Measuring Retention Rather than Turnover: A ...

Current Practices

William G. Stopper, Editor

For at least 30 years, some have suggested we look at the wrong things by studying turnover (Van der Merwe, 197!). Yet because it has heen easy to measure, it has been the dominant way of thinking about movement out of organizations. Instead, we should focus our attention on the leavers: Who goes, when J. Deane Waldman, Sanjeev Arora, University of New they leave, how long they stayed, how much knowledge they Mexico, Albuquerque take with them, and how this impacts the organization. Rather than measuring something we do not want—turnover—we Retention rate is not simply the inverse of turnover. Retention should track what we do want—employee retention. rate measures what is wanted rather than what is undesirable. It In this article, we look at retention in health care, an industry is easy to calculate. For the line manager or workforce planner. in which skilled practitioners are in short supply. Retaining them retention rate complements the determination of turnover, partic- is crucial to sound clinical and financial outcomes. Moreover, ularly for highly skilled employees. Additionally, the combination the situation in health care generalizes to many fields requiring of retention rate and turnover offers a more complete view of highly skilled and experienced people. worker movement that either does atone. It can tell us e.xactly We begin by calculating the average annual total turnover and who leaves, and from that we learn more about why they leave, new-hire turnover during a five-year period, by job group, in a what it really costs the organization, and what to do about it. major medical center. Turnover is calculated as the number of

Measuring Retention Rather than Turnover: A Different and Complementar}^ HR Calculus

Turnover and Retention at a Major Medical Center Six job groups in a medical center arc displayed in the left-hand column. Explanation.s of each column ai'e given below the Exhibit.

Job Group Physicians Nurses Allied health Technical Support Admin Averages

A B Average Annual Turnover All Employees New-Hires 1997-2001 1997-2001

C

1 -year

F D E Average (Net) detention of 1995 New-Hires 2-year

3--year

4-year

5-year

8% 17% 28% 28% 30% 12%

24% 59% 39% 51% 60% 15%

83% 39% 56% 43% 43% 94%

72% 30% 50% 33% 34% 77%

64% 25% 42% 23% 22% 65%

59% 22% 36% 21% 18% 65%

55% 17% 30%

20.5%

41.3%

59.7%

49.3%

40.2%

36.8%

32.8%

Admin = Administrative or manageria 1 employees Column A B

C D E F G

G

Calculated as: (Number of terminations/year -^ Average active employees same year) * 100 (Number of terminations within first year of hire -^ Number of new hires) * 100 (Specific people hired in 1995 still employed in 1996 ^ People hired in 1995) * 100 (Specific people hired in 1995 still employed in 1997 ^ People hired in 1995) * 100 {Specific people hired in 1995 still employed in 1998 -=- People hired in 1995) * 100 (Specific people hired in 1995 still employed in 1999 ^ People hired in 1995) '^ 100 (Specific people hired in 1995 still employed in 2000 ^ People hired in 1995) * iOO

HUMAN RESOURCE PLANNING

21% 15% 59%

employee teniiinations in a given period—voluntary, involuntary or both—divided by the average number of active employees during the same period (Saratoga Institute definition).

percent to an average net five-year retention rate of 33 percent (range: l7%--'i9%). Of more interest, and more open to intervention, is the wide variation among job groups and individuals in vi'ho stays. Can we ensure that more valuable employees stay longer? Additionally, and of no surprise, is that new hires are much more likely to leave than established employees. Can things be done early in a career to help the right people stay? To address these questions, we need a way to identify and track who stays and who goes. Exhibit 2 shows how to do this. Consider an organization with an employee flow chart as shown in the scenario depicted in Exhibit 2. Each worker is uniquely designated by the year of hire and a letter: IA is Person A hired in Year I and 3C is Person C hired in Year 3. "T" refers to the termination of that employee, voluntary or forced, graphically placed in the year of the termination. The workforce is divided into newly hired individuals and retained workers. HR measurements are given below each scenario, including annual turnover, new hire one-year retention, and net retention by year of hire. In Scenario I the company hires 10 people in Year I. During the first year, seven stay and three leave. During

New hires are much more likely to leave than established employees. Can things be done early in a career to help the ri^ht people stay? As displayed in Exhibit I. the average annual employee turnover from 1997 through 2001 at the medical center was 21 percent, with a range of 8 percent for physicians to 30 percent for support personnel. The new-hire average annual turnovers ranged from 15 percent to 60 percent (Column B). This is an aggregate number. We compare these turnover results to retention rate. To measure retention, we looked at specific individuals in each job group and measured how long they stayed. Retention must decline over time, unless no one ever left an organization. We can see the progressive decline in the retention of employees over five years from an average net one-year retention rate of 60

'Scenario 1: Turnover Focus Year 1

Year 2

Year 3

Total Workforce n=l

n=10

New Hires -> •

•

V

•

9

u If " IT • • • •• " if Retained Employees ->

m

9

V

9

If If Measurements Annual Turnover New Hire One-Year Retention Net Retention: Year 1 Hires Year 2 Hires Year 3 Hires

