July 5, 2022 | Business insights
A mass-scale response to the dangers and uncertainties of the Covid-19 pandemic and the Great Resignation have left many scrambling to slow their attrition rate and shape employee retention plans to insulate themselves from the fallout. Businesses need to reconsider their retention policies and compensation structures if they hope to navigate the uncertainty successfully.
Calculating attrition rate | The Great Resignation | Wage pressure | Wage forecasting | Scenario planning | Expanding Candidate Search | Redefine Productivity | Benefits packages | Childcare and parental leave | Choosing benefits programs | Remote and hybrid work | Employee experience
Why is your attrition rate important to consider? Simply put, the Great Resignation continues to be one of the most earth-shaking developments in the labor market in years. A mass-scale response to the dangers and uncertainties of the Covid-19 pandemic, the Great Resignation has seen US workers voluntarily quit their jobs in numbers never before seen. The stats have been stunning—according to the Bureau of Labor Statistics (BLS), more than 21.6 million US employees quit their jobs in the fourth-month window of August-December 2021 alone. The upheaval has left many scrambling to slow their attrition rate and shape employee retention plans to insulate themselves from the fallout.
Certain industries, such as the restaurant, retail, and hospitality sectors, have been particularly hard-hit by the Great Resignation. But well-educated and high-earning professionals are also walking away from their jobs in alarming numbers. A September Harvard Business Review analysis found that resignation rates were highest among mid-career professionals. Few, if any, companies and industries are safe from the trend, it would seem. Businesses need to reconsider their retention policies and compensation structures if they hope to navigate the uncertainty successfully.
How to Calculate Your Company’s Attrition Rate
Executives and economists use multiple metrics to track employee turnover. One of the most important is the attrition rate, also known as the churn rate. Simply put, it measures the rate at which employees leave a company without being replaced by new hires. Some models attach additional conditions, factoring in the inherently uncontrollable and unpredictable long-term loss of employees to retirements, resignations, and/or ill-health as well.
By tracking churn rates, companies can better manage their employee retention policies and measure the impacts on client and customer retention, hiring costs, and new-hire onboarding costs. Some organizations calculate their attrition rates yearly; others might do so at more frequent quarterly or monthly intervals.
The basic formula for calculating your attrition rate runs as follows:
- Note the number of employees working for the company at the beginning of the period.
- Subtract the number of employees who left the company during the period.
- Add the number of employees who were hired during the period.
- Calculate the average number of employees who worked for the company during the period by adding the initial number (step one) to the final number (step three) then dividing by two.
- Divide the number of employees that left the company (step two) by the average number of employees who worked for the company (step four).
- Multiply by 100 to express the rate as a percentage.
Acceptable attrition rates differ for every business. However, most companies strive for no higher than 10%.
Five Strategies to Improve Employee Retention Amidst the Great Resignation
The Great Resignation is a dynamic and complex situation, driven by multiple factors. However, one common thread runs through it: the Covid-19 crisis jolted millions into rethinking their relationship with work. Some workers, especially those at the lower end of the earnings spectrum, quit their jobs in search of more profitable opportunities. Pandemic-related government support and other emergency financial measures allowed many to leave jobs and careers they were already dissatisfied with.
Workers have reported a myriad of reasons for leaving their jobs, some of which include:
- The desire for a different work-life balance
- Using the Covid-related shutdowns as an opportunity to pursue education and professional development training
- Anxiety about returning to pre-pandemic “normal” life amid ongoing public health uncertainty
For businesses seeking to fill vacancies, the Great Resignation has created one of the most competitive labor market situations in recent memory. However, the situation is not without hope.
HR professionals and executives can draw on multiple strategies to reduce attrition rates, improve employee retention, and redouble employee engagement efforts by offering better compensation and benefits programs.
1. Balance Your Company’s Financials Against Wage Pressure
The Great Resignation has coincided with inflation rates not seen since the early 1980s. To no one’s surprise, job-seekers have responded by demanding higher wages. Companies looking to fill vacancies need to recalibrate internal financial projections to accommodate higher living costs and the accompanying upward pressure on pay rates.
At the same time, C-suite executives must make sure they do not destabilize organizational growth by overcorrecting for these impacts. Follow these key steps to strike the right balance between wages, employee benefits, and company finances.
Track Wage Data Carefully
Effective forecasting demands that decision-makers use accurate information to chart their course forward. As such, it’s critical that you closely monitor both trends impacting wages and the rate at which wages change.
Historically, the unemployment rate has served as a major benchmark for wage forecasting—lower unemployment is generally associated with upward pressure on wages. The nature of the Covid-19 pandemic, however, has made this less of a surefire approach, as it is difficult to extract meaningful insights from unemployment data following forced economic shutdowns. Consider factoring a few other trackable metrics into your assessments, such as quarterly BLS Employment Cost Index reports and regional Federal Reserve Bank wage growth trackers.
