Low employee turnover: The good and ugly

Employee turnover is a critical metric that organizations closely monitor to gauge workforce stability. It is the key factor of measuring employee satisfaction and HR Management Value delivery.

While high turnover is often seen as a red flag, indicating dissatisfaction, poor management, or inadequate growth opportunities, low turnover is typically celebrated as a sign of a healthy workplace.

However, like most things in business, the reality is more nuanced.  Low employee turnover brings undeniable benefits, but it also carries hidden risks that leaders must address to sustain long-term success.

Employee turnover measures the rate at which employees leave an organization and need to be replaced over a given period.  It is a key indicator of workforce stability, employee satisfaction, and organizational health.

Turnover includes both voluntary resignations (employees choosing to leave) and involuntary departures (terminations, layoffs, or retirements).  However, not all separations are treated equally in turnover calculations.  The most common method for calculating turnover is the Employee Turnover Rate.

Tenure-Based Turnover measures turnover by employee tenure (e.g., high attrition in the first year may indicate poor onboarding).  Department-Specific Turnover. identifies problem areas (e.g., sales vs. engineering turnover rates).  And industry benchmarks for Turnover Rates measure turnover across varies industries, roles, and economic conditions:

Why would an organisation want to measure turnover accurately?  Measuring turnover matters because the cost of replacing an employee can range from ½ to 2x their annual salary according to SHRM, 2023.  High turnover may indicate poor morale or leadership issues and helps HR to anticipate hiring needs and improve retention strategies.

A stable workforce preserves valuable institutional knowledge, tacit skills, company culture, and operational expertise that are difficult to document or transfer.  Long-tenured employees understand the company’s history, customer relationships, and internal processes, making them indispensable in maintaining continuity.

According to a study by the Center for American Progress, replacing an employee can cost between 16% to 213% of their annual salary, depending on the role, making retention a cost-saving strategy (Boushey & Glynn, 2012).

Low turnover fosters a cohesive company culture where employees develop deep relationships, trust, and shared values.  A stable team reinforces cultural norms, collaboration, and a sense of belonging, which can enhance productivity and innovation.

In customer reliant industries, long-term employees build stronger relationships with clients, leading to better service and loyalty.  A Harvard Business Review study found that companies with low turnover had 3.5 times higher customer satisfaction scores than those with high churn (Reichheld, 1996).

Consistency in personnel ensures that customers receive reliable, familiar interactions, which can be a competitive advantage.  Hiring and onboarding new employees is expensive.

The Society for Human Resource Management (SHRM) estimates that the average cost-per-hire in the United States is $4,700, with some executive roles costing significantly more (SHRM, 2023).  Low turnover reduces these expenses, allowing companies to allocate resources toward growth initiatives rather than constant recruitment.

 The Ugly: The Hidden Risks of Low Turnover

While the advantages of low turnover are compelling, an overly stable workforce can lead to stagnation if not managed carefully.

Employees who have been with a company for many years may become entrenched in “the way things have always been done“ – in Ghana we call it ‘MBA’.  This resistance can hinder innovation, especially in industries undergoing digital transformation.

Diversity of thought drives innovation.  When turnover is too low, companies risk becoming echo chambers where new ideas are scarce.

Research from Columbia Business School highlights that teams with moderate turnover outperform those with very high or very low turnover in creativity and problem-solving (Wang et al., 2019).  A stagnant workforce may miss out on emerging trends, technologies, or market shifts.

Without the natural churn that brings in high performers and exits low performers, organizations may inadvertently retain underperforming employees.   This is a worrying reality which has adversely affected many organisations leading to their extinction.

A study published in the Journal of Applied Psychology found that long-tenured employees sometimes experience declining motivation, leading to reduced productivity (Ng & Feldman, 2010).   Leaders must ensure that tenure does not equate to entitlement and that performance standards remain high.

If key employees stay in their roles indefinitely, companies may struggle to develop future leaders. A lack of upward mobility can frustrate high-potential employees who see no path for advancement, eventually pushing them to leave.

Employee turnover rates vary significantly across industries, countries, and economic conditions. While some turnover is healthy, bringing fresh talent and ideas, excessive turnover disrupts operations and increases costs.

International standards suggest that an overall turnover rate between 10% and 15% is generally acceptable for most industries, but this varies depending on sector, job level, and regional labor market conditions.

 According to the Society for Human Resource Management (SHRM) and Corporate Leadership Council (CLC), ideal overall turnover should be  10% or lower (indicates strong retention).  Moderate Turnover should range between 10-20% and high risk turnover: 20%

 The International Labour Organization (ILO) notes that developed economies (US, EU, Japan) typically have lower turnover due to stable job markets while emerging markets (India, Brazil, Southeast Asia) experience higher turnover due to rapid job mobility.

In essence, a turnover rate of under 10% would be considered excellent retention, common in finance, tech, government. A turnover ate of 10-20% is considered average and most professional industries fall within this bracket.  However where turnover rate is higher than 20%, it is considered high risk and this is common in retail, hospitality, construction sectors.

To maximize the benefits of low turnover while mitigating its downsides, companies would want to adopt proactive strategies to encourage continuous learning.  Investing in upskilling and reskilling programs keeps long-term employees engaged and adaptable.

Google’s “20% time” policy, which allows employees to spend part of their workweek on passion projects, has led to innovations like Gmail and AdSense (Bock, 2015). Continuous learning prevents skill stagnation and maintains employee motivation.

Leaders should actively challenge the status quo by encouraging experimentation.  Regular brainstorming sessions and cross-departmental collaboration can inject fresh energy into teams. Regular performance reviews, 360-degree feedback, and clear career progression paths ensure that tenure does not shield employees from accountability.

Leadership pipelines should be a priority. Companies like General Electric have long used succession planning to groom internal talent, ensuring smooth transitions when senior leaders retire (Charan, 2005).  Mentorship programs and rotational assignments prepare employees for future roles.

In a competitive market, the choice between high turnover and low turnover depends on the company’s strategy, industry dynamics, and growth stage.  However, low turnover is generally preferable for long-term success, provided it doesn’t lead to stagnation.   Low employee turnover is a double-edged sword.

While it brings stability, cost savings, and cultural strength, it can also lead to complacency, resistance to change, and talent stagnation.The key lies in proactive leadership, encouraging continuous growth, fostering innovation, and maintaining high performance standards.  Companies that strike this balance will not only retain their best employees but also remain agile in an ever-evolving business landscape.

Businesses can create a dynamic, engaged workforce that thrives in the long term by acknowledging both the advantages and pitfalls of low turnover.

The post Low employee turnover: The good and ugly appeared first on The Business & Financial Times.

Read Full Story