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Why People Leave Organizations

by Jun 1, 2011, 5:15 am ET

Whether the economy is strong or weak, no matter the time of year, and no matter how much they are paid, many of our best employees decide to leave. The question we all grapple with is why.

Why do people stay at a company or leave? What motivates such behavior, and how can employers motivate people to stay longer? What is a “good” rate of turnover and how do we know who to entice to stay and who to let go? While this article cannot hope to answer these questions in any detail, let’s take a quick look at the subject and see what we find.

First of all, when employees are asked why they leave, they usually give reasons like these: They want a better work/life balance, more money, a better opportunity for career growth, more independence and control over their own work, and of course job security.

For most of the past decade, employers have worked hard to give employees more time off and more benefits aimed at the family. They have increased salaries and offered stock options, enriched and enlarged jobs until some employees are now complaining that their jobs are too enriched, and they have offered employees more autonomy over the kinds of work they do, where they do it and how they do it. More pay is “at risk,” meaning the employee has to perform to get it, and this is at least loosely coupled to job security.

What is surprising is that turnover, which should be at an all-time low given this slow economy, is about the same as always. Sure, the rate has slowed a bit and few firms are experiencing the 25%-20% turnover rates of the past two or three years, but people are still leaving — good, valuable people who we want to keep. And as the recession eases, more will decide to leave: the grass is always greener.

So the question becomes: what are the real reasons people leave and what can employers do about it?

What is important here is that no single factor in and of itself is decisive in causing turnover or in raising retention rates. Like so many others things, it is the systemic effect of several factors that leads to a final decision. People from different cultures respond differently to various factors, as do those of different ages.

Professor David Finegold and Senior Research Scientist Susan Mohrman, at the Center for Effective Organizations at the University of Southern California, presented a paper in the Spring of 2001 at the World Economic Forum in Switzerland entitled: What Do Employees Really Want? The Perception vs. The Reality.

This paper presents research from a wide range of organizations, people, and cultures and disputes many of the reason people commonly give for leaving. Some of their findings include the fact that security is generally only a major factor in those over 50 and that money is only a motivator is those under 30. For most employees in the in-between ages, other things play a much large role.

Most employees want these four things in their organization most of all:

  1. A clear and compelling strategy;
  2. An innovative environment low in bureaucracy;
  3. Challenging work assignments that enable employees to grow their capabilities; and
  4. Rewards based, in part, on how well the organization performs.

As I look at these I see that almost all of our “traditional retention” tools fall short. I was recently in an organization where they were going through the annual stock-option-granting exercise. They spent days and days assessing how valuable each person on the management team was (against some dubious criteria, I must say) and then how many options they would each get. The firms that practice this all say it is to retain people. Yet, many of those with options leave whenever the new firm offers an equal or better package of their own stock! It takes a lot of stock and many years of accumulation before this becomes a more powerful retention tool than satisfaction with the job or a challenging project.

One of the most intriguing results of this research was the finding that group or team incentive pay is a larger factor in retention than individual pay. By offering incentive pay to an entire team, you force management to encourage and develop individuals and you push individuals to work together so they can all get the reward. By focusing on paying and rewarding individuals for their performance you often work against team efforts. Yet, most good things are accomplished by groups of people pulling together and few, indeed, by anyone working alone.

I have always believed and counseled my clients that creating an exciting, challenging workplace filled with managers who are held accountable for turnover is the best retention policy of all.

The negatives of turnover are obvious: greater costs to hire and train new employees, lost knowledge and experience (i.e., intellectual capital), decreases in productivity, and lower quality of work. The positives are less well understood, but no less real: infusion of new ideas, additional of new knowledge and experience to the company’s knowledge base, lower wages as new employees often enter at a lower scale, and enhanced promotional opportunities for those who stay.

The costs of replacing a lost employee can be staggering. Costs can be as much as 3x base salary for a mid-level manager. Formulas abound for calculating replacement costs. The Saratoga Institute offers a commonly used one. There are others that are less traditional. But anyway you calculate it, turnover costs money.

It would seem that if our traditional beliefs about why people leave are not valid and that if our current retention tools are not that effective, it is time to try some new approaches. Challenging work, flexible schedules, good managers, rewards based on what actually gets done — sounds like common sense to me.

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  • Kevin Stakelum

    Hello Kevin,
    Interesting article, but where does the whole “people leave managers, not companies” concept fit into this?

  • Bob Gately

    Kevin,

    1. Employers hire for competence.

    2. Employers fire for lack of job success.

    3. Employees accept job offers on the basis that the employer knows what it is doing.

    4. Employees quit for lack of job success and/or poor management, i.e., management doesn’t know what it is doing.

    Increasing retention is easy, but it does require management to change what they do.

  • http://TheMillennialLab.com Alicia Blain

    Great article, Kevin & you pose some thought provoking questions. As a former Fortune 500 executive I can tell you rather emphatically that in the corporate world common sense is NOT common. That’s why your clients have not followed you common sense advice to their obvious detriment.

    In my experience, most employees lie to HR about why they are leaving the company. They give the “politically correct” reasons you indicate at the beginning of your article. The real reason? They have lousy managers. Next reason? Unchallenging work followed by lousy pay.

    I find that no body ever takes steps to find out the real reason why people leave & so the problem is allowed to continue. Your suggestion about holding managers accountable for retention would go a long way to resolving this problem but then what would companies do with all the lousy managers that are allowed to work there? Heaven forbid they are made accountable! I believe that if organizations did what you suggest, it would boost morale more than an increase in pay or bonus could ever do. It would go a long way to retaining employees because lousy managers could not thrive under those conditions the way they do today.

