The Great Resignation Is Being Driven by Toxic Culture
The top five predictors of attrition have been discovered via research utilizing employee data along with the four short-term steps HR managers may take to minimize it.
At the start of 2021, more than 40% of all employees were considering quitting their employment, and as the year progressed, workers departed in record numbers. Between April and September 2021, almost 24 million Americans lost their employment, setting a new high. Business executives are striving to understand the dynamics fueling the huge departure as the Great Resignation continues. More significantly, they're searching for strategies to keep valuable personnel on board.
We studied 34 million online employee profiles between April and September 2021 to identify U.S. employees who left their company for any reason, including resigning, retiring, or being laid off. We wanted to understand better the roots of the Great Resignation. We were able to estimate employee attrition rates for the Culture 500, a sample of major, mostly for-profit organizations that employ approximately one-quarter of the private-sector workforce in the United States, using data from Revelio Labs.
While overall resignation rates are high, they are not consistent among firms. Across firms, attrition rates for the six months we investigated varied from less than 2% to more than 30%. Part of the discrepancy may be explained by the industry. From April through September, the graph below illustrates the expected attrition rate for 38 industries, and the disparity between them is significant. Apparel shops lost three times as many jobs as airlines, medical gadget manufacturers, and health insurers.
Industry Average Attrition Rate in the Great Resignation
The Great Resignation is having an equal impact on blue-collar and white-collar workers. Apparel retail, fast food, and specialty retail, among the most impacted businesses, employ the biggest proportion of blue-collar employees of all the industries we looked at. Management consultancy, on the other hand, had the second-highest attrition rate of any Culture 500 business while simultaneously employing the greatest share of white-collar workers. Enterprise software, which likewise has a high churn rate, employs the most engineering and technical personnel.
Some of the differences in attrition rates across organizations can be explained by industry, but not all of it. We found considerable disparities in employee retention rates even within the same sector. In the graph below, competitors with high and low attrition rates within respective sectors are compared. For example, Tesla employees are 3.8 times more likely to leave than Ford employees, while JetBlue employees are more than twice as likely to depart as Southwest Airlines employees.
How Culture 500 Company Attrition Rates Compare Within Industries
During the first six months of the Great Resignation, companies known for their healthy cultures, such as Southwest Airlines, Johnson & Johnson, Enterprise Rent-A-Car, and LinkedIn, had turnover below average.
Despite the tiny sample size, these couples point to a more fascinating trend. Companies that are more creative, such as SpaceX, Tesla, Nvidia, and Netflix, have greater turnover rates than their more conservative counterparts. Innovative firms like Goldman Sachs and Red Bull have also seen increased turnover, indicating that the tendency is not restricted to technology-intensive industries.
To learn more about the factors that influence intra-industry turnover, we compared each Culture 500 company's attrition rate to the industry average. We call this metric “industry-adjusted attrition” because it converts each company's attrition rate into standard deviations above or below the industry average.
We also used the Natural Employee Language Understanding technology established by CultureX, a firm that two of us (Donald and Charles) cofounded, to analyze the free text of over 1.4 million Glassdoor evaluations. Also, we assessed how often workers cited 172 subjects and how favorably they spoke about each issue for each Culture 500 organization. Then we looked at which themes predicted a company's industry-adjusted attrition rate the most accurately.
Top Employee Turnover Predictors During the Great Resignation
Employee unhappiness with salaries has dominated most of the media coverage of the Great Resignation. However, when it comes to forecasting employee turnover, the frequency and positivity with which workers addressed remuneration ranked 16th out of all issues.
This finding is in line with a growing body of data suggesting that remuneration has only a little influence on employee turnover. (However, in other situations, such as major healthcare systems, compensation may be a key predictor of attrition.)
In general, how workers evaluate their salary is a significantly more accurate predictor of industry-adjusted turnover than company culture. The five predictors of relative attrition are shown in the diagram below.
Top Predictors of Attrition During the Great Resignation
We've compared the predictive capability of compensation to each variable to give you a sense of their relative relevance. When compared to its industry, a toxic corporate culture is 10.4 times more potent than remuneration in predicting a company's turnover rate.
Let's look at each of the top five predictors of employee turnover in more detail.
Corporate culture is toxic
Toxic company culture is far and by the most powerful predictor of industry-adjusted employee attrition, accounting for 10 times more than remuneration in predicting departure. Failure to encourage diversity, equality, and inclusion; employees feeling disrespected; and unethical conduct are among the primary factors contributing to toxic environments, according to our research. In a future piece, we'll go further into each of these elements and look at how managers and workers might recognize toxic culture signs. The most crucial aspect to remember is that a toxic culture is the leading cause of employee departures.
Uncertainty about one's job and rearrangement.
Job instability and reorganizations are major determinants of how workers assess a company's overall culture, according to a prior paper. As a result, it's unsurprising that job insecurity and reorganization have an impact on staff turnover. When a company's prospects are grim, managers typically turn to layoffs and reorganizations. Employees' poor perceptions of their company's future prospects have been demonstrated to be a substantial predictor of turnover in previous studies. Employees are more inclined to leave a faltering organization in pursuit of improved job stability and professional prospects. Furthermore, previous layoffs have left remaining staff with higher responsibilities, which may raise their likelihood of quitting.
Another reason job insecurity can predict turnover is because our measure of employee attrition includes all employment changes, including layoffs and forced terminations. Involuntary turnover is predicted by frequent discussions of reorganizations and layoffs. Involuntary separations, on the other hand, occurred for fewer than a fifth of all employee departures at major organizations during the Great Resignation, according to the US Bureau of Labor Statistics. As a result, it's probable that low career prospects and job instability played a role in people quitting on their own.
High degrees of creativity.
Workers quit firms with toxic cultures or frequent layoffs for a variety of reasons. Employees from creative organizations, on the other hand, are more inclined to leave. The more favorably workers spoke about innovation at their firm, the more inclined they were to leave, according to the Culture 500 sample. The three most inventive Culture 500 businesses — Nvidia, Tesla, and SpaceX — had turnover rates that are three standard deviations greater than their respective sectors.
Employees who work at the cutting edge of innovation often put in longer hours, work at a quicker pace, and deal with greater stress than those who work in a slower-moving organization. Work may be exciting and rewarding, but it can also be tough to maintain over time. When workers praise their company's innovation, they are less inclined to criticize work-life balance and a reasonable burden. Employees may be questioning the human toll that constant innovation entails during the Great Resignation.
Failure to appreciate achievement.
When it comes to recognition and prizes, employees are more inclined to depart organizations that fail to discriminate between strong achievers and laggards. Employers that fail to recognize and promote outstanding workers, as well as those who tolerate underperformance, have higher turnover rates. The problem isn't poor pay; it is acknowledgment — both informal and monetary — that isn't tied to work and outcomes. Companies may lose some of their most productive workers during the Great Resignation because the high-performing staff is the most likely to resent a lack of acknowledgments for their efforts.
COVID-19 has a poor reaction.
Employees who cited COVID-19 in their evaluations more often or spoke negatively about their company's reaction to the epidemic were more likely to leave. When workers discuss more broadly their company's policies for preserving their health and well-being, the same trend emerges.
Actions to Improve Retention Over the Short Term
It's not straightforward to adjust the aforementioned major predictors of employee attrition. It may be tough to reverse a negative future perspective that leads to restructuring and layoffs; it is too late to correct a poor pandemic response, and a toxic corporate culture cannot be rectified fast. Companies like Tesla and Nvidia benefit from constant innovation, so they must find strategies to keep people while maintaining their competitive advantage.
