Turnover & Attrition

The Challenges of Retention versus Replacement of Employees

Graphics courtesy of ASKOpens in new window One difficulty leaders will have to face over their career is about moving employees within the organization as they have to make decisions on who to promote, transfer, discipline, and even let go. All of these decisions confront leaders with decisions related to retention versus the replacement of employees.

Making decisions as it relates to employee replacement is difficult, however, regardless of the accompanying difficulty leaders must address these situations head-on and realize that it is a time to reconsider the job description to see how it might be made more effective for the next person to occupy it.

As it relates to employee replacement, organizations and HRM professionals often distinguish between turnover (employee is replaced) and attrition (employee is not replaced), both of which occur when an employee leaves the organization.

Leaders have to deal with replacement whenever an employee quits, retires, becomes seriously ill, or dies. Or the leader may initiate the replacement of an employee by promoting, transferring, demoting, laying off, or firing them.

Before discussing each of the employee replacement actions, it is important for leaders to be attentive to the following that should help them make the most effective personnel decisions:

1.     Costs.

One of the most obvious considerations to consider when deciding whether to keep an employee or to replace them is expense. When employees stay with an organization for many years, they expect annual raises and benefits that can eventually exceed the value of their positions.

A new hire with more recent learning and developmentOpens in new window might provide more productivity at a lower price. To replace an existing employee, the organization incurs the cost of a job search, background checks, interviews, severance for the departing employee, L&D for the new hire, and lost productivity during the transition.

2.     Learning and Development.

When leaders hire, for example, a new employee to replace an existing employee, if they are younger, they might have more relevant college coursework than the existing employee, needing less L&D regarding computers, software, social media, and the latest methods and procedures of a particular profession or industry.

New employees might need on-the-job L&D to get up to speed with their predecessors. Therefore, leaders must calculate the cost of L&D for an existing worker versus hiring a new worker to determine the cost/benefit ratio for each.

3.     Morale.

Keeping ineffective or unproductive employees out of loyalty, or to save money by avoiding a new hire or replacing them with an existing employee can damage the morale of other employees. This can lead to decreased productivity, less loyalty, and higher employee turnover. When assessing employees, if leaders know they would not hire them again if they had the chance to do it over, they will be better off terminating them, no matter the short-term cost.

4.     Productivity.

When leaders hire a new employee or replace an existing employee with a current employee, they might experience a temporary lag in performance if a position sits empty for several weeks and while the replacement employees gets up to speed.

In key positions, such as sales, this can lead to a permanent loss of business. Leaders should also consider that a replacement employee might bring new skills and more experience, bringing more productivity not only to the position, but also to the group or team as they may improve the team’s workflow. Departing employees cost an organization’s institutional memory that can be hard or impossible to replace, especially if the employee has been with the organization for a number of years. Departing employees can also sever important relationships with customers, vendors, and the media.

Promotion From Within an Organization

Promotion—moving an employee to a higher-level position—is an important way to recognize an employee’s superior performance (apart from giving raises and bonuses). Three concerns are the following:

1. Fairness. It is important that promotion be fair. The step upward must be deserved. It should not be for reasons of nepotism, cronyism, or other kinds of favoritism.
2. Nondiscrimination. The promotion cannot discriminate on the basis of race, ethnicity, age, gender, or physical ability.
3. Others’ resentments. If an employee is promoted, someone else may be resentful about being passed over. A leader may need to counsel the individuals left behind about their performance and their opportunities in the future.

Lateral Job Transfers

A lateral job transfer is movement of an employee to a different job with similar responsibility. It may or may not mean a change in geographical location (which might be part of a promotion as well).

Employees might be transferred for four principal reasons:

1. to solve organizational problems by using their skills at another location;
2. to broaden their experience in being assigned to a different position;
3. to retain their interest and motivation by being presented with a new challenge; or
4. to solve employee problems, such as personal differences with their immediate bosses.

Transfers should be viewed by leaders and employees as a continuing commitment from the organization to enable the employee to continue to develop and grow in their employment and pursue a desirable career path or interest. When used appropriately by leaders such transfers are valued as an opportunity booster and cherished by employees as their career continues to grow.