Metrics in HR—Why “Turnover” is a Lousy Choice

Over ten years ago, in an article in Employer’s Advantage Newsletter, we mentioned in passing: “As far back as most of us care to remember, HR has tracked ‘turnover’ as one of our few consistent metrics. As commonly used, however, turnover is at best a hodgepodge statistic…”

Our commentary was based on the fact that, whatever the number, turnover reflects a composite over time of everything from the process that hired your longest-tenured employee, to what your worst manager did yesterday!

Reader reaction to this broad statement was fairly strong, both in endorsing and rejecting the premise. Rather than arguing for or against the measure, however, let’s consider some alternate and additional metrics, and their value. Any effort toward measurement of HR and its effects is probably positive, and it is always surprising how many successful businesses don’t know even their raw turnover rates, or what they spend to replace a departing employee.

In our current climate of COVID-19, remote and partly remote work, and other seismic shifts in the business landscape, talent retention and hiring success has moved up on the business priorities list. How can we measure the effects of our current hiring and retention practices?

In hiring a new employee, most of the direct costs are front-loaded, occurring before or in the first few days of employment. Most of the indirect costs are post-hire, adding up over time of onboarding, training, acclimation, and acculturation. At some point in time, usually long after the date of hire, the employee reaches a break-even level, and begins to contribute to the company’s profitability. (Josh Bersin, in a LinkedIn post, provided a graph that makes this crystal clear: http://tinyurl.com/employeevalue )

Accurately measuring those costs is a difficult and time-consuming exercise, but one which should become a priority for any enterprise interested in a strategic approach to HR. For the limited focus of this article, we will simply assume, hiring a new or replacement employee is extremely costly, and measurement of our level of success in the process is critical to our mission.

What to measure, then? Given the front-loaded costs of the process, and the observed fact that most companies’ raw turnover scores mask a critical dichotomy (a group of relatively stable, long-term employees and a second group of short tenure, constantly churning with turnover), early hire failure is a crucial concern. Track cumulative new hire failure rates at 30, 60, 90, 180 and 365 days from hire, and you will begin to build a measure of your hiring process and its relative success or failure. Your raw turnover rate may be something you’re proud of, and happy to speak to the Board of Directors about; can you say the same about the probability a new hire will still be around to celebrate the 6-month or one-year anniversary of the hire?

New hire failure rates vary dramatically from industry to industry; the failure rate in most call centers would make the HR manager in the average 3-star hotel slightly ill, and would give the HR manager of most medium-sized cities cardiac failure! Take heart, though: No matter how high or low your numbers are, you can change them in a positive direction by changing your process, incorporating best practice assessments in selection, improving the skills of your line managers, and other things you really do know how to do, but haven’t found the time and resources to accomplish--yet.

If you’d like to calculate your early hire failure rate, and its real cost, reach out to us…we’ll help you do it, and there’s no cost to you!