Why Low Employee Turnover Isn't Always A Good Thing

Posted on October 4, 2019

I recently heard of a man who was named principal at an under performing school in need of reform. His staff had been there for decades and were extremely resistant to change. Constantly having his efforts thwarted, he quit in frustration after one year.

This is an extreme example of a common challenge in organizations: inertia from group think — a term describing how the pressure to conform in a group can interfere with individual critical thinking, resulting in poor decisions.

This problem is exacerbated with low employee turnover. That’s right: low employee turnover. Prevailing wisdom states companies should strive for the lowest number of staff changes. In fact, leaders have bragged to me about rates as low as 2%. The reality, however, is that low turnover actually holds an organization back. (Relative to the USA, Canada holds a higher turnover rate)

Beware Myopic Conformity
On the one hand, high retention rates demonstrate that an organization takes care of its people. Indeed, keeping a company’s top performers can add tremendous value. But if everyone is staying, a company can’t diversify its staff or offer opportunities for rising stars to gain promotions. It will also fall short on innovation and best practices, which can be learned from people who come from other strong organizations. This hampers real growth. The company risks cannibalizing itself by looking through a myopic lens. In order for organizations to thrive and compete, they need to increase diversity and hire individuals who will challenge prevailing processes.

Without a constant replenishing of fresh talent and ideas, organizations are in danger of stagnating or, worse, falling victim to toxic group think.

Dance To The Beat Of A Different Drummer
When you get people constantly agreeing with each other, a lack of critical thinking and bad decision-making can become embedded in the company culture.
Take the case of an infamous CEO who was known for her mercurial and abusive personality that tainted her company’s culture. She was universally loathed by her staff, and when she was finally fired, they back-filled the executive openings. Instead of a new era of healthy management, new hires described the replacement executive team in exactly the same light as the former CEO.

Although the executive team hated the toxic culture created by their ousted CEO, they became the very thing they loathed by mimicking the culture she created. They simply didn’t know any other way to manage a team because they hadn’t been exposed to fresh leadership perspectives.

None of this is to say that organizations should strive for high turnover rates. Just as low churn can create inertia and stifle growth, too much staff movement causes instability and fosters an environment of short-term thinking. While there is no determined percentage of turnover that fits every group, employing a few strategies will help leaders establish balance, allowing both the organization and individuals to perform at their best.

Strategy No. 1: Only Keep Employees Who Are Engaged
According to a 2018 Gallup poll, (USA**) 53% of employees were “not engaged” with an additional number being described as “actively disengaged.” (**Canada is at 60%)
Amazon deals with disengaged workers by paying them to quit. While this is a harsh solution, it illustrates that some successful companies understand that a disengaged employee is of little use. Another (more productive and healthier) way to address disengaged employees is to find out why they feel disengaged and how to engage them.

Strategy No. 2: Show Some Empathy And Take The Long View
One of the best ways to engage an employee is to care about their future, both inside and outside the company. The best talent management employs empathy; it shouldn’t be about how much you can get out of your employees, but how much you can develop them.

If a manager does their job well, people outgrow their roles. Hopefully, the manager’s company will grow at the same pace, meaning there will be new roles for their employees to grow into. But managers shouldn’t only be focused on providing internal opportunities for their staff.

Twenty years ago, leaving a company was tantamount to betrayal in many organizations, but today’s workforce will change jobs numerous times during their careers. The median tenure for a wage and salary employee in 2018 (USA) was 4.2 years; the highest median tenure, 5.0 years, was among workers in management, professional or related occupations. (By comparison, Canada is 8.32 despite this indicating a slight decline and lower for professional services)

Given the reality of today’s workforce, leaders and managers need to consider how their employees might reach their maximum potential, even if they reach it outside of the confines of their current company. It may sound counterintuitive, but this actually leads to happier employees and a healthier company.

When employees know that they are valued in this way, they are more likely to be engaged within the organization. Moreover, when they eventually move on, they will become de facto brand ambassadors for potential customers and future employees of the companies they left behind.

Strategy No. 3: Don’t Be Caught Off Guard
Search firms are constantly talking to people and finding out what they’re good at even when they can’t offer them a job. In short, they’re pipe-lining for future needs.

One of the reasons companies strive for low turnover rates or limit internal movement is because they don’t maintain a pipeline of viable candidates to replace employees who move on (either internally or externally). This leaves leaders unprepared for the inevitable unexpected departure. It also makes them less likely to encourage a healthy amount of turnover.

Companies can combat this by filling their own pipeline, which is one of the smartest strategies for being prepared for inevitable churn. Management should have ongoing conversations with individuals both inside and outside of the company, figuring out where they might fit should a key employee depart.

Finding the sweet spot of employee retention and turnover will never be an exact science, but understanding that the lowest churn rate is not necessarily the best is a good first step. While there is value in experience and tenure, there is a tipping point that can lead to inertia and group think. The trick is to learn to balance both forces.

By Chad Biagini
Global Head of Sport and MD North America for Nolan Partners, leading retained executive firm for Sports & Entertainment.