René Richter, Managing Director of Remchannel (Pty) Ltd
Companies are grappling with a significant cost and business continuity burden due to the high staff turnover of long-serving employees, as nearly two-thirds (63.5%) of terminated staff in senior management positions had amassed five or more years of service, according to the latest Remchannel Salary and Wage Movements Survey.
Remchannel Managing Director Rene Richter says this finding raises red flags for future upper management and executive replacements, underscoring the urgency for companies to re-evaluate their talent retention strategies and ensure a smooth leadership transition.
“It seems clear that many companies may not have effective strategies to identify and groom potential successors for key management and executive roles, leading to a reliance on external hiring or promotion of less experienced individuals,” Richter underlined.
“The high proportion of terminated employees with longer service emphasises the importance of implementing effective retention strategies. Companies need to evaluate and address the underlying reasons for the departure of experienced employees. This may involve improving career development opportunities, providing competitive compensation and benefits, fostering a positive work environment, and addressing concerns related to work-life balance or job satisfaction.”
The March 2023 survey includes the analysis of labour turnover trends from data from 64 participating organisations from 1 January 2022 to 31 December 2022. It indicates the number of companies that regularly quantify the costs associated with labour turnover.
The overall labour turnover across the participating organisations for the period under review has averaged 16.6%, including temporary staff, per the Department of Labour requirement. This figure is down from the 21.4% reported in the October 2022 publication.
The detrimental impact of staff turnover
Noteworthy, many factors affect labour turnover, including the participant sample base and sample size, the status of the economy, the proportion of temporary employees, transfers to other companies, retrenchments, and the political situation, among others.
Companies are most vulnerable at the 1 to less than five years of service period (39.9%), where the lack of experience and institutional knowledge has started to impact. Richter says the high staff turnover rate can be detrimental, as it may lead to decreased morale, productivity and reputational damage to the brand.
Considering the current critical shortage of engineering, information technology, healthcare and finance skills, to name a few, the recruitment, training and development costs incurred may substantially increase labour budgets.
Other findings from the survey include:
- FMCG/Retail/Manufacturing experiences the highest permanent labour turnover by industry at 16.4%.
- Sales/Marketing reveals the highest weighted analysis of the average labour turnover by discipline for the period standing at 28%.
- Unskilled and defined decision-making occupations stood out, with an average labour turnover of 19.8%.
- Resignation ranked as the principal reason for labour turnover, accounting for 41.2% of the overall labour turnover average.
Richter says that with this knowledge, companies can investigate the causes of resignations and implement prevention measures. Strategies to reduce the costs incurred due to high labour turnover rates should be prioritised.
A need for monitoring and measurement of costs
“The report states that less than one-third (30%) of participants in the research, conducted since September 2014, reported that tracking labour turnover and associated costs was conducted regularly,” she says. “This lack of measurement suggests that several companies are either of the view that labour turnover is not a real concern in light of South Africa’s unemployment rate or that they have implemented effective staff retention and turnover interventions.”
Richter emphasises the need for companies to quantify and track these costs, enabling them to justify necessary changes to aid in employee retention. Companies can use labour cost data to identify the underlying reasons for labour turnover.
Alarmingly, over half (53%) of the respondents in the report stated that their companies do not measure some or all employee departmental costs. In comparison, 54% indicated a lack of measurement for HR department costs.
Although some expenses are easier to quantify than others, seasoned HR and Reward professionals should be encouraged to track them. The survey identified three main categories: employee department costs, human resource department costs, and other associated costs incurred, such as recruitment, pre-employment testing, background checks, and relocation, among others.
“There is a clear business case for maintaining a stable workforce not only from a cost perspective but for employee morale, retention of skills and experience, quality assurance and customer satisfaction. Therefore, it is a good business practice for companies to systematically and consistently track, analyse and report their labour turnover trends,” she concludes.