1. Attrition – the concept
If employees are to be products, their shelf-lives are
getting shorter”
In the best of worlds, employees would love their jobs, like
their coworkers, work hard for their employers, get paid
well for their work, have ample chances for advancement,
and flexible schedules so they could attend to personal or
family needs when necessary. And never leave.
But then there's the real world. And in the real world,
employees, do leave, either because they want more
money, hate the working conditions, hate their coworkers,
want a change, or because their spouse gets a dream job
in another state. So, what does that entire turnover cost?
And what employees are likely to have the highest
turnover? Who is likely to stay the longest?
Defining Attrition: "A reduction in the number of
employees through retirement, resignation or death"
Defining Attrition rate: "the rate of shrinkage in size or
number"
Attrition is beginning to significantly affect offshore ROI.
Just as businesses faced a scarcity of talented IT resources
during the dotcom era, organizations in offshore countries
such as India are experiencing similar pains. Skilled
employees are hopping from job to job and taking with
them the customer knowledge and technical expertise that
any company needs. Their salaries are increasing, along
with their perks, benefits, and bonuses.
Defining the attrition problem
Global outsourcing and the astounding amount of foreign
direct investment pouring into China, Russia, and India
have created tremendous opportunities and competition
for talented IT professionals in those countries. The
downside of this increased competition is a rising rate of
attrition, particularly in India.
Reasons for attrition
It is not easy to find out as to who contributes and who
has the control on the attrition of employees. Various
studies/survey conducted indicates that every one is
contributing to the prevailing attrition. Attrition does not
happen for one or two reasons. The way the industry is
projected and speed at which the companies are
expanding has a major part in attrition.
The specific reasons for attrition are varied in nature and it
is interesting to know why the people change jobs so
quickly. Even today, the main reason for changing jobs is
for higher salary and better benefits. While attrition cannot
be attributed to employees alone, let us look at some of
the possible reasons:
Organizational matters
The employees always assess the management values,
work culture, work practices and credibility of the
organization. The Indian companies do have difficulties in
getting the businesses and retain it for a long time. There
are always ups and downs in the business. When there is
no focus and in the absence of business plans, non-
availability of the campaigns makes people to quickly
move out of the organization.
Working environment
Working environment is the most important cause of
attrition. Today’s Gen Next employees expect a
professional approach and an international style working
environment. They expect a friendly and learning
environment. Employees look for freedom, good treatment
from the superiors, good encouragement, friendly
approach from one and all, and good motivation.
Job matters
No doubt the jobs today bring lots of pressure and stress
is high. The employees often switch jobs if there is too
much pressure on performance or any work related
pressure. It is quite common that employees are moved
from one process to another. They take time to get
adjusted with the new processes while few employees find
it difficult to adjust and consequently leave. Monotony sets
in very quickly and this is one of the main reasons for
attrition. Job hopping is very common among youngsters
who look at jobs as being temporary. Another commonly
looked option is to move to such other process where
there is little or no pressure of sales and meeting service
level agreements (SLA). The employees move out if there
are strained relations with the superiors or with the
subordinates or any slightest discontent.
Salary and other benefits
Moving from one job to another for higher salary, better
positions and better benefits are the most important
reasons for attrition. The salaries and benefits offered by
MNCs are generally higher than their Indian counterparts.
The employees expect salary revision once in 4-6 months
and if not they move to other organizations.
Personal reasons
The personal reasons are many and only few are visible to
us. They vary widely from getting married to relocating for
health/family reasons. The next important personal reason
is going for higher education. Health is another aspect,
which contributes for attrition.
Poaching
The demand for trained and competent manpower is very
high. Poaching has become very common. The rise in the
number of placement agencies has led to a boom in
poaching. Most of the organizations have employee
referral schemes and this makes people to spread
message and refer known candidates from the previous
companies and earn too.
Employee’s advocate
One of the main reasons why employees leave companies
is because of problems with their managers. An HR
professional can be termed an employee’s advocate and a
bridge between top management and employees at all
levels. There is often a huge gap between HR professionals
and employees in terms of understanding challenges and
delivering requirements. HR sometimes does not really
understand the problems associated with employees’
careers and jobs. The company’s overall plans and
strategies also depend on HR professionals as they voice
employees’ problems and requirements. The HR
department should have genuine interest in the
employees’ welfare; it is responsible for making sure that
their expectations are met. By doing this it is easier to
meet the company’s business targets.
Associated costs with high Attrition
Talent cost: It includes the cost of lost knowledge, skills
and contacts that the person who is leaving is taking with
them out of your door.
Recruitment cost
-The cost of advertisements; agency costs; employee
referral costs; internet posting costs.
-Calculate the cost of the manager who has to understand
what work remains, and how to cover that work until a
replacement is found.

2. Attrition – the concept
-Cost of the various candidate pre-employment tests to
help assess candidates' skills, abilities, aptitude, attitude,
values and behaviors.
Training cost
-It includes the cost of orientation in terms of the new
person's salary and the cost of the person who conducts
the orientation.
-It also consists of the training.
-Calculate the cost of various training materials needed
including company product manuals, computer or other
technology equipment used in the delivery of the training.
