In the midst of the so-called “great resignation”, managers might be forgiven for thinking employee discontent is an isolated affair. Alas, research from the UBC Sauder School of Business shows that resignations can prove contagious.
In a comprehensive investigation, the researchers undertook an in-depth analysis of employment data from a prominent retailer grappling with a notable turnover rate, aiming to uncover the underlying factors.
Cascading resignations
Scrutinizing records encompassing approximately one million personnel, including details of their recruitment, store placements, job roles, departures, and reasons thereof, the study delved into the heart of the matter.
Moreover, the authors were granted access to employee performance records, allowing them to assess the distinction between high-performing and low-performing workers. This access proved instrumental in evaluating the overall productivity of the workforce and gaining a more comprehensive understanding of the intricate dynamics at play.
“We looked at these stores as systems, and looked at the flow of employees in and out of them over time,” they explained. “It gave us a great opportunity to look at the immediate, short-term and long-term effects of each exit event, and compare them over time.”
Effects of turnover
Previous studies have predominantly examined the impact of turnover on the performance of remaining employees and the overall organizational performance. However, these studies tend to overlook the comprehensive analysis of employee departures and their subsequent influence on further attrition.
The UBC research goes further, however, and the researchers shed light on the magnitude of employee exits leading to subsequent departures, identified the types of exits that contribute most significantly to churn, and explored the role of departing employees’ performance levels in this process.
Notably, the findings of the study revealed that layoff announcements have a potent and immediate effect, triggering a notable increase in voluntary turnover among the survivors of such layoffs. This underscores the significance of considering the cascading consequences of organizational decisions on employee retention dynamics.
“It’s very bad news for organizations, especially if they are laying off high performers, because if those positions get eliminated, both high and low performers start quitting,” the authors explain. “It’s a signal that people’s jobs aren’t secure, and the organization doesn’t care about them, no matter how hard they work. So they think, ‘I should leave as soon as possible.'”
Voluntary turnover
The study found that when employees voluntarily quit their jobs, this coincides with a boost in voluntary turnover. What’s more, there is also a lag in terms of the ripple effect occurring.
“To high performers, voluntary exits are a positive signal that there are better opportunities elsewhere,” the researchers continue. “So while employees might not leave immediately, they do begin to look for other opportunities.”
When redundancies are forced, however, then no such effect was found. Indeed, in some instances, voluntary turnover actually fell in such circumstances.
“Usually these are people who are disruptive or abusive, or aren’t doing their fair share,” the authors explain. “When they go, high performers tend to stay longer, and the risk of voluntary turnover actually goes down.”
Dismissal of a high-performing employee without clear justification can be costly not only in legal terms but also in terms of the negative impact it can have on the organization’s remaining top performers. When such employees feel undervalued and underappreciated, they are more likely to seek opportunities elsewhere, leading to a loss of valuable human capital.
Surprisingly, organizations tend to underestimate the cascading effects of such departures and the associated costs. This research underscores the importance of making well-considered exit decisions to avoid the rapid destabilization of the entire organization.
“Communicating clearly and compassionately, justifying these decisions and trying to avoid the most severe course of actions are better for organizations than simply cutting people,” the authors conclude.
