Persistently high labor turnover should have employers looking more closely at root causes. Why don’t more organizations seem capable of providing good jobs?
Elevated employee turnover levels continue to afflict many organizations. Indeed, with the so-called Great Resignation dragging on, data from Mercer revealed that the
US labor turnover rate in 2022 was an incredible 24.7%. It was almost as high in the UK, at 22.5%, according to Cendex. These remarkable turnover rates are driven by enduringly strong labor markets that have seen unemployment rates dip to historic lows, while unfilled vacancies remain stubbornly high. As a result, employees are often confident they can find better work elsewhere.
Of course, replacing workers is enormously expensive. Not only do vacancies have to be advertised, but managers have to spend time conducting interviews, after which successful applicants typically take several months to get up to speed. Deloitte calculates that the departure of an average employee earning $130,000 results in a loss of $109,676 in lost productivity and replacement costs. Yet despite the challenges that organizations continue to endure in terms of attracting and retaining talent, those persistently high departure rates suggest that the message isn’t hitting home strongly enough.
In The Case for Good Jobs, MIT Sloan’s Zeynep Ton suggests that today’s labor crunch is a wake-up call for employers to provide people with “good jobs”. But there’s a problem. “While many leaders want to provide good jobs – that pay more, provide dignity and meaning in people’s work, and offer opportunities for growth – most don’t know how to start, or they don’t think it can be done without hurting the bottom line,” explains Ton. Her book is an effort to explain how that can be resolved.
A systems problem
Ton argues that employees are too often viewed purely as a cost. It means that companies can quickly descend into a vicious cycle that sees employees treated poorly, which leads to high attrition rates, which makes it harder for those who remain, and so on. By contrast, when employees are treated better, they not only tend to stay for longer, but also deliver better service to the organization.
For instance, Ton highlights how worries over making ends meet can not only result in higher employee turnover, but also reduced performance among those employees who stay, because they are stressed out by the numerous issues caused by low pay. As a result, the combination of high employee turnover and low performance can prove far more expensive for organizations than paying employees well.
“The mental model at companies that operate in a vicious cycle is primarily financial and therefore inevitably views employees as a cost to be minimized,” Ton explains. “Frontline wages are based on the going market rate in that area, as if labor were like any other input to production.”
Throughout the book, Ton draws on her extensive work with companies such as Costco, Trader Joe’s and Mercadona. When employers have a more enlightened approach, she concludes, they adopt a more customer-centric perspective that appreciates how the employee-customer interface is what primarily drives growth, profitability and differentiation from one’s rivals.
The good jobs system
Ton argues that tackling the problems of talent attraction and retention is not just a case of raising pay, important though that is. Rather, it requires a systemic examination of how employees are treated. Her “good jobs system” comprises four parts:
Focus and simplify
Ton explains that in many organizations, leaders make decisions that sometimes filter down to the rest of the workforce, but oftentimes do not. These decisions can often over-complicate the work people are required to do. For instance, schedules are often decided at the last minute, which makes working successfully much harder and more stressful. The aim should be to simplify, such that only things that add value to the customer are performed.
Standardize and empower Many companies that undervalue employees operate a command-and-control culture. This can result in a proliferation
of rules and information typically only flowing upward. A more enlightened approach, writes Ton, is to “leverage frontline ability, knowledge and time to serve the customer well and pursue bottom-up continuous improvement”.
Cross-train
Ever since Adam Smith highlighted the power of specialization, there has been a temptation to limit what people do to as narrow field as possible. Ton argues that a more motivational and fulfilling approach is to cross-train employees so they can perform both customer-facing and non-customer-facing tasks.
Operate with slack
This is perhaps the most important element. Many managers believe that the best way to run their teams is to have no wastage or slack at all. In such an environment, not only do innovation and creativity suffer but burnout rises, while mistakes and poor customer service are often tolerated in the mission to keep costs down. Ton believes that the best teams have slack built in so that employees aren’t forced to rush encounters with customers and burnout doesn’t contribute to higher turnover.
Ton reminds us that not only is a system that encourages a high turnover of people inhumane, it’s also extremely uncompetitive. Yet she explains that in her work with organizations, she regularly meets executives who do not believe that the high cost of turnover is sufficient to justify higher pay and working conditions for employees.
That this is still the case, despite so many organizations pledging to invest in their people and stating their appreciation of their workforce, shows how embedded the costs-first mindset is among many leaders. With talent likely to be in increasingly short supply in the years ahead, it’s a mindset that urgently needs to change, so that all jobs are good jobs.
Adi Gaskell is an innovation consultant. Follow him on Twitter @AdiGaskell.