Is Turnover Contagious?

Last week, during an MBA webinar series I conducted on recruiting, I asked attendees about the Number One problem hampering their company’s growth. Across the board, participants said that high turnover and the constant need to replace originators was one of their toughest challenges.  They also said that finding good originators has become harder and harder. While these sentiments are not a surprise considering the industry has long had a 40% turnover rate, the fact that companies are citing it as a top priority is relatively new.

Attendees also mentioned that employee attrition is not only a time-intensive activity for them but expensive in terms of lost sales opportunities. If sales organizations could predict who might leave, would that help senior leaders manage this issue?

A recent Harvard Business Review article, “How to Predict Turnover on Your Sales Team,\” provides some important insights. The article cites research conducted by four marketing professors led by V. Kumar of Georgia State University. The group, which studied the sales organization at a large telecommunications company, found that top performers who generated the most revenue, met their quotas and delivered high customer satisfaction were less likely to quit. Poor performers were also less likely to quit which could be attributed to fewer job opportunities than higher achievers.

The researchers found that the group with the highest risk of leaving were “B” performers —those who were profitable, but not superstars. The loss of the “B” players, a sizable group in any sales organization, can have a significant impact on a business, especially if it is a revolving door with people constantly quitting.

What predicted when “B” players would leave?  According to the researchers, peer effects were the strongest indicator of “B” players quitting and going to another company. What is peer effect and why is it important?

Most people are familiar with the term peer pressure and the impact a child’s peers can have on his or her behavior. But research on the impact of peers on adult employees is not as well-known or understood. However, adults can be strongly influenced by the behaviors of their fellow workers. If co-workers are leaving, this will encourage B players to leave too.

The researchers found that when a company has high voluntary turnover (employees leave on their own to go to another company), this trend become contagious to the remaining employees.  Kumar states that “with high voluntary turnover, employees often lose faith in the company’s strategic direction because they are seeing others jump ship.” Likewise, when there is high involuntary turnover (employees are terminated for not making their goals or other reasons) employees feel little job security and others will make the decision to move on before it happens to them. The bottom line is that “individuals are heavily influenced by their environment and therefore turnover becomes contagious.”

What can mortgage companies learn from this remarkable research?

In my opinion, there are three important lessons:

First, involuntary terminations are obvious poor hires that should have been identified and weeded out during the interview process. This is easily corrected by installing a structured interview process that includes pre-hire assessments. Implementing a strong hiring process is a leadership issue and an essential requirement if senior management teams are serious about hiring quality originators and reducing turnover.

Second, voluntary terminations are caused by several factors that are well-documented. A poor relationship with the first-line manager, lack of appreciation and lack of career development are among the primary reasons why salespeople quit.

These issues can be corrected by training originators’ supervisors on how to better manage in today’s marketplace. In my view, outdated skill sets, especially regarding how to coach the sales staff, are one of the biggest issues in mortgage banking. A corollary is providing personal development and a career path for all originators. Most companies will provide product and computer training but not updated skills training. Is it any wonder originators are frustrated, bored and looking for greener pastures?

Finally, there is an industry-wide misconception that turnover is inevitable and cannot be reversed by senior managers. Far too many management teams give lip-service to hiring the best people while doing nothing to ensure that it occurs. The reality is that managers can be fired for not meeting recruiting goals but are rarely held accountable for high turnover percentages. If companies want to get serious about this issue, isn’t it time to incorporate turnover percentages into a manager’s scorecard?

What actions are you taking to prevent turnover from spreading in your organization?