In some instances a company is thriving, employees appear to be satisfied, and the organisation is making a profit. Unexpectedly, when all appears to be going well, the top employees leave. What then happens to the once-thriving business?
This is known as dysfunctional turnover and it can negatively impact even the most successful companies in the world.
This article will discuss what dysfunctional turnover is, and how HR professionals can identify and prevent it.
Defining Dysfunctional Employee Turnover
Dysfunctional turnover is when top-performing employees choose to leave a company at higher turnover rates than weaker staff members.
The term dysfunctional is used because of the negative impact on the business profit due to the amount of time and money it takes to train and recruit new staff to fill these employees’ former roles.
It refers to avoidable turnover, which is when a company may have avoided employees quitting by implementing changes.
In contrast, functional turnover is when low-performing employees quit with little to no effect on the business overall. The functional turnover employees are easier to replace and it doesn’t cause much disruption.
Calculating Dysfunctional Turnover
- To calculate, first define the criteria for "dysfunctional turnover": Clarify the specific indicators that classify an employee as dysfunctional, such as poor performance, disciplinary issues, or interpersonal conflicts.
- Gather relevant data: Obtain employee turnover data from the HR system, distinguishing functional from dysfunctional turnover by your criteria.
- Calculate the dysfunctional turnover rate: Use the formula below to determine the rate:
Dysfunctional Turnover Rate = (Number of dysfunctional employee departures / Total number of employees) x 100
- Analyse the results: Compare the calculated dysfunctional turnover rate with industry standards or previous periods to identify any concerning trends or patterns.
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Negative Impacts of Dysfunctional Turnover
Loss of Institutional Knowledge
When a hard-working employee quits, all the knowledge they’ve built up and worked hard for is gone. If the company has invested in the employee, relying on the knowledge they’ve built to improve the business, that investment disappears along with the staff member.
If the employee played a significant role in training or helping other employees the loss to the company is immeasurable. In fact, sometimes the full extent of the employee's contribution is not understood until they leave.
Once the employee is gone, the team relying on them for knowledge and advice will feel it the hardest. A meander to someone's desk for a quick answer or explanation isn’t possible anymore and this can drastically affect workflow.
If the employee leaving has played a big role in a team there is no doubt that the entire team will feel the loss. If the other employees relied on this person and built a rapport with them it affects the team's morale.
Firstly, other employees may start questioning why someone in such a vital role would leave. This often leaves employees to question their own happiness within their role as well as why the company would let someone like that go.
Secondly, a high turnover rate can make employees feel like the company they're part of isn't trustworthy. It creates a sense of doubt which affects company morale dramatically.
Increased Recruitment Costs
Studies reveal that it can cost a business as much as nine months of the previous employee's salary to replace them. If the employee made £27,000 a year, it may cost upwards of £20,000 to recruit new staff and replace them.
Losing a top employee isn’t ideal, and spending this kind of money to replace them only to be in the firing line again shortly is even worse.
That’s why HR needs to ensure the correct procedures are in place to identify and manage avoidable turnover. Otherwise, the constant recruiting and training involved in turnover costs will end up costing the company as much or more than it would have to fill the role, to begin with.
Identifying Signs of Dysfunctional Turnover
The main warning signs of dysfunctional turnover are:
- Consistent issues coming up in exit interviews: If current employees or those leaving reveal a similar reason for dissatisfaction or departing, you need to take it seriously. If there is poor management or improper procedures in place these need to be addressed.
- Lack of development opportunities: If there are limited opportunities for employees to advance their careers or skill levels they will find a company with those opportunities elsewhere. Companies should always encourage growth and upskilling. It is often why many employees choose to stay with a company.
- Low morale and engagement: A dissatisfied and disengaged team is a big indicator of dysfunctional turnover. Look for indications like low work production and disengaged responses. Happy team members are always there to boost company culture and morale; when that stops, there may be an issue.
- High absenteeism: Unhappy employees often take more time off work, whether it be paid leave or sick leave. If a top employee suddenly appears to miss work more than usual it’s time to look at potential internal issues.
- Toxic management: If one team has an increased turnover rate compared to others you can almost guarantee the issue is with leadership. Employees won’t leave quickly if they are respected and recognised appropriately. Keep an eye out for repeated issues with the same employees, even if it's on a management level.
Identifying the signs of dysfunctional turnover before it becomes a bigger problem is one of the most important things HR can do for a company.
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Addressing Root Causes
The only way to get to the bottom of dysfunctional turnover is to address the root causes. This may be tough for HR members who are passionate about the company, but to uncover the truth and for the company to succeed it is a must.
One of the best ways to identify the issues is with proper exit interviews. By providing employees that are leaving with the proper space to voice their concerns, the necessary changes can be implemented. There may even be a chance of offering the employee an improved work environment, compensation, or flexibility to see if that might entice them to stay.
Keeping up with regular check-ins to see how teams are doing is incredibly important. Keeping this anonymous with forms means employees don’t need to hold back. This is also a good space for employees to feel heard and that their issues are addressed.
Once the necessary information has been gathered, it can be analysed for any patterns or serious issues that need addressing immediately.
Fortunately, XCD’s people analytics software makes it effortless for HR pros to keep track of turnover data and performance, using AI-powered descriptive and predictive analytics to identify trends and take data-driven action.
Retention Strategies to Improve Job Satisfaction and Reduce Dysfunctional Turnover
No employee is going to stay in a job for very long if it’s going to cost their personal life, health, and relationships.
While there will always be times when employees need to knuckle down and put in some extra hours, this shouldn’t be the norm. Employees need to know that while work is important, the company they work for also respects their personal time.
To do this companies should implement very strict guidelines for working hours and what is expected from the employee.
Communication is the most important aspect of a successful company. Employees who feel they aren’t able to communicate within their team or with higher-ups will eventually become dissatisfied with their work.
Companies should strive for absolute transparency with an open line of communication on every level. From the top down, within smaller teams, and upward communication.
Proper communication leads to better morale, employee engagement, and understanding. When employees feel heard they are more likely to add to the conversation and feel like they are part of the bigger team striving towards one goal.
Career Development Opportunities
One of the main reasons top employees leave their employment is the lack of career development opportunities. When employees feel stuck, the need to find growth is dramatically increased.
Companies should strive to encourage this growth within the company so employees don’t feel forced to find it elsewhere.
To do this companies can offer the following:
- Study opportunities and eLearning
- In-house training
- Growth opportunities (vertical and horizontal)
Ultimately, the whole point of a company is to keep the staff it has, upskilling employees on all levels to ensure the company can progress as a whole.
Understanding dysfunctional turnover is a vital part of the HR role. It is important to know how to address dysfunctional turnover, and that can only occur through understanding why it happens and what can be done to actively prevent it.
Identifying and tracking trends in turnover is effortless with XCD’s powerful HR and payroll software which offers AI-powered reporting and analytics functions. Get in touch with XCD to find out more about our HR solution or book a demo today.