Why People Leave Organizations

Jun 1, 2011

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.