Headcount Planning

Employee Turnover In Tech Reaches New Heights

July 21, 2021

Tech employees are quitting in droves.

Worker attrition has risen significantly post-pandemic, worsening the already-high employee churn figures the sector has been battling for years. Many explanations have been put forth to explain this new “Great Talent Reshuffling of 2021”  -- companies forcing employees to go back to a physical office and people re-evaluating their work/life balance during a lockdown are two that are brought up frequently.

 But why is employee attrition so high in the tech industry, and how can companies deal with it? 

Definition: Attrition, sometimes also referred to as “turnover” or “churn,” refers to the percentage of employees who leave the company over the course of a year. The tech industry has the highest average turnover rate out of any sector, at 13.2% (LinkedIn). According to the US Bureau of Labor Statistics data, the turnover rate for startups is double the industry average (so around 26%). 

Costs: Employee attrition has a substantial financial impact on the bottom line of businesses. On average, it takes 6 to 9 months of salary in recruiting and onboarding costs to take on a new employee, and in a time where the average software developer in San Francisco makes $139,000 a year, the figures add up. Other negative externalities -- an overworked recruiting team, decreased company morale, loss of company-related knowledge, relatively lower experience all around, among others, also adds up.

The tech world has always faced significant challenges with retaining talent, and even the exemplars of the sector suffer from short employee tenures. Uber is at the bottom with 1.23 years, while even traditionally strong industry leaders such as Google and Apple fail to crack the two-year mark. This is in comparison with a 4.1-year average across all industries. 

Why do employees leave?

  • Financial concerns are top on the priority list, followed by working conditions and career development.
  • This suggests high amounts of voluntary turnover, many enticed by the high pay and generous equity packages offered to new hires.
  • Even before the pandemic, it was regular to see employees “job hopping” from company to company, taking advantage of vesting cliffs to secure their generous equity options right before leaving. 

So how can startups and SMB deal with staff turnover? We recommend some of the following:

  • If there is a clear pattern of staff leaving at a certain length of time, track tenured employees and standardize check-ins or rewards around key dates like equity cliffs. 
  • Use tools to measure attrition in real-time with the ability to see individuals leaving -- networks of employees often move together unless you get ahead of it.
  • Ensure that all internal roles are visible to managers and recruiting to identify role opportunities more quickly -- studies show that lateral shifts are almost as effective as vertical promotions.
  • Ensure hiring is done efficiently and each new hire is needed; use online headcount tools to track activity on headcount forecasts across departments.

These changes will increase employee satisfaction and lower turnover, but it is unrealistic to expect worker churn ever to be reduced to zero. Some will be enticed by offers elsewhere and leave,  and it will become the responsibility of your company’s recruitment team to work to replace them constantly. As the cost of individual hires increases, while their average tenure decreases, each new head needs to be carefully decided upon. 

TruePlan offers dynamic hiring and headcount management software that centralizes requests and communication for recruiters, budget planners, finance teams, and budget owners.

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