The Relationship Between Performance and Turnover in Employee Retention

Posted on June 8, 2022

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Daniel Stein, PhDEmployee ExperienceRetention

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After two years of pandemic-spurred labor shortages and record numbers around job resignation (more than 68 million people left jobs in 2021), many businesses have embraced Employee Experience ( EX) as a competitive advantage. Organizations are spending billions of dollars a year on EX, with the goal of keeping employees productive and avoiding turnover. But are EX initiatives sufficient to promote performance and prevent turnover? Can promoting performance, paradoxically, come at the expense of increasing turnover? In this post, I’d like to review in more detail the relationship between performance and turnover, and explore how you can better retain high performers. 

The Performance and Turnover Relationship

Since the 1960s, academic researchers in organizational psychology and organizational behavior have been obsessed about a potential tradeoff between job performance and turnover. This research – which has spanned a host of organizations and industries, such as tech and banking – has revealed that there is not a one-to-one relationship between performance and turnover. 

So how do you answer the questions: Who is most likely to leave your organization? Well, of course, the weak performers feel insecure about job security and anxious about their standing in the organization, so it makes logical sense that they’re most likely to leave. But strong performers are also likely to leave your organization too. Strong performers are also more likely to leave the organization because they are tempted by more attractive job opportunities elsewhere (in terms of career growth and compensation). 

But what about average performers? Those not strong enough to be poached by a competing organization, but not weak enough to feel the pressure of the job. Average performers tend to have the lowest turnover rate, as compared to the strong and weak performers.

This results in a U-Shaped curve, where turnover is highest at the opposing ends of the performance spectrum.

At Searchlight, we recognize there can be a disconnect between job performance and turnover. That is why we consider both job performance and turnover as unique inputs to determining the quality of a new hire

How Can You Retain Your High Performers?

We know that strong performers are critical to an organization’s success, and often represent future managers and leaders. Research suggests there are several ways to effectively retain these high performers, thus breaking the U-Shaped curve. Let’s look at several recommendations.

Be sensitive to your high performers’ engagement.

Ultimately, high performers leave jobs because they are dissatisfied that their performance does not match their compensation expectations. To understand whether your high performers are at risk of turnover, proactively seek out their engagement through pulse surveys and take action to remove obstacles to their engagement. Factors such as an effective onboarding process and psychologically safe culture have been shown to influence employee engagement, but the only way to know what will make your strong performers happy is to ask them. 

Key Takeaway – To break the U-Shaped curve, seek out and proactively enhance your strong performers’ engagement through pulse surveys.

Pay your best performers more within their level. 

The desirability of switching jobs greatly decreases when strong performers are appropriately paid for their contributions. Even within a single level, an employee that is crushing expectations should be paid more than an employee just meeting expectations. Take a look at your salary ranges to make sure that your strongest performers within each level are appropriately compensated – or else they might be tempted to look elsewhere for a better package. 

Key Takeaway – To break the U-Shaped curve, proactively recognize your strong performers with appropriate compensation, even if it means widening the salary range for each level.  

Promote your best performers, as long as you also pay them more.

Promotions offer strong performers with recognition of their hard work and advanced growth opportunities, encouraging retention. However, promotions also signal to the labor market that an employee is high quality, giving the employee more leverage to find a more attractive employment opportunity elsewhere. To counteract the tendency to consider outside employment opportunities after receiving a promotion, the promotion should accompany a bump to the next level and thus a higher salary range. 

Key Takeaway – To break the U-Shaped curve, promote your strong performers, as long as you can offer an appropriate compensation increase.

EX initiatives can help reduce turnover when organizations spend the time and effort to better understand employees holistically. But beyond that, if HR leaders and Heads of People and Talent don’t understand what makes candidates successful pre-hire (and align that with the organization) and connect that with post-hire outcomes, they may never truly understand the quality of a hire, or how it’s impacting an organization. 

Daniel Stein, PhD

People Data Scientist As a People Data Scientist at Searchlight, Dan combines subject matter expertise in organizational psychology with data science methods to uncover actionable people insights backed by science. Dan has a Ph.D. in organizational behavior from the University of California, Berkeley, and his research has been published in Harvard Business Review and Scientific American.

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