Description
Involuntary terminations as a percentage of average headcount.
Formula
Terminations. Involuntary / Average headcount * 100
Interpretation
Involuntary Termination Rate measures employer initiated terminations relative to the size of the workforce. It reflects the extent to which the organisation has intentionally terminated employees through performance management outcomes, organisational skill adjustment or downsizing efforts.
A result of 15 per cent means that involuntary terminations equated to 15 per cent of the workforce.
Involuntary turnover can have negative consequences on an organisation, related to cost, efficiency, productivity and customer service. Involuntary terminations resulting from layoffs or other organisational shifts are not likely to require replacements and therefore do not create significant productivity or recruiting costs.
However, such terminations can have a significant impact on the morale and productivity of remaining employees. Ongoing terminations of this kind can also signal greater strategic and financial concerns for the organisation or poor workforce planning practices.
Involuntary terminations of other types, such as termination for performance reasons, carry different but also significant organisational impact. Employees involuntarily terminated for these reasons must typically be replaced, resulting in productivity losses, recruiting costs and onboarding costs.
Effects may also be seen in morale, workload and stress levels of existing employees. These terminations often indicate failures within the recruiting process (e.g. the hiring of unqualified applicants), the onboarding process (e.g. the failure to properly train in procedures) or the performance management process (e.g. the failure to turn around poor performance or follow progressive disciplinary procedures).
Investigating involuntary terminations can help an organisation pinpoint process failure and target improvements to reduce costs and productivity losses.
Organisations use Involuntary Termination Rate to help approximate the costs of replacements and productivity losses. Beyond this, however, Involuntary Termination Rate can be a lagging indicator of recruiting, onboarding and performance management effectiveness.
Use of action reason codes (e.g. violation of policy, poor performance) and manager interviews can help pinpoint problem areas for the organisation that are driving unwanted involuntary turnover.
Data Sourcing
Organisations typically source termination actions from a separation reason in a job table. Involuntary terminations are typically mapped to include layoffs, terminations for cause and other employer initiated terminations.
Analysis
Employers can analyse Involuntary Termination Rate by a large number of subgroups and characteristics to identify high- or low-result pockets within the organisation for best practice sharing or corrective action.
Common dimensions used for analysis on this measure include organisational unit, tenure, performance rating, occupation, job family, job function, employment level, ethnic background, age and gender.
Limitations
Without additional analysis, Involuntary Termination Rate does not indicate the specific reasons for terminations or whether certain terminations were considered preventable. This measure provides only an indirect indication of the process failures and organisational costs of involuntary terminations. Specific or estimated expenses and productivity losses must be taken into account to assess turnover costs.
Targets
Most organisations target moving their Involuntary Termination Rate results toward the 25th percentile or below of a relevant benchmark group of similar talent pools or industry conditions.
Certainly, organisations might have higher targets if they expect temporary fluctuations (e.g. layoffs) or if they are working from a very high result gradually to a lower level over a period of years.