The average value of each separation during the reporting period.
Total separation value / Separation
Average Separation Value represents the average cost of an individual separation to the organisation. Employee separations can carry direct costs to an organisation, as well as efficiency and productivity costs or customer service deterioration.
Direct costs generally include departure costs (e.g. accrued vacation), vacancy costs (e.g. temporary replacement help, recruiting advertising) and new hire costs (e.g. screening, relocation, increased salary over previous employee).
Other costs can include decreased morale, lost productivity while peers ‘cover’ the vacancy, the lost productivity of recruiters and hiring managers for recruiting a replacement, and the ramp-up time to productivity required for the replacement employee.
True organisational costs may vary by separation because of the employee involved, the position vacated or the organisational context for the separation.
For example, many organisations employ the assumption that voluntary separations are more costly to the organisation than involuntary separations. Within voluntary separations, those of high-tenured or high-performing employees may be more costly than others. Within involuntary separations, those from firings (to be replaced) may be more costly than those from layoffs (not to be replaced).
Because turnover cost data items may be difficult to isolate, these costs can be extremely difficult to pinpoint with great accuracy. As a result, organisations often develop their own models for calculating Total Separation Value.
One common model is to use a multiple of the annual salary of each separated employee. Many organisations estimate that separation value is equal to one times annual salary.
However where an organisation chooses to calculate Average Separation Value, this measure can provide valuable information to help an employer identify pockets of the organisation where reducing turnover may drive substantial cost reductions.
While turnover will not be eliminated, even very small reductions in turnover may save millions of dollars in costs.
Data sourcing for this measure will depend on the formula or approach used. Organisations typically source separation actions from either separation reason or date field in an HRIS job table. If using a multiple of annual salary in the turnover cost formula, salary data are typically sourced from an annual/monthly salary field within an HRIS job table.
Other turnover cost models might employ expense data from financial ledgers. The most common sourcing challenge for this measure is not the data sourcing itself but establishing organisational consensus around any one turnover cost approach.
Organisations will likely want to understand their turnover costs from both voluntary and involuntary separation, so analysis by separation reason will be helpful.
Organisations may also analyse average separation value by employee characteristics to understand which populations may offer the greatest opportunity for cost reduction.
Commonly used dimensions for such analysis include age, tenure, ethnic background, gender, performance rating, employment level, occupation, job function, pay grade, organisational unit and location.
Average Separation Value may be calculated with varying degrees of sophistication. However, this measure still represents an estimation of turnover costs, not a direct amount.
The more any turnover cost approach can differentiate among terminations (e.g. voluntary versus involuntary, replaced versus not replaced), the more accurate this estimation is likely to be. This measure also does not indicate the volume of turnover relative to workforce size.
Organisations generally base targets for Average Separation Value on their targets for Separation Rate, along with some estimate as to the relative cost of various types of turnover expected (e.g. voluntary versus involuntary, layoff versus firing, etc.).Because turnover will never be eliminated and because some level of turnover is usually considered desirable, targets for Average Separation Value will never reach zero.
Employers setting targets relative to a benchmark group typically aim to move results toward the 25th percentile, representing low costs to the organisation as compared to peers. Such benchmark comparisons are only truly valid if other employers are using a similar approach to assessing turnover costs.