V

V

if If

Yearl 3/10=30% 7/10=70%

Year 2 3/10=30% 0/3=0%

Year 3 3/10=30% 0/3=0%

7/10=70%

7/10=70% 0/3=0% n/a

7/10=70% 0/3=0% 0/3=0%

n/a n/a


Scenario 2: Retention Focus Year

Year 2

Total Workforce n= 10

Year 3

n=10

New Hires •

•

•

•

•

" IT IT " Retained Employees

Measurements Annual Turnover New Hire One-Year Retention Net Retention: Year 1 Hires Year 2 Hires Year 3 Hires

the second year, all seven stay but the three new hires from Year 2 leave. The same thing happens in Year 3: All seven of the retained employees stay but the three new hires leave. The company has been able to retain seven experienced employees, yet it clearly had hiring troubles In Years 2 and 3. Traditional turnover statistics cannot describe this situation; according to them, turnover is constant at 30 percent every year. Retention statistics indicate the company has a problem in hiring or on boarding. They also suggest asking the seven long-term employees about why they stayed or profiling them for future selection criteria. In Scenario 2 {Exhibit 3), the annual turnover for each year is also 30 percent, but the retention experience differs. Three people from the first cohort leave during Year I: three more leave in Year 2; and three more leave in Year 3. In this .scenario the new hires from Years 2 and 3 stay. So. in Year 3. there are seven employees, as in Scenario I, but their experience levels differ greatly from that in Scenario 1. In Scenario 1, all the employees had three years of experience and. presumably, the 8

HUMAN RESOURCE PLANNtNG

Yearl 3/10=30% 7/10=70%

Year 2 3/10=30% 3/3=100%

Year 3 3/10=30% 3/3=100%

7/10=70% n/a

4/10=40% 3/3=100% n/a

1/10=10% 3/3=100% 0/3=0%

n/a

higher productivity and knowledge that goes with time on the job. In Scenario 2, there is one employee from the first cohort, and three from both the second and third cohorts. This suggests a much different workforce and environment than in Scenario 1. Perhaps in Scenario 2 the company has gotten better at selection but something in the work causes people to become dissatisfied or burned out and leave after a year or two. These issues can be further highlighted, studied, and corrected, which is much harder to do with aggregate turnover statistics. These scenarios dramatize the fundamental differences between retention rate and turnover. Retention rate follows cohorts of specific people indefinitely over time and is unaffected by subsequently hired workers. The measurement of retention has four domains: each individual working for the organization, grouped into work areas under study (e.g.. nurses, technicians, total workforce), vecir of hire, and year of interest (the year you are sludying). Therefore, one might discuss ICU nurses (a list of individuals grouped by common work) hired in 1995 (year of hire) who have stayed at least three years (3-year retention in

1998). Retention is either stable or declining toward zero; it can never be greater than 100 percent or negative. Turnover is exclusively a one-year calculation, considers the entire workforce, or sub-parts, but lumps all workers as equivalent, it can be greater than 100 percent but never negative. In summary, retention Ibllows specific people or groups of people indefinitely over time, while turnover is an annual spot-check on the workforce as a whole. Even during economic downturns employees have choices about where, for whom, and how long they work. As has been increasingly apparent over the last several decades, quality of workers is a—some say the—key success factor for modem business, particularly service organizations. (Waldman, el al., 2003a; Waldman. et al., 2003b). Human resource managers and senior planners must pay close attention to employee movements into and out of organizations. What matters is not just how many leave but who leaves, when, why and what they take with them in knowledge and skills. Turnover cannot measure that, but retention can.

Biographical Sketches J. Oeane Waldman. M.D.. M.B.A.. is foundin^i partner of AOM Hcalllicare Consulting, a firm of medical and business e.xperts who use systems thinking to perform .strategic consulting with healthcare institutions. He has authored over 100 citations in medicine as well as healthcare strategy, management, and policy, with his latest book fin preparation) titled Feed the Soul— Strategy for the Healthcare Workforce. He has been a practicing physician for over 25 years and chief of pediatric cardiology at three academic institutions; he is currently a tenured professor at the University of New Mexico (UNM) Health Sciences Center and RO Anderson Graduate Schools of Management. Sanjeev Arora. M.D., is currently chief of gastro-enterology and executive vice-chairman for the Department of Internal Medicine at the UNM Health Sciences Center. He received his masters in medical management from Tulane University in 1997 and has published over 30 medical citations. Dr. Arora is pa.s-t chief of medical staff'of the UNM School of Medicine and serves on the hoard of trustees of UNM Hospital.

Even during economic downturns employee.^ have choices about where, for whom, and how long they work.

Notes Funded in part by the Department of Pediatrics. University of New Mexico Health Sciences Center. We acknowledge with gratitude the assistance of Professors Frank "Bud" Kelly and Jacqueline Hood in this work.

References Sarat(jga Institute (2001). Workforce Diagnostic Systems: Benchmarking Report. Santa Clara. CA. Van der Merwe, R., & Miller. S. (1971). "The Measurement of Labour Turnover." Human Relations, 24(3): 233-253. Waldman. J,D,, Smith. H.L., & Hood, J.N. (2003a). "Corporate Culture -The Missing Piece in the Healthcare Puzzle." Hospilal Topics. 81(1): 5-14. Waldman. J.D., Yourstone, S,. & Smith, H.L, (2003b), "Learning Curves in Healthcare." Healthcare Management r, 28(0:43-56,
