ways to Fight It

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Dysfunctional Turnover & 9 Ways to Fight It

Dysfunctional turnover does not only cost organizations a lot of money, but it also disrupts work and affects productivity. So let’s look at what dysfunctional turnover is and how you can reduce it in your organization.

What is employee turnover?
What is dysfunctional turnover?
What is the difference between functional turnover and dysfunctional turnover?
How dysfunctional turnover disrupts your organization
How to reduce dysfunctional turnover

What is employee turnover?

Employee turnover is defined as the number of employees leaving a company during a specific period, commonly one year. This number includes voluntary resignations and dismissals.

Turnover is a natural process in any organization. Ideally, you’ll want your employee turnover to be as low as possible because it is expensive it find, hire and train replacement staff, but not so low that you aren’t getting new talent and ideas to support innovation and growth.

There are a few ways to calculate your employee turnover rate. We suggest:

Turnover rate (annual) = # of terminations (annually) / # of employees at the beginning of the annual period

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The number of terminations should include data on those who left willingly (voluntary turnover) and employees that were laid off or fired (involuntary turnover).

Comparing your turnover to other companies in the same industry is essential. This is because there are specific industries where turnover is typically extremely high such as hospitality or retail. You won’t know if you are on the right track if you compare yourself to unrealistic standards.

What is dysfunctional turnover?

Let’s take a closer look at where dysfunctional turnover fits in the overall turnover landscape.

Dysfunctional turnover is a type of voluntary turnover, and it happens when your high-performing employees quit at higher rates than your weaker staff. This is called dysfunctional because of its negative impact on end profit since you must keep recruiting and training new staff, which is very costly.

Types of Employee Turnover

There are two kinds of dysfunctional employee turnover: avoidable and unavoidable. Avoidable turnover relates to changes that could be made in an organization to keep the employee. Some examples are low wages, lack of benefits and perks, and dissatisfaction with work-life balance

Unavoidable turnover is when there is nothing an employer can change to prevent the employee from leaving. Examples are illness, death, retirement, moving to another city, and family responsibilities.

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According to The Society for Human Resource Management (SHRM), it costs a business, on average, six to nine months of an employee’s salary to replace them. So if someone made $102,000 a year, it would cost between $51,000 and $76,500 to replace them. With a record of 47.4 million people voluntarily leaving their jobs in 2021 and little signs of it slowing down, employers in America are facing another year of the Great Resignation

To address dysfunctional turnover, your team needs to understand what is causing it. There could be one or many reasons, but some of the most common reasons for dysfunctional employee turnover are:

  • Little opportunity for career development and growth
  • A negative view of leadership
  • Lack of feedback and recognition
  • Feeling burnt out or overworked
  • Toxic workplace culture
  • Lack of work-life balance

What is the difference between functional turnover and dysfunctional turnover?

Another type of voluntary turnover is called functional turnover. Functional turnover is when low-performing employees voluntarily leave your company. A poor performer is a worker that is consistently performing below expectations over a long period of time. Example behaviors include:

  • Making avoidable mistakes.
  • Failing to fulfill the standards.
  • Requiring constant instruction and supervision.
  • Distracting coworkers or upsetting clients.

Functional turnover is not bad and should be encouraged because it will benefit your organization in the long term, whereas you should work to avoid dysfunctional turnover.

How dysfunctional turnover disrupts your organization

It is important to recognize that high turnover costs aren’t your organization’s only problem when faced with dysfunctional turnover. It is disruptive to many different aspects of your company, and businesses must strive to reduce it if they want to remain competitive in today’s market. Some examples of the negative impact of dysfunctional turnover include:

Loss of productivity

When high-performing talent leaves, your team will experience a loss of productivity. A study by the Kelley School of Business at Indiana University found that high performers are 400% more productive than average ones. Unfortunately, there are many areas in your business that low productivity impacts, such as delays in the project timeline, lower team morale, reduced profitability, and further employee turnover.

