Maintaining The Integrity Of Turnover Measurements When There Are Layoffs

Abstract

Bonuses for improvements in employee retention rates should be calculated on the actual savings due to fewer terminations and reduced replacement costs. Permanent layoffs and hiring freezes distort the turnover rate and make the normal bonus calculations invalid. A new method for calculating a manager’s bonus for reducing the turnover rate is illustrated. It isolates the number of terminations due to changes in the size of the workforce from the terminations due to the improved retention rate. The size of the savings in terminations due to the improved retention rate can be accurately measured in situations where hiring freezes negate normal calculations.