Managing the Attrition Bubble during the COVID Downturn
If you are not managing your “Attrition Bubble” now, expect it to impact your ability to grow once a recovery starts. If you don’t know what an Attrition Bubble is, read on…
In every business, there is a natural employee attrition of departing people that takes place every year. Generally, attrition is measured in two categories:
- Management-Initiated or Involuntary Attrition: these are the terminations that occur because of fit or performance
- Voluntary Attrition: these occur as resignations due to retirement, withdrawal from the workforce for personal reasons or movement to another job at another company
During a downturn, voluntary attrition slows because employees seek security of their known employer or as a result of fewer opportunities available to move to a new employer. As well, for companies that have the financial wherewithal, management-initiated attrition may also slow for compassionate reasons of not terminating an employee into a tough job market.
Often what leaders fail to consider is the Attrition Bubble that they are building which will impact their ability to grow when the recovery starts at the end of the downturn. An Attrition Bubble is the pent-up demand of people wanting to get a new job, new role or promotion but can’t because the opportunity is not available during a downturn.
For example, if your company has 500 employees, is growing annually at 20% and has a typical attrition rate of 10% each year, you will exit 50 people, and hire 150 to replace those 50 plus the 100 needed for growth. When facing a 3-year downturn, you may stay stable at 500 people but in that 3-year time period, you are building a bubble of 150 who would normally have naturally turned-over during the downturn.
When the economy recovers in 3 years, all boats are floated higher. Suddenly, many companies return to growth and hiring, the internet is awash with job sites and available positions and recruiter reach-outs are coming into your team daily. The 150 employees, who would have already moved on to other employment in a normal economy, are all ripe targets to leave as soon as the right new opportunity presents itself. If they all leave in that fourth year, plus the ones who would also naturally go in that year, attrition could spike to 40% in your company. At some level, attrition can also become a self-fulfilling prophesy because, as many team members leave, others start to also question whether they should start looking. Additionally, departing employees often recruit a few teammates to join them at their new employer.
The fall out from an attrition bubble can be harmful to the ability of a company to recover and get back to growth because it becomes almost impossible to get ahead of the hiring curve, productively onboard the high volume of new employees required and replace the sudden lost of institutional knowledge and relationships.
So, what do you do about this now?
Having learned the hard way, I learned to manage the Attrition Bubble. Even in downturns, companies need to keep hiring. While attrition levels will drop, there will always be some attrition due to retirements, changes in employees’ personal lives or performance related dismissals. Here are some techniques that I used to manage the bubble:
- Promotions from within: During the downturn, when someone left, I tried to promote someone from within. By doing so, I gave someone a new job, new responsibilities, new challenges and possibly a promotion and pay raise thus resetting their clock and making them less likely to jump to a new role outside the company when the recovery started. If possible, I also found their successor from within the company and then replaced that third vacancy in the line with an external hire.
- Increase Performance Related Terminations: Tougher times requires everyone to stretch. By setting a higher performance bar, I increased Management-Initiated Attrition (MIA). If in a normal year, MIA’s were 3-5% attrition, I raised them to 5-7%. By doing so, this allowed me to hire new employees, often who were a better fit against current criteria for new skills or experience required. New blood continued to bring new and fresh ideas onto my teams while dampening down the average time employees had spent in the same role and thus reducing the risk of the attrition bubble. A key question I always asked my leaders about their people was” “If this employee were not an employee today, would you hire them for the job they are in?”. Even if you have a top performing team, you may be surprised by how often your leaders says “no”.
- If a reduction in force (RIF) is required, conventional wisdom is to layoff more than the minimum required. The driving logic for this draconian argument is that the damage caused by laying off too few and having to then do a second or even third round of layoffs is much more harmful than going deeper on the first round. Going deeper than necessary also gives the company a financial cushion to survive the unexpected. The other component to the argument for the deeper first round of cuts is that it allows some new hiring to start early. This not only allows leaders to put missing skills onto their teams but creates a positive momentum in employee morale and further manages the attrition bubble.
Having been through too many rounds of job cuts due to RIF’s, I have felt the angst as a leader in making decisions around who stays and who leaves. As human being, we are all compassionate to the plight of others and the impact our decisions have on those losing their jobs. At the same time, we must weigh and find the balance between the terminated and the needs of the survivors who remain with the company and are depending on our decisions to ensure that they have secure future employment. Managing the “Attrition Bubble” is part of those balancing discussions.