Although voluntary turnover has dipped significantly this year, a new PwC Saratoga study says employers are giving more attention to career development and performance management in anticipation of increased turnover as the economy improves.
The consultants’ 2010/2011 U.S. Human Capital Effectiveness Report shows voluntary separations have decreased 30% since 2006 and more than 20% in the past year. The study further found that as the size of HR increases, organizations tend to experience lower voluntary turnover.
Historically, after a recession, voluntary turnover increases. Preparing for this trend to manifest once again, an increasing number of companies are analyzing onboarding, engagement, and turnover data for key positions in the organization.
“Employers are identifying their high performers, particularly in pivotal roles, and assessing what drives their high performance,” says Mike Thompson, principal and head of the N.Y.-metro health care practice in the PwC human resource services practice. “These employers not only review compensation, benefits and work/life but also other key environmental factors such as training, career advancement and management practices. Leading companies conduct engagement surveys and sophisticated analytics to better understand how each of these factors influences both employee retention and employee performance. Often, this will refocus their efforts to improve the environment in ways that their key employees value and measurably improve the business outcomes they are striving to achieve.”
Scott Pollak, a director in the PwC Saratoga group, explains what the consulting firm is seeing anecdotally:
- A focus on career development and performance management. “Since down economies lead to less flexibility with reward programs, less formal training and less natural mobility in the organizations, we have seen a desire to invest in/remunerate employees needs beyond traditional compensation, benefits, and training programs,” he explains
- Focus on pivotal roles. By honing in on those that “drive business value,” an organization should make sure that retention efforts focus an increased amount of resources on driving performance in these key roles.
- Invest in the information infrastructure to drive the return on workforce investment. By “including both engagement and employee surveys and analytics tools, hard decisions are made with the best evidence, and not just based on intuition or 'squeaky wheels,'” he concludes.
In the meantime, while fewer employees are leaving their employer, they are also less productive. For the first time since 2005, workforce productivity (as measured by revenue per FTE) declined.
Further, human capital ROI, a crucial indicator of return on workforce investment, is down 23% to 43 cents in profit for every dollar invested in the workforce compared with the 2007 and 2008 result of 53 cents in profit for every dollar invested in the workforce. In addition, PwC Saratoga findings show that organizations have increased their investment in workforce compensation and benefit costs for each dollar of revenue generated by 17%. In 2008, organizations invested $221 for every $1,000 in revenue. In 2009, organizations invested $259 for every $1,000 in revenue.
“When viewed in conjunction with a decline in revenue per FTE, these downward trends suggest that productivity and profitability may have peaked,” reports the study.
And Thompson observes: “There is certainly a continued focus on ‘wellness’ but sometimes without a strong connectivity to engagement and productivity. In fact, there is a strong correlation between the drivers of engagement and productivity and the drivers of health and well-being. The down economy has generally not helped in this regard as people are faced with added demands and pressures and businesses have strived to mitigate layoffs with compensation freezes and benefit cost shifts.
“Benefits have also contributed to the lower turnover of workers in the downturn, particularly those who have lost money in their 401(k)s or view themselves in job lock without access to affordable retiree medical. One would expect productivity to heat up going forward, however, as the economy picks up and work demands exceed hiring.”
Other findings from the 300 organizations reporting, which represent 12 industry sectors providing information from the 2009 calendar year, include:
- Employee costs increase: Employee health care costs continue to rise, but at a slower rate than in the past. Health care costs per active employee shot up nearly 6% between 2008 and 2009 to an average of $8,335. While costs for workers are increasing, the share of health care costs held by employers has decreased by nearly 2% between 2008 and 2009 with employers responsible for 79.7% of health care costs. The study concluded that it remained uncertain as to which direction health care costs are headed due to factors such as the recent health care reform legislation and the increasing use of high deductible health care plans.
- Recession improves quality of hire: First-year turnover has declined from 31.7% in 2007 to 23.6% in 2009. As the economy improves, analysis of historical trends predicts that turnover numbers will increase.
- Baby boomers bide time: Baby boomers continued to leave organizations at the lowest rate among all demographic groups, with a voluntary turnover rate of just 4.9% in 2009.
- While overall eligibility for retirement increased for employees, it has declined for management: While more than one in five employees are eligible for retirement within five years, the percentage of managers and executives eligible for retirement has gone down.
- HR costs escalate, while HR headcounts decrease: “The increasingly strategic role of HR as a business partner is requiring a greater investment in HR labor costs and systems,” the study reports.
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