Why a Low Employee Turnover Rate Isn’t Necessarily a Good Thing

By: Christina Zurek
Disengaged female employee
When it comes to employee recruitment and retention, turnover is definitely bad for business. Right? Not so fast.
While a high employee retention rate is often a top priority, an atypically low turnover rate is a good indicator that there may be underlying issues your organization needs to address.
Besides the obvious risk that you may be harboring detrimental underperformers, low turnover may damage the trajectory of and cause frustration among top performers.
Here are a few thoughts to consider as you evaluate whether you might be facing this issue.

For Starters, There’s No Magic Number When It Comes to Employee Turnover

According to Gallup, 10% turnover is healthy, but every industry and every organization is different.

For example, Oracle founder Larry Ellison defended the organization’s atypically high turnover, noting it was what allowed them to respond to industry changes. Alternatively, many of the organizations on Fortune’s Human Capital 30 list, a collection of businesses that have notably prioritized their human capital, maintain much lower turnover rates of just 3-5%.

Think your turnover may either be too low or too high? Questions to ask as you evaluate your own employee turnover rate include:
What turnover rates are your competitors facing? The best way to assess your turnover is to compare your organization’s performance to that of your closest competitors and specifically the top five firms in your industry. Doing so will give you a more accurate read on what leaders in your industry are facing.
What type of turnover is your organization experiencing? Functional turnover occurs when low-performing employees leave the organization, so it can save your organization from having to make tough decisions and, often, improves productivity levels.
Dysfunctional turnover, on the other hand, hurts your organization. When top performers or other highly skilled employees leave, replacing them can be difficult and potentially costly from a quality standpoint.

The Role Delayed Retirement Plays

In addition to dysfunctional turnover, there’s a developing trend of workers staying in their jobs longer. Whether they can’t afford to retire or are simply not ready to embrace what might be perceived as a less regimented lifestyle, the movement is creating a trickle-down effect for middle managers seeking a way up the ladder.

No end in sight and lack of a clear plan for succession leads to frustration, burnout, and the choice to look elsewhere (more often than not, with the competition).

So what can you do to manage employee turnover and make sure it’s working in your favor?

Here’s What You Can Do to Maintain the Right Balance

It’s all about having a plan to maximize the present while preparing for the future.
Prepare employees for retirement (the earlier, the better).
Because today’s workers aren’t saving the ways previous generations have, empowering your people to be “retirement ready” is critical to both your employees and the overall strength of your organization.
Encouraging financial wellness through dedicated programs and resources positions individuals for long-term financial security and leads to stronger employee wellbeing and engagement.
Create middle management succession plans.
Grooming middle managers to learn the skillsets of more tenured team members communicates to future leaders that you’ve identified potential within them and prepares them for heightened responsibility when the time comes.
Alternative retirement options like flexible or phased retirement may also contribute to more strategic succession planning and ward off workplace “brain drain” that occurs when tenured workers who possess invaluable knowledge leave the workplace.
Build confidence in employees who fall lower on the org chart.
Often, employees near the bottom of the org chart feel like there’s no place for them at the organization if there’s no clear path for advancement. But just because a team member hasn’t identified an upward growth trajectory, it doesn’t mean their skillset and expertise might not be valued in a more strategic individual contributor role that doesn’t top the org chart.

To demonstrate the value you see in them, offer educational opportunities. Help with coaching. And identify multi-skilled team players who have the ability to transfer from one department to another instead of hiring from outside.

At the end of the day, just remember there is no ideal turnover rate; what is most important is that you understand why your turnover is happening, and that you keep your eyes open for signs it could be leading to unintended consequences.
Christina Zurek
Christina Zurek

Christina is an experienced leader with a passion for improving the employee experience, employee engagement and workplace culture. Few things excite her as much as an opportunity to try something unfamiliar (be that a project, development opportunity, travel destination, food, drink or otherwise), though digging in to a research project is a close second.