By Andrew Chamberlain – The Harvard Business Review
Employee turnover is expensive. Replacing an employee who quits costs, on average, 21% of their annual pay. While it’s tempting to dismiss turnover as a fact of life in today’s fast-moving job market, new research shows otherwise.
Many reasons employees jump ship are surprisingly simple, and business leaders who don’t ask why workers want to go may be unnecessarily losing people who are pricey to replace.
At Glassdoor, we have ample data on workers’ job trajectories from millions of résumés that people have shared on our site. Looking at those résumés, we can gain insight into the reasons for employee turnover by comparing job transitions where workers stayed with their original employer with those where people left for another company.
In a new study, Glassdoor data scientist Morgan Smart and I looked at more than 5,000 job transitions from a sample of thousands of résumés shared by job seekers on Glassdoor from 2007 to 2016. Some were employees who moved into a new role but stayed at the same employer — for example, a junior accountant who switched into a job as accounting manager. Others were employees who moved to a new role and left for a new employer.
By combining the data on real-world job transitions with Glassdoor company ratings and salary information, we were able to pinpoint which statistical factors push workers out the door and which motivate employees to stay and grow in their existing organization. Although these patterns are correlational, we believe they reveal important clues to the HR puzzle of how to retain talent. In our study, we looked at how job turnover correlated with pay, company culture, how long an employee has been in their current job, what industry they’re in, and more.
Factors That Drive Turnover
One of the drivers of turnover is easy to overlook: allowing workers to stagnate in their current role. Even after controlling for pay, industry, job title, and many other factors, we find workers who stay longer in the same job without a title change are significantly more likely to leave for another company for the next step in their career. Stagnating in a role for an additional 10 months raises the odds that employees will leave the company for their next role by about one percentage point, a statistically significant effect.
The likely reason is that workers who don’t see a clear progression from their current role to a better position in their company ultimately turn to opportunities elsewhere. And that suggests an easy solution. By providing clear paths for employees, moving them through job titles on a regular progression over time, employers can help boost perceived career opportunities and limit this type of harmful stagnation.
However, our research finds that escalating workers through new job titles over time isn’t enough; making sure pay is competitive is also essential to retaining talent. We found that 10% higher base pay is associated with a 1.5-percentage-point increase in the likelihood that workers will stay at their current company the next time they move to a new role, a statistically significant link.
The lesson is that in the long term, employees won’t stay for new job titles alone. As they assume new responsibilities on their upward paths, compensation should rise along with career arc. If managers do not offer meaningful promotions, in both responsibilities and pay, our data suggests employees are more likely to look elsewhere for their next role.
Aside from career progressions and pay, we found that workplace culture matters for employee retention. This will come as little surprise to leaders who are well aware of the research showing the benefits of positive company culture. When employees switch employers, we find they usually move to companies with higher Glassdoor ratings.
In particular, we found that raising a company’s overall rating on Glassdoor by one star (on a one-to-five scale) was associated with a four-percentage-point higher chance that employees would stay for their next role. Similarly, we found statistically significant links between two detailed measures of workplace culture: higher career opportunities ratings and higher culture and values ratings. In each case, raising a company’s Glassdoor rating on these two dimensions by one star (out of five) was associated with a five-percentage-point higher chance that workers would stay for their next role. It appears that employees who see clear career paths for themselves and who feel committed to a company with a positive value system are statistically less likely to leave for their next role.
What Doesn’t Seem to Matter
We found that some workplace factors don’t seem to matter for employee turnover. The first is the quality of a company’s senior leadership. This suggests to us that workers who are deciding whether to remain with an employer do so based on their own prospects for growth in a job, or perhaps based on their relationship with their manager. Even the most inspiring CEOs may not increase worker loyalty if individual employees feel that their careers have stagnated.
Second, we find that work-life balance doesn’t have any statistical link to whether employees stay or leave. Work-life balance certainly contributes to overall employee satisfaction, but does not seem to matter much for turnover compared to other factors. Workers often choose to leave an employer when their prospects for advancement are better elsewhere, and a job with great work- life balance isn’t likely to change that decision much.
What It Means
From the perspective of employees, moving to a new role is something to look forward to. On average, we find workers earn a 5.2% raise in base pay each time they transition to a new role. But more often than not, employees find it necessary to leave for a new employer to achieve that career progression: Among the résumés we examined, 73% of job transitions were workers leaving their employer, while just 27% stayed for their next role.
That high rate of employee attrition illustrates the challenges facing HR managers, but also suggests an opportunity. There is room in today’s labor market for greater reliance on internal transitions relative to external career moves. Addressing the drivers of employee turnover can have a profound impact on organizations over time. Even a 1% improvement in the odds that employees will stay for their next role can translate into hundreds of retained employees at a 10,000-person employer.
For recruiters, there is another side to the findings of our study. Our results suggest a variety of ways to target talent that may be ready for a move. Candidates who have stagnated in roles for a year or more are statistically more likely to be receptive to recruiter inquiries than candidates who are rapidly climbing their company’s career ladder. And candidates whose current employers have low culture ratings or who are underpriced relative to the market are statistically more likely to consider offers at new employers.
Employee turnover is a costly quandary for employers. Our research shows that employers are partly in control of turnover, and that there are clear solutions to reduce it. To better retain employees, set a clear career path for employees, pay them competitively, and cultivate a healthy workplace culture.