Rethink Scenario Planning
Traditionally, businesses largely lock themselves into annual planning cycles that make multiple assumptions:
- “Business as usual” will generally remain stable
- A relatively narrow set of risks have the potential to cause major disruptions
- Governments and central banking authorities can and will intervene to minimize business losses in the event of a major disruption
Covid-19 has blown gaping holes in that paradigm, highlighting an urgent need for more comprehensive approaches to scenario planning. Decision-makers must prepare their organizations for a broadened range of potential disruptions and outcomes, while also accounting for rising labor costs. Companies also need to figure out how to price their products and services just right to avoid feeding into an inflationary spiral.
Expand Candidate Search Geography
The Covid-19 pandemic prompted a dramatic increase in remote work arrangements. Experts widely believe that remote work will become a permanent fixture of the employment landscape, with some estimating that up to 25% of all professional jobs in the US will be remote by the end of the year.
While some initially resisted the move to offsite work, even the most reluctant companies are now embracing it. Rising labor costs are controllable by one factor: sourcing employment talent from markets with a lower cost of living and average earnings, companies can offset some of the upward wage pressure.
Many observers warn against what some refer to as “wage arbitrage” or “paycheck arbitrage,” which can contribute to a high attrition rate. This occurs when employers reduce the salaries of remote workers who voluntarily relocate from a high-cost area to one with lower living costs. Multiple major Silicon Valley tech firms controversially engaged in paycheck arbitrage during the early months of the pandemic, leading to PR disasters. In a hyper-competitive labor market heavily favoring job-seekers, such negative press can ruin your reputation.
According to the San Francisco Fed, annual productivity increases between 2005-2019 averaged only 1.5%. From the beginning of the Covid-19 pandemic through August 2021, that figure spiked to 3.5%. Analysts attributed this improvement to a confluence of factors, including large-scale shifts to remote work and online shopping.
Businesses can generally offer higher wages and salaries without risking their financial foundations as long as pay increases do not exceed productivity increases. However, the success of this strategy depends on correctly calculating what counts as an increase in productivity. This is not always easy, especially when it comes to office-based and professional roles.
As a solution, consider adopting technologies that can help automate processes or offer productivity improvements. This allows businesses to more readily reinvest their gains into employee retention and engagement programs.
2. Develop Great Benefits Packages to Boost Retention
To address a high attrition rate, businesses frequently turn to quick fixes like cash bonuses. Economists believe the current phenomenon requires a different approach. One-time bonuses are not as likely to earn employee loyalty during a period of such upheaval. Instead, labor market researchers suggest developing a benefits program with staying power.
Consider the difference in long-term value between a one-time $2,000 bonus and comprehensive health benefits. The latter keeps delivering value year after year, particularly to employees with families and dependents. Cash, on the other hand, disappears quickly, and the employee has no reason to stick around once it is gone.
Rethinking compensation means developing benefits packages that will wow job candidates. This may require careful research into the needs, preferences, and challenges facing targeted demographic segments. Without this research, companies risk making heavy investments in benefits programs that don’t speak to the staff at hand.
For example, consider a company with a workforce mainly comprised of people in their 20s and 30s. Spending the money to put together a top-flight pension plan may not generate the expected excitement—as saving for retirement is not always a high priority for younger workers. Instead, benefits packages built around flexible hours, hybrid and remote work arrangements, and advanced commuter support would likely offer more immediate appeal.
At the same time, businesses with diverse labor forces need to strike a balance in benefits as they work to address their attrition rate. In these cases, playing it safe with tried-and-true benefits programs might prove the wiser move. This approach ensures that benefits will appeal to the widest possible cross-section of current and future team members.
Some examples of high-impact employee benefits might include:
Health benefits can (and likely should) extend beyond enrolling employees in a company-sponsored health insurance program. An expanded set of wellness perks can potentially include mental health and wellness coverage, gym memberships, access to holistic and alternative treatments, prescription drug plans, and vision and dental benefits.
Retirement benefits tend to be a higher priority for workforce members in their 40s and beyond. However, a truly generous retirement package can appeal across the entirety of the labor force. Labor market analysis from 2020 found that retirement plans were one of the most highly valued benefits among employees. Furthermore, this same study found that retirement plans can even improve employee morale—a major win when considering the current climate full of so much employee churn.
Team members tend to respond positively to employers investing in their personal growth and professional development. Many people want to derive a sense of accomplishment and meaning from their careers. Companies that finance education create a direct path toward this goal, potentially reducing the attrition rate. Consider offering perks like professional development training, certifications, licensure, and tuition reimbursement.
Flexible Work Arrangements
Remote and hybrid work is now firmly entrenched in the labor landscape. Companies can up the ante by offering even greater flexibility through initiatives like:
- Flex-time and “hour banking”
- Compressed work weeks
- Gradual retirement programs
An oft-cited 2018 study from staffing firm Robert Half found that nearly a quarter of US workers have quit a job because of a long, difficult, or stressful commute. Those commuter stressors were also major factors influencing workers to become part of the Great Resignation today. Hybrid and offsite work arrangements can offer an effective solution, as do strong commuter supports. Consider improving facilities for active commuters, ridesharing, and vanpooling programs, or free or subsidized mass-transit tickets or passes to ease the burden of commuting on workers.
