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Strategic Human Resource Metrics: Retention & Turnover

Strategic Human Resource Metrics: Retention & Turnover
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  • 0:03 Human Resource Metrics Defined
  • 0:31 Turnover: Calculation…
  • 1:23 Vacancy: Calculation and Cost
  • 2:15 Critical Employee…
  • 5:02 Workforce Age and Retirement
  • 6:12 Lesson Summary
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Lesson Transcript
Instructor: Michelle Thompson

Michelle has over 10 years of customer service experience and four years management experience. She has a master's degree in organizational management.

This lesson defines human resource metrics, displays the formulas used to calculate each metric, and gives a scenario of how an organization applies the metrics for retention and turnover within their organization.

Human Resource Metrics Defined

To determine the money and time spent for human resource initiatives, human resource metrics are valuable to an organization. Human resource metrics provide guidance on what areas to focus on to retain your most valuable employees. In this lesson, we'll review the HR metrics around employee turnover, vacancy, satisfaction, and retirement staffing. We'll also discuss the formulas used to calculate the metrics and the value and use of each.

Turnover: Calculation and Costs

Turnover is simply how often employees leave an organization and how often employees are replaced. The financial impact of turnover is turnover costs. Examples of these costs include advertising for the position, training, lowered productivity, and workload balance.

Measuring the percentage of the turnover in an organization is called a turnover rate. The turnover rate is calculated using the formula:

the number of terminated or resigned employees / current employees x 100

For example, if an organization lost seven employees and the current staff is 29 employees, the turnover rate would be:

7 / 29 x 100 = 24.1%

A percentage over 15% is something to be concerned about. High percentages result in higher costs.

Vacancy: Calculation and Cost

Any open position is called a vacancy. Vacancy costs are the costs associated with having vacant positions, like paying current employees overtime due to staff reduction. Filling that vacancy would be more cost efficient than paying overtime.

The vacancy rate measures the rate of vacant positions resulting from the turnover. The vacancy rate can be calculated like this:

vacant positions / total positions x 100

Let's say a restaurant has high turnover rates for their waiters and they wanted to determine the vacancy rate of that position. The restaurant has 25 total positions and 5 waiter positions are vacant. This would be calculated like this:

5 / 25 x 100 = 20%

A higher percentage represents more vacant positions and more costs. Keeping a low percentage will be more cost efficient.

Critical Employee Retention

Competitive pay, great benefits, and rewards are all perks any employee values, but why do organizations offer them? It's all to retain their critical employees, which are the top performing employees and those that make a great contribution to an organization. Realistically, every employee will not be a great asset. Organizations can monitor rates of their high and low performers by utilizing the high/low performer retention differential, which measures the high performers from the low performers.

The retention rate is calculated like this:

number of stayers / total employees beginning of period x 100

Let's consider a sales department. The previous year, this was the team's retention rate:

30 / 40 x 100 = 75%

The manager was concerned because the organization lost some valuable employees and wanted to determine the rates of those who left. When comparing numbers, the manager realized out of the 10 that left, 6 were high performers and 4 were low performers. The retention differential was then calculated like this:

High performers = 6 / 40 x 100 = 15%

Low performer resignations = 4 / 40 x 100 = 10%

From those results, an organization may devise a strategy on what steps to take to retain its critical employees, since the rate of the critical employees resigning is higher than the lower performing employees.

A survey is one means to determine the satisfaction level of employees within the organization. The survey results can really take an organization in the direction of why the organization has turnover, why employees stay, and how to retain their employees.

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