Analysis Shows High Turnover Lowers Stock Price, Profitability

By Michael A. Verespej Reduced market capitalization and lower stock prices are just two of the unseen impacts of high turnover. "Employee turnover is draining the profitability" of companies in many industries, argues Jude Rich, chairman of Sibson & Co., Princeton, N.J. Sibson's recent analysis of the impact of turnover found, for example, that the cost to replace systems analysts, computer programmers, and computer engineers in the high-tech industry -- where the average yearly turnover rate is 25% -- is equal to 43% of earnings. By trimming that turnover rate in half, Sibson estimates that a high-tech company could increase its stock price by 20%. What's more, those direct replacement costs are just one part of the cost of turnover. Sibson's analysis found that "employee turnover has a significant effect," adds Sibson principal Seymour Burchmann, on the ability of companies to "keep current customers, acquire new ones, increase productivity and quality and pursue growth opportunities." Sibson's suggestion? Identify employee segments with high turnover rates and develop a solution aimed at eliminating the root cause of turnover.

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