When Turnover Turns Toxic

Some tips for quantifying the cost of losing key employees and stopping critical departures. A consultancy sees CFOs as central to the process.

When key employees in critical roles begin to leave a company, the consequences can be devastating. And action has to be taken fast to find out why it’s happening and how to stop it. But might there be a way to prevent it in the first place?

According to one recent report, prevention starts with identifying just what roles at a company are critical — something too few managements do in advance. Even fewer become adept at quantifying the value of a critical job position, and especially determining the indirect, hidden costs of this toxic turnover. They settle for the obvious price of recruiting, hiring, and training, along with the amount to be paid in the interim, for overtime and for employing temporary workers.

“Increasingly, finance is asking for the numbers beyond those direct, straight-line costs,” says Aaron Sorensen, who with Joel Rich co-authored a report called “How to Manage Undesirable Turnover” for Sibson Consulting. The human resources department “is starting to catch up with finance” when those requests come in from the CFO — and to estimate such serious indirect costs as loss of productivity and capacity, misallocation of resources, reduced bench strength, increased training time, lost work hours, and vanishing customer base.

“Typically, doing that straight headcount approach doesn’t answer a company’s business needs,” Sorensen tells CFO.com. “Companies need to determine what they must do over the next three years to solve the problem. When the CFO is involved, the conversation happens around that framework.”

The Sibson approach to reversing “undesirable turnover,” which is part of its Human Capital Planning program, starts with identifying just what roles at a company are critical — even if there’s not a current turnover problem. Then, the company needs to quantify the costs, both direct and indirect. These HR activities put the “focus on the management of turnover as a strategic business issue, both in terms of controlling bottom-line costs and driving top-line results,” according to the consultancy’s report.

“In some cases — such as where a role is no longer important — it may not matter if good people are leaving,” the report says, noting that turnover is a natural part of many systems. But if companies know what jobs have the most strategic and core meaning within the corporate structure, then when they note unusual turnover occurring, “a red flag should go up” and action should result.

When Young CPAs are Critical

Sibson cites the case of an electronics company that needs software engineers to help it perform on a government contract. “If the company cannot attract and retain the right engineers, it will not be able to deliver the product on time, which will have a negative effect on its income.” The threat that engineers might quit thus could represent toxic turnover. Likewise, a pharmaceutical company recently granted approval to market a new drug may find marketing staff to be critical, and the loss of marketers a severe drag on the bottom line at that particular time.

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