The Pain and Grief of Employee Turnover

One of fundamental flaws of human beings is our idealistic belief that complex problems can be solved with blunt and simple solutions. Such is the case when I hear bankers talk about employee turnover.

Across all markets in the country, retaining skilled bankers has become one of the fundamental strategic challenges in our industry. This concern surfaces in almost every bank planning session I attend, but oftentimes the issue is errantly identified as something that “the Human Resources department needs to deal with.” Thinking that a staff support group can solve a deep business issue like turnover is akin to thinking that the accounting department can somehow solve a company’s earnings problem.

In our soon-to-be-released 2007 Cornerstone Report: Benchmarks and Best Practices for Mid-Size Banks, we found that the median bank employee turnover rate was 21% at the corporate level and 34.1% for tellers. In less than three years, the average bank turns over the equivalent of its entire front-line teller staff. Certainly these numbers make it hard for banks to pursue their goals of being service-driven, relationship building, financial-service dynamos. The greeters at Wal-Mart seem to stick around longer than the folks at my local branch. So…what can be done, GonzoBankers? Will our industry ever be able to tame the turnover beast?

Here’s my take on the turnover dilemma:

• Turnover is a fact of life – Bankers may think they have it awful, but virtually every industry faces turnover challenges. The national fast food chains run an at unbelievable 85% – 120% annual turnover – no wonder that stuff tastes so crappy. While we may consider turnover “high” today, we must accept that some normalized rate in the 10% – 15% range would be expected for even a high performer. Remember the good news about turnover. It means the economy is doing well and employees have options. I’d take the headache of turnover over a massive recession and non-performing loans any day.
• Great companies do achieve lower turnover – While turnover is a fact of life, some companies have simply put this issue to bed. Statistics show that those companies in Fortune magazine’s 100 Great Places to Work award achieve noticeably better retention rates than their industry averages. Workplace leader S.C. Johnson & Son has a remarkable 2% annual turnover rate!
• Low turnover alone does not drive better performance – While great companies typically have low turnover, it’s important to note that low turnover does not necessarily make you a great company. In this year’s Cornerstone Report study, we found absolutely no mathematical correlation between a bank’s turnover rate and its ROA or efficiency ratio. Performance has too many variables for turnover alone to be a primary driver.
• Turnover is not an HR issue, it’s a business design issue – If bankers expect the HR department to solve the turnover issue with some feel-good “Move More Cheese” campaigns, they will be sorely disappointed. Instead, bankers should get to the real strategic issues about why someone would work at their bank vs. anywhere else. Big hint: humans naturally want to work for winning teams – a bank with a clear strategy that been drilled down into the culture has a lot better shot at reducing turnover.
• The costs of turnover are real and painful – Bankers intuitively accept that turnover is costly, but few banks ever make real attempts to measure this cost. Experts say that it costs 20% of an employee’s annual salary to replace the lowest production worker and five times the annual salary to replace executives. In our consulting firm’s cost studies, we find outside recruitment and temp costs to be some of the fastest growing categories in operating expense budgets.
• Management is the biggest variable in turnover – One of the universal truths in business is that no one likes to work for a jerk. Banking may not be full of jerks, but it is full of people in management jobs that are lacking in the art of management. A recent study from the American Management Association showed that 50 percent of the typical employee’s job satisfaction is determined by the quality of his/her relationship with the manager. Bankers often worry that they lack “bench strength” in their organizations, and this looks to be a realistic concern. According to HR experts Retensa, nearly 50% of all middle managers in corporate America are either currently looking for another job or plan to do so. Sounds like they’re annoyed with some of the jerks at your bank.

The Gonzo Retention Plan for the HR Director
While the oft-ignored Human Resources department cannot be expected to solve the employee turnover issue, it certainly can be the coordinator and catalyst for going after the problem. Like Ross Perot said, “Be the sand that irritates the oyster and out comes the pearl.” To be honest, I’m tired of all the action-less, academic dribble that comes from the HR profession. It’s time for some common sense to grab management’s attention. Here’s my four-point plan for HR directors to start the revolution:

#1: Create the Turnover Score Card – The first thing HR has to do is make the turnover issue visible and the costs real. So build a scorecard with the following components. For your major functions (e.g. teller, platform, commercial, mortgage, trust, back office, admin), break out the turnover ratio separately on a quarterly basis. Show a reconciliation of budgeted FTE, unfilled positions, new hires, employees who left voluntarily and involuntary turnover. Then, for dramatic effect, show the training, temp and recruiting costs those functions spent for the quarter. This type of visual report will keep management focused quarter to quarter on the issue.

#2: Get Transparent About Exit Interview Fodder – One cool best practice the HR wonks have all agreed upon is to conduct exit interviews with employees to learn “what could we have done better.” The problem: most mangers only hear broad, boring, general summaries of exit interview information. (“We are finding a variety of factors are impacting turnover.”) My solution: create a report that simply lists anonymous quotes from all of the exit interviews for the quarter. A scan of these comments from any manager will reveal patterns and make a company’s issues more real than any summary report.

#3: Analyze Seven Factors that Make ’em Stick – The HR consulting world likes to talk about “Retention Audits” to help reduce turnover. Once again, I think your HR staff could whip one of these up for you. Keep it simple. Build a matrix that summarizes with bullet points and scores the bank Green/Yellow/Red on seven key areas that help keep employees around:

1.  Pay – Indicate how average pay in key positions compares to the market and specify the source and date of the backup data utilized.
2. Incentives – Show what percentage of total comp was performance-based vs. fixed salary. Include what the average performers and the top performers make and compare this to other opportunities top performers have in the market.
3. Benefits – Candidly, HR handles this issue very well. In our 2007 Cornerstone Report, overall benefits were 24.5% of compensation at the median bank.
4. Training – Track training dollar investment (internal and external) each quarter and indicate if it’s trending up or down. These figures can be compared to industry benchmarks and those provided by the American Society for Training and Development.
5. Work environment – Indicate how your bank compares in areas like flex time, onsite resources, vacation, perks and bring-your-pet-to-work policies.
6. Strategy – Assess how clear the bank’s strategy is and how aligned recruiting, training and pay plans are with this strategy. If everything is “still being developed,” turnover is bound to be higher.
7. Brand – It sounds silly, but a strong brand does in fact tie people to their company. Bragging rights at the neighborhood barbeque is good for the human ego. In fact, I recently heard an HR director talk about how one company’s morale was swelling because of its successful ad campaign featuring a talking goose. Who’da thunk?

#4: Develop the Resource Budget and Justify with Retention Targets – Once the gonzo HR group has done its analysis, it’s time for management to craft a plan and approve a budget to go after the retention issue. One caveat: HR and management should try to make this thing budget-neutral over time, meaning the costs to reduce turnover (training, incentives and foosball tables) should be offset by accountabilities for actually reducing the turnover number. I admit, this is real tough, but it’s the business mindset we need to take with this HR issue.

Turnover is one of those issues that floats around every year at the bank but never seems to get a groundswell of action to address it. I think it’s because most bankers have wrongfully assumed there’s some mystic practice that HR can follow to address the issue. Going forward, bank managers should jump in feet first and get involved in the business issue of keeping employees, and HR can start this process by making the facts about turnover more visible with senior management.

Fight the good fight!
-sw
 Mt.gov – is the source

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