Motivational cost: It refers to the cost arises because of
motivating the other employees to retain them in the
organization in terms of increasing their salary and time.
Lost Productivity Costs: As the new employee is learning
the new job, the company policies and practices, etc. they
are not fully productive.
Attrition in Insurance Industry
While job attrition rates ranging between 15 per cent and
20 per cent is commonplace in the software sector, these
pale in comparison to the kind of turnover that the
insurance industry witnesses with its agency force.
Conservative estimates put the attrition rates at 35-40 per
cent.
The opening up of the sector five years ago provided
insurance agents with new opportunities and an image
makeover as "life insurance advisors".
But little has changed in the basic nature of the business -
insurance still needs to be sold to a reluctant populace.
Most agents or advisors who join in enthusiastically,
spurred by dreams of "working at one's own hours, getting
full reward for the hard work" and other such motivational
spiel, meet reality soon enough. Once the initial list of
potential customers such as close relatives, friends and
neighbors is exhausted, the climb for an agent is uphill.
When the rejections start and the doors start getting
banged in the face, new agents confront failure. The
dropouts begin. Most people think that they can make a lot
of money in a short span of time. Besides, one has to
acknowledge that it is a high-pressure job. Sustenance
requires constant networking and acquiring new
relationships for your business. This requires a lot of
discipline.
Insurance companies believe that adequate training will
help to contain the problem in some measure. In a
business such as insurance one has to accept the fact that
20 per cent of the work force will bring in 80 per cent of
their business.
Hiring from each other is a common practice amongst
insurance companies. Employees, especially in middle and
junior levels of the sales function, tend to move amongst
insurance companies. Availability of quality talent is still
scarce. Given the huge demand for talent, and since not all
of this requirement can be met by freshers, companies
tend to poach from competitors.
Calculating employee attrition
The high attrition rate in the industry has always been the
greatest concern, and a subject of much analysis and
debate. Organisations use different methodologies for
calculating their turnover rate. It is a known fact that
turnover calculation is a grey area which does not always
depict the true picture. While a few techniques are
common, there are no proven theories. Furthermore, the
approach to this calculation might vary from organisation
to organisation. Disclosure of the figure not only has a
direct impact on the business, but also affects employee
morale and productivity. Significantly, it might also trigger
off a chain reaction-a high attrition rate will lead to more
people leaving the organization, while a lower rate will act
as a retention strategy. It is not surprising that most
industry observers are skeptical when organizations
disclose their employee turnover.
A high attrition reflects poorly on an organization’s ability
to hold on to its people. Unfortunately, attrition is viewed
as a management flaw, when in fact; it could well be a
recruitment error. In some cases it can be simply seen as
an organization’s competitor appreciating its quality of
hires and the output, post-training-almost a backhanded
compliment!
Ideally, attrition should be calculated on a monthly basis
for companies that have over 50 employees for the first
five years of its business. Subsequently, a quarterly index
should be applied till a company's 10th anniversary. Post
this, annual attrition figures should be measured and
accounted for. This is optimal within the services industry
as companies tend to have different challenges at different
stages of their business life-cycle, and also maturity
achieves stability around a company's 10th anniversary.
Different theories
The attrition rate remains a debatable area, as there is no
standard formula to calculate it. A few of them are listed
below:
The employee base changes each month. So if a company
has 1,000 employees in April 2004 and 2,000 in March
2005, then they may take their base as 2,000 or as 1,500
(average for the year). If the number of employees who
left is 300, then the attrition figure could be 15% or 20%
depending on what base you take.
Many firms may not include attrition of freshers due to
higher studies or attrition within three months of joining.
In some cases attrition of poor performers may also not
be treated as attrition.
Essentially the attrition number is also a PR or
stock/analyst statement and is prone to 'dressing' up.
Varied theories are also applied as organizations like to
brand themselves differently as far as their HR and
recruitment strategy is concerned. Each company positions
itself uniquely in a common market place on account of
having exceptional HR policies, procedures and
management styles that directly impact retention or
attrition and hence the absence of a homogenous system.
Also, in scenarios where a common attrition measurement
formula is applied, companies find a way to justify their
results to position their statistics differently from their
peers on account of having differing operating practices.
Formula for Attrition
While different organizations follow different formulae for
calculating attrition depending on their size and nature of
services, some of the commonly used formulae to
calculate attrition are as follows:
1.) Attrition Rate = (No of employees resigned/Average
manpower)*100
where, Average Manpower = (Opening Manpower +
Closing manpower)/2
(opening/closing manpower could be either the calendar
year beginning or financial year beginning whichever
followed)
2.) Attrition = employees left * 100 / (opening
balance in a month + number of employees joined in
a month + number of employees left + no of
employees at the end of the month
Employee attrition & retention strategies
Retention of efficient employees is one of the most critical
challenges faced by many corporates worldwide and our

3. Attrition – the concept
Indian companies are no exception to this phenomenon.
The HR managers have been facing a tough time finding a
suitable replacement with required experience and ability,
to fill up the vacancies created on account of exit of key
employees. The reasons can be varied like shortage of
skilled manpower, growth in opportunities as a result of
economic reforms and liberalized policies pursued by
successive governments at the Centre. Attrition level can
also be more due to rigid and unpopular HR policies
pursued by the corporates.
Recent initiatives from Indian Companies to address
attrition problem are as follows:-
Company managements are increasingly concerned about
retaining qualified experienced managers and lot of debate
has taken place about the increasing trend in employees'
attrition, more particularly in knowledge-based industry
like software and mutual fund industry. Faced with a
continuing shortage of trained personnel, the Indian
mutual fund industry, for example, is beginning to use
employee stock options to attract and retain quality
employees. In addition some of the mutual funds have
announced plans to institute a stock ownership program
and are looking at employee stock option plans (ESOPs) as
part of their overall human resource management process.
One of the leading AMCs recently granted its employees --
with a minimum service period -- an ESOP package with
retroactivity from calendar year 1999. The ESOP plan,
which has a vesting period of three years, is contingent
upon the Asset Management Company achieving business
plan goals. As well, the valuation of the options is based
on a pre-set formula. The idea of the ESOP program is to
align the individual with corporate goals. Some of the
leading AMCs /MNCs are sending their employees to
reputed institutes in foreign countries to upgrade their
skills as well as to reward and motivate the performing
employees further.
Some of the leading MNCs and financial institutions have
also made arrangement with local management institutes
to design tailor-made courses for training their employees.
Recently some of the companies started giving joining
bonus to attract good managers with good track record.
Besides there are other ways of tackling the problem by
providing congenial work environment, career path, and
performance linked financial incentives and also rewarding
the performing employees by way of rewards in cash/ kind
etc. But there are some limitations as all the companies
cannot provide all the incentives to satisfy the increasing
expectations of the present day managers as they have to
consider their size and their affordability.
Employee attrition continues to affect organizations large
and small, local and multinational and may impact the
growth and prosperity of the company. Similarly, the exit
of experienced fund managers also affects the
performance of the fund temporarily as the style differs
from one fund manager to another. Intimate knowledge
about the corporate world is very vital for the fund
The employee attrition problem is a global issue and at
times may be difficult to manage but can be tackled by
careful planning and well thought out proactive HRD
policies.
The True picture
The attrition rate that is generally disclosed by most
organizations does not always show the correct picture.
This is because the figure has direct impact on stock
markets, employee morale and customer confidence.
Attrition rate has always been a sensitive issue for all
organizations as it can have major fallout on the bottom-
line. This is because the attrition rate is an indicator to
many things intrinsic to the organization, and revealing it
may affect it negatively. In fact at times, disclosing this
data can be like a self-fulfilling prophecy-if you tell the fact
that the attrition is high, it may actually become higher. It
is also not uncommon to find companies proclaiming an
attrition rate that is much less than the others in the
industry or their competitor's turnover rate.
Companies often project their attrition rate incorrectly as it
tends to affect their brand image both internally and
externally. Internally, it sends a wrong signal to their
employees and the board of members and externally, it
can affect in various ways such as developing a bad image
or dissuading talent. However companies do not realize
that hiding their attrition rate is never a solution in
reducing the same.
Cause & analysis
Calculating employee turnover is not a matter of simple
mathematical method. It is necessary to take into account
the root of the problem, by going back to the hiring stage.
Most organizations in practice do not evolve robust
measurements for calculating cost of a bad hire or labor
turnover. The detail of information required and the
measurement metrics are not common formulae, but have
to be designed dependent on the nature of business and
function. As a result most organizations do not intend to
mislead by disclosing statistics which may not be true, it is
just that perhaps they believe those to be true.
Organizations will however know what their real attrition
figures are as this has a huge impact on business. Like
with most data, attrition too can be interpreted in different
ways and it is up to each organization how and what they
wish to share. Organisations are generally much concerned
about regretted voluntary attrition. These are people who
leave at their own will and those whom the organisation
would have loved to retain. Similarly, organizations
measure managed attrition. These are people made
redundant, laid off or exited. Though managed attrition is
non-regretted by the organisation, the trend of managed
attrition if on the higher side may show the organisation in
poor light and does have an impact on the organization’s
health.
Attrition does not only reflect the hiring policies of an
organisation, but also induction and retention strategies,
training methodologies, work culture and many other
factors. It costs the company valuable time, money and
often credibility (especially where employees develop
relationships with customers). Some companies just look
at the employee turnover in terms of the cost involved in
the hiring and training of the individuals. While others look
at the opportunity lost and cost.
Organisations aim to reduce voluntary attrition of
productive employees and encourage unproductive staff to
leave its fold. It makes way for career progression, new
thinking and innovation.
The Brighter Side of Attrition
Some employee turnover positively benefits organizations.
This happens whenever a poor performer is replaced by a
more effective employee, and can happen when a senior
retirement allows the promotion or acquisition of welcome
'fresh blood'. Moderate levels of staff turnover can also
help to reduce staff costs in organizations where business
levels are unpredictable month on month. In such
situations when business is slack it is straightforward to
hold off filling recently created vacancies for some weeks.
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