Health insurance ranks at or near the top of the priority list for many workers. That said, many other types of supplemental insurance can also offer considerable value, such as life, disability, or accident insurance. Even fringe benefits like pet insurance can help attract and retain employees. Think creatively about ways insurance and benefits programs can be designed for maximum appeal and inclusivity.
Childcare and Parental Leave
Lack of guaranteed parental leave continues to be a major sticking point for parents in the US labor force. The United States lags far behind most other developed countries in this regard. Businesses can step up by filling in the gaps in the system and offering paid parental leave to workers who have children.
Along similar lines, company-sponsored childcare programs make it easier for parents to manage multiple responsibilities. They can also improve the productivity and economic output of parents who would otherwise need to reduce their working hours to be with young children.
3. Evaluate Your Benefits Partners
Businesses often manage and administer benefits programs through partnerships with one or more external providers. Choosing providers wisely is crucial to program success, as vendor options have expanded rapidly in recent years. Companies bear ultimate responsibility for ensuring that their outsourced partners provide favorable program access and quality service.
Employers choosing to co-source or outsource their benefits programs should pay particular attention to the third parties and the digital tools used to administer benefits, as these can make or break a program’s success and effectiveness.
As mentioned, many businesses turn to third parties to implement their benefits programs. These third-party administrators (TPAs) can offer a range of management services. On the less-involved end, TPAs might conduct comparative analyses of various benefits providers and costs, and help you negotiate costs. A more involved TPA might go as far as designing, implementing, and administering your new program for you. The extent to which a TPA runs your benefits program is up to you.
Some TPAs specialize in particular types of benefits, while others offer general support. Employers should perform thorough evaluations of each TPA under consideration as part of their due diligence. Without the appropriate level of oversight and expertise, you risk providing ineffective programs that under-deliver and waste money.
Employers and TPAs alike increasingly use digital platforms to manage and administer benefits programs. These tools provide critical support, often offering self-service portals that afford employees greater control over their own benefits administration.
When shopping for a digital platform, look for tools that provide easy navigation and user-friendly, intuitive interfaces. This will simplify employees’ experiences, and in turn, make them more apt to use the benefit. From an employer’s perspective, technological benefits management tools should also offer adaptability, scalability, robust data analytics, and workflow automation, to streamline the time you spend managing the program.
4. Assess the Financial Benefits of Hybrid and Remote Work
For job-seekers in the Great Resignation, hybrid and remote work arrangements have become almost as important as pay rates. Thus, employers seeking to mitigate a high attrition rate should consider offering offsite work structures and flexibility whenever possible.
From an employer’s perspective, the shift to hybrid and remote work also offers a chance to cut costs by saving on the workspace. Pre-pandemic, many companies committed the majority percentages of their operating budgets to workplace facilities. With large portions of the workforce opting for offsite work, some companies have been able to cut back on their physical offices and the associated expenses.
Employers can apply those savings toward higher wages, better benefits, and facilities purpose-built to serve hybrid models. Instead of renting permanent offices, some businesses have redirected their spending toward co-working spaces. Others elect to subsidize their remote workers’ technological expenses by reimbursing home internet and computer upgrades.
5. Determine the ROI of Employee Experience Investments
The Great Resignation has refocused attention on what HR insiders often call the “employee experience.” - those factors that contribute to high levels of employee engagement. Businesses that provide a positive and valued employee experience are far more likely to retain talent for the long term—and are more productive as well!
Factors like a favorable work-life balance, commuter support, great benefits, and enjoyable company culture all play major roles in creating positive employee experiences. Employee recognition programs can also have a significant impact. Businesses that go out of their way to publicly acknowledge their appreciation for employee contributions often make great strides in reducing their attrition rate over the long term.
Quantifying the financial returns on employee experience investment isn’t a straightforward task. To structure analysis around clear metrics, employers can create formal recognition programs, then track metrics like adoption, engagement, and satisfaction rates with programs.
Productivity improvements are certainly a positive byproduct of these investments. Employee experience investments truly shine, however, when it comes to the long-term qualitative impacts. Happy employees stay longer, have increased job satisfaction, and are more loyal.
In addition to reducing an organization’s attrition rate, these outcomes foster other positive financial outcomes. Businesses spend less on recruitment and training costs since employees tend to have longer tenure. High levels of employee engagement are also associated with lower levels of customer attrition. When sustained over the long term, these benefits can translate into a significant competitive advantage.
Reliable Financial Partners Help Employers Reduce Their Attrition Rate
For many companies, weathering the Great Resignation has proven no small challenge. Yet optimistic observers believe the phenomenon has a silver lining: it forces employers to make meaningful investments in employee engagement and retention. This, in turn, stands to make professional life a more positive experience for millions of workforce participants over the long term.
Reducing your company’s attrition rate requires strategic planning and careful analysis. Working with an experienced, reliable financial partner can help businesses project how targeted, meaningful investments towards employee retention could impact their overall balance sheet and their cashflow.
Navigating through the Great Resignation comes with challenges and uncertainties. Chat with Illinois Bank & Trust, a division of HTLF Bank today to start charting a positive and productive path into the post-Covid work world.