    Today I work with young people in preparing them for the realities of the workplace. This past year, I interviewed those working for the past 1 to 5 years. Over 80% of them told me they had left their jobs or were aggressively looking to leave. This validates your point about how turnover has not decreased as it should have. And it will get worse over the next few years as the economy slowly improves.

    I strongly agree with you that traditional techniques & tools are simply not effective in today’s workplace yet organizations are slow to divest themselves of those 20th Century models. The ones that do & begin to experiment with more effective & transparent ways to retain their top talent will be survive & thrive. The others are destined to be left with only the most mediocre workers.

  • Bob Gately

    Alicia, you are correct that common sense is not too common nor is it even sensible. Increasing retention is easy, the hard part is getting the CEO to impose a change–they prefer to leave it to HR since HR is their expert yet the HR department often suffers from excessive turnover themselves. My test to see if HR is in a position to increase retention is to ask the following questions and see if they can answer each question with specificity.

    1. How do you define talent?
    2. How do you measure talent?
    3. How do you know a candidate’s talent?
    4. How do you know what talent is required by each job?
    5. How do you match a candidate’s talent to the talent demanded by the job?

    Everyone wants to hire for talent but if we can’t answer the five questions with specificity can’t hire for talent.

  • http://www.ethicalsearch.com Jim Sullivan

    Alicia, great insight. There are other reasosn besides the “lousy manager” but as you suggested that is one of the primary reasons people leave organizations. After 30+ years as a TPR I have some others that a company can’t address.

    Family – either get closer to or farther from…

    Geography – north to south or east to west, mountains, coastal, etc.

    Industry change – out of this and into that (product, technology, etc).

    There are many others. But there are 4 major areas that can be addressed –
    #1 Lousy managers – promoted beyond their capability, can’t get a grip on how to manage the new generation (or even some of the older generatons)
    #2 Lack of career opportunity – even if it is there it is percieved not to be and management has a poor way of communicating how to get there (or don’t have a clue themselves)
    #3 Bored, unchallenged, feel under-utilized, they feel they have more to offer and are not given the opportunity to step up (again, a good manager / management team should see this easily)
    #4 Money – this is that last one on the list and really only comes in to play if you are really paying below market – However this does come in to play when “promises are made and not kept” especially when bonuses or other perks are tied in to performance and then not followed through – that is a sure way to get them to call someone like me! This can also be attributed to poor management – don’t make promises you can’t or won’t keep.

    There are literally as many reasons for leaving as there are people leaving, and all of them could impact your employees but the norm is that it’s never JUST ONE REASON.

    I recently read (here on ERE I believe) that up to 70%+ of professional employees WOULD CONSIDER a new opportunity – that is potentially 3 out of every 4 employees – what are companies (read managers) doing to connect with their employees and find out what will drive them forward WITHIN their organization?

  • Bob Gately

    Jim, it seems to me that items #1, #2, #3, and #4 are all related to poor managers and/or poor management.

  • http://www.verticalelevation.com Carol Schultz

    @Bob: Excellent points. Most significantly your 4th point. It’s imperative that management is aligned in its goals and objectives and these things must penetrate the entire recruiting and retention plans of the organization.

  • http://jntcarticles.blogspot.com Juntee Terrenal MA,GMS

    Kevin, thanks for sharing your article.

    However, in today’s marketplace and workplace environments. Organizations are in false pretense that they are doing great in managing their retention and attrition.

    Experienced individuals leave an organization due to ineffectiveness of their Managers or reporting individuals. Often times, Executive Management do not like to thread on these areas when they see that the factors why great employees leave is because of their Manager. Because this Manager has been with them for a long time and they do not like to manage his behavior and efficiency. Some reasons, he is a friend of one executive.

    Of course, other comments are relevant why good employees leave. Many look for environment where their contributions are appreciated, their talents and competencies are utilized and not ignored by a threatened supervisor or manager.

  • http://TheMillennialLab.com Alicia Blain

    Bob, you are so right. In my experience, the reason why recruiting & retaining top talent often fail in companies is because CEOs don’t see it as a job priority & so they push it off their plate & give it to HR. Let’s face it, if the CEOs were paid & were given bonuses on demonstrating how effectively they recruited & retained top talent, you can bet things would be different.

    But sadly, it isn’t a priority & therefore it’s only given lip service & pushed down to HR. As if they don’t have enough to deal with already. It’s just too easy for CEOs to get off the hook on that point and as we all know, if they are not on the hook, it’s hard to impose change.

  • http://www.ethicalsearch.com Jim Sullivan

    @ Bob G, Yes, poor management, in my opinion, is the primary reason for top talent turnover – see Kevin Stakelum’s first comment. The actuality is direct “managers” often don’t have the authority/ability to make many of the necessary changes at their level to address some of these issues. So it gets kicked up to the next level and next and then to the top and per Alicia’s comment – falls on deaf ears, is not priority or isn’t compensated so “unimportant”.

    Just my $0.02

  • Keith Halperin

    Hmmm. Once again I mention:
    Retention is bad for recruiters. (It gives us less work.)
    Turnover is good for recruiters. (It gives us more work.)

    Also, how would you calculate an optimum retention/turnover rate, and why would it be the same across a large organization or across a long period of time?

    Cheers,
    Keith

  • Bob Gately

    Keith,

    “Retention is bad for recruiters. (It gives us less work.)
    Turnover is good for recruiters. (It gives us more work.)”

    With that logic corporate attorneys should not be concerned with keeping their employers out of the court house. Are you saying that recruiters are more ethically challenged than lawyers?