Dysfunctional Turnover: Problems and Solutions

Decrease in your company’s innovation

Organizations rely heavily on innovation in today’s competitive landscape to stay relevant. According to McKinsey, 84% of executives say their future success depends on innovation. When top-performing talent quit, they no longer help identify and capture possible growth opportunities for your business.

Loss of knowledge

Whether individuals are promoted, switch departments, or resign, all of their knowledge goes with them. If they remain in your company, you know where to find them beyond the documents they worked on or handovers they left behind. When an employee leaves, there is no way to follow up when needed, making your workforce less efficient. 

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Negative image of the organization

When someone is unhappy with their job and leaves, they frequently share their work experience with family and friends and through platforms like Glassdoor reviews or LinkedIn. A negative company image can have a massive impact on your business and often contributes to increased employee turnover, decreased motivation, and difficulty hiring new employees.

Company culture deteriorates

Company culture is vital because employees who enjoy your company’s culture are more likely, to stay longer and are more productive. However, when high-performing talent leaves, they can create a gap in your company’s culture. It disrupts the mentality that everyone is working toward shared goals and negatively impacts productivity and employee engagement. 

Difficulty hiring top talent

High performers tend to attract other high performers to your company. And when the best hires are off the market in 10 days, your team needs to work quickly to hire them.

When top performers leave your company, it will make attracting and hiring others more difficult. There are many reasons for this, but starting with understanding why your staff is going, for example, little growth opportunities, inability to make a real impact, and toxic company culture, will allow you to know why other top performers are scared off. 

How to reduce dysfunctional turnover

  1. Identify and resolve management issues – People often quit because of poor management, and uncaring and uninspiring leaders are one of the top 3 reasons for leaving jobs in the past year. That’s why it’s essential to focus on developing managers and leaders and equipping them to lead their teams. For example, your organization can do this through leadership development plans and mentoring.
  2. Focus on career development – The #1 reason people leave their jobs is because of a lack of career development and advancement. Provide your team with relevant learning & development opportunities, chart career paths, and support internal mobility – both horizontal and vertical moves. 
  3. Conduct exit & stay interviewsExit interviews help you understand why people are leaving, and stay interviews give you a better picture of why your employees stay. Once you have more information on these two things, you can implement targeted retention strategies to prevent dysfunctional turnover.
  4. Gather and analyze feedback – Apart from the exit and stay interviews, you can also create a comprehensive employee listening strategy to understand what motivates your people and how they feel about working in your organization. Such a strategy can include pulse surveys, employee experience surveys, as well as regular 1:1 meetings.
  5. Review your compensation strategy – Studies show that 36% of people have left a job because of inadequate total compensation. You need to ensure that your compensation is competitive and that you’re balancing the elements of total rewards in a way that works for your workforce.
  6. Strengthen your organizational culture – One of the signs of toxic organizational culture is people competing with each other instead of collaborating. A Harvard Business School study found that almost half of workers who encountered toxic coworkers decreased their work effort and consciously chose to spend less time at work. This kind of environment largely contributes to people leaving. If you recognize this in your organization, you might want to consider cultural transformation.
  7. Forge connections among employees – When employees feel connected to one another and help each other, they’re more engaged and productive. Strengthen your employees’ relationships through teambuilding activities, shared goals, etc. This is more important than ever with the rise of remote working, where it takes more effort for employees to connect.
  8. Provide meaningful work – People want purpose in the job they do. Discover how your organization can help people see the purpose by communicating how they contribute to your business’s goals and/or to society. Apply job design strategies like job rotation and job enrichment to increase motivation or offer volunteer time off (VTO) so that employees can help in ways that are personal to them.
  9. Offer flexibility where you can – People want remote and hybrid work options to improve their work-life balance. These options are, of course, not possible for many deskless jobs. However, you can still offer self-service scheduling, shift swapping, holiday swapping, and paid time off to your deskless workforce.

Over to you

Dysfunctional turnover is when your organization’s best employees leave. It can happen for various reasons, but common causes are a lack of growth opportunities and management issues. By deliberately reducing dysfunctional turnover in your business, you will be rewarded with cost savings and an engaged, productive workforce.

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