In order to decrease attrition in the near term, our research revealed four activities that managers might take. Each bar shows the topic's predictive capability in terms of compensation, as seen in the graph above. When compared to industry peers, the subjects this time indicate a company's ability to retain people, but when it comes to predicting a company's relative employee retention rate, providing workers with lateral career options, for example, is 2.5 times more significant than remuneration.
Short-Term Steps for Companies to Increase Retention
Make lateral job transitions a possibility.
Not everyone wants to go up the corporate ladder or take on more responsibility or labor. Many employees just desire a change of scenery or the chance to try something new. Employees are less likely to resign if they speak favorably about lateral possibilities, which are new employment that provides new tasks without a promotion. Promotions do not predict employee retention, as well as lateral career options, do. The more often workers addressed the idea of overseas postings, the more likely they were to stay with their present job.
Sponsor social activities for your company.
Happy hours, team-building trips, potluck dinners, and other activities outside of the office are all important components of a strong corporate culture, so it's no surprise that they're also linked to improved retention rates. Organizing entertaining social activities is a low-cost approach to promote company culture when employees return to work, and it also builds employees' personal bonds with their coworkers.
Allow employees to work from home.
The relevance of remote work in keeping workers has been emphasized in much of the media coverage of the Great Resignation. Employees were less likely to resign when they addressed remote work choices in a more favorable light. What you may not have anticipated is that remote work has far less influence on retention than salary in terms of forecasting reduced turnover. Because most organizations in a given sector adopt similar practices, remote work solutions may have little impact on employee turnover. If organizations cannot distinguish themselves via remote work choices, they may need to seek other ways to retain workers, such as giving lateral career chances or making schedules more predictable.
Make front-line workers' schedules more predictable.
If their timetables are predictable, blue-collar employees are less likely to leave. When it comes to forecasting front-line worker retention, a consistent schedule outperforms a diverse schedule by six times. (A predictable time frame has little predictive value for white-collar professionals.)
According to a survey of 28 Gap shops, employees at randomly assigned locations were given their work schedules two weeks in advance, and their supervisors were not allowed to cancel their hours at the last minute. At the control stores, normal operating procedures were used to assign employees to their responsibilities. Employees who work in organizations with predictable schedules are more likely to remain. Employees who worked in scheduled enterprises slept 7% better than those who worked in non-scheduled firms. Parents with children reported a 15% reduction in stress as a result of the benefits.
Because of the significant turnover among burned-out knowledge employees who are unsatisfied with their static salary, The Great Resignation has gained a lot of media attention. This claim is supported by the bulk of our results. Both management consulting and business software, which employ a significant number of experts and specialists, have suffered high turnover rates. According to indirect evidence, burnout may have a role in increased turnover in companies that thrive on innovation. On the other hand, it seems that burnout, workload, and work-life balance are not significant predictors of industry-adjusted turnover.
Other key facts of the Great Resignation are overlooked in the oversimplified story of white-collar burnout. The results suggest blue-collar-intensive businesses like retail and fast food are seeing historic levels of turnover.
In the end, we discovered that company culture is more relevant than burnout or remuneration in forecasting whether organizations lose personnel at a faster pace than their industry as a whole. The single strongest predictor of whether organizations had significant turnover in the first six months of the Great Resignation is toxic company culture. Another facet of culture that predicts attrition is a failure to recognize top achievers, both formally and informally. A company's most productive workers are likely to leave if performance isn't recognized. This isn't to say that remuneration and burnout don't have an impact on attrition; they do. The argument is that other parts of culture seem to be significantly more essential.
Offering lateral career options, remote work, social activities, and more predictable scheduling are four strategies found in our study that may enhance retention in the near term. Leaders who want to win the struggle for talent during the Great Resignation and beyond, on the other hand, must go above and beyond, they must recognize and address the aspects of a company culture that cause workers to become disengaged and quit. Above all, they must identify and address factors that lead to a toxic culture. Our next piece will look at what makes a toxic culture and how companies may deal with it objectively.
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