Attrition is an HR metric that looks at the overall rate at which your organization’s workforce decreases. It should be viewed differently from retention and turnover. Retention rates look at how many people are choosing to stay at your organization. Turnover rates only factor in the number of people who are voluntarily leaving the organization. Attrition looks at all departures from the organization, both voluntary and involuntary, and can also factor in whether those vacancies were filled or not.
Traditionally, attrition was a hot topic for HR departments and business leaders. Tenure was important to organizations and employees worked hard to stay with one organization for as long as possible. Longer tenures showed employees were loyal to the organization and was a key indicator that they were good candidates for promotions.
Times have drastically changed. Tenure-based compensation plans have been replaced by pay-for-performance where merit increases, and promotions were determined on performance. Additionally, job-hopping is very common within today’s workforce. Employees are not staying around 5, 10, or 15 years just to achieve the higher title and better pay.
Attrition can still be a valuable HR metric to an organization. For example, when faced with budget cuts, labor costs are typically the first area reviewed. Reductions in force (RIFs) or lay-offs are a common solution used to minimize costs. Attrition can be an HR metric that will provide a way to show leadership the people strategy was effective.
The best way to look at attrition over time is to review average headcount month over month. Let’s say you completed a RIF at the end of May as your organization lost a major client and could no longer support the labor cost. For the next six months you monitor the average headcount to ensure the number does not rise back to where it was in May. Take each headcount and subtract it from the headcount in May to determine the difference. You should have a number for each month.
Multiplying the difference in headcount by the average total compensation of the people RIFed, will give you a cost savings number your CFO and CEO will appreciate. Don’t forget to look at the total rewards package when calculating the labor costs. Salary is not the only cost saved. Medical premiums, bonuses, and retirement plan contributions should be included as well.
HR metrics are a vital tool for linking business objectives to workforce management strategies. Calculating attrition and combining it with the cost of total rewards, supported the business objective of lowering costs, which was achieved through the workforce management strategy of a RIF. HR can easily become an effective business partner through HR metrics and HR analytics. Try out a free demo of our automated HR dashboard today and become the business partner your organization needs.