While the cost of turnover is usually recognized, it is not always considered as a critical element of wellness strategy. It is an unfortunate, but unavoidable reality that employee turnover is a major factor in determining the ROI of wellness investments. The higher that workforce turnover is, the lower will be the ROI from wellness investments.
This is a function of two mathematical realities:
1) the effects of wellness programs tend to increase over time among workers who participate in them; and
2) when turnover is high, the employer loses the longer-term effects for workers who leave before full effects are achieved.
Since the average turnover among employees is roughly 25% per year, the lost impact of wellness programs is, on average, highly detrimental to the ROI from wellness investments. While there have been few long-term studies of multi-year effects of wellness investments on individual employees who participate throughout these years, the experience of the pharmaceutical firm Glaxo Smith Kline, which followed a cohort of over 6000 of its employees for four years is at least an illustration of typical patterns.
The net gains from its wellness program amounted to $613 per employee per year, but increased from year to year - from $233 in the first year to $375 in the second, then $944 in the third, and $950 in the fourth. This pattern suggests a "law of diminishing returns" effect by the third year, but demonstrates how much effects and thereby ROI can increase over time among individual participants.
For illustration purposes, a pattern of $250 net gain in the first year, followed by $500 in the second, $759 in the third, then $1000 in the fourth will reflect the effects of turnover on overall program ROI. First, for an organization with an average turnover of 25% per year, the effects of turnover will mean that after four years of wellness investments, the pattern of overall ROI will be as follows:
Year 1 - all employees are first-year participants, so the average for all will be $250
Year 2 - 25% of employees will be first-year, replacing those who left, and 75% will be second-year participants, meaning that the average gains for all participants will be: (25% x $250 =) $62.50 + (75% x $500 =) $375 = $437.50.
Year 3 - 25% will be first-year, 25% second-year, and 50% will be third-year participants, meaning the average gains for all participants will be: (25% x $250 =) $62.50 + (25% x $500 = ) $125 + (50% x $750 =) $375 = $562.50
Year 4 - 25% will be first-year, 25% second, 25% third, and 25% fourth=year participants, so the average gains for all participants will be: (25% x $250 =) $62.50 + (25% x $500 =) $125 + (25% x $750 =) $187.50 + (25% x $1000 =) $250 = $625.00
The average gain over the four years would be: ($250 + $437.50 + $562.50 + $625.00 =) $1875 divided by 4 = $468.75.
While the average turnover for all employers may be 25%, there is great variability across organizations. The lower the turnover, the greater the average gains will be over time. For an employer with 100% turnover per year, for example, the average gains would be stuck at $250 per year, since all employees would be first-year participants. By contrast, an employer with 0% annual turnover would enjoy a pattern of average net gains that would be precisely the same as that of individual participants: $250 the first year, then $500, then $750, then $1000.
Over four years, the average net gain per year would be: ($250 + $500 + $750 + $1000 =) $2500 divided by four = $625 per participant per year. The closer the employee turnover rate is to zero, the closer the average gains will be to $625 per year, while the closer the turnover rate is to 100%, the closer the average gains will be to $250. Since this represents a 2.5x difference in ROI, turnover is clearly a highly significant factor in determining the value of wellness programs.
Fortunately, wellness programs have been shown by numerous studies to be a major factor in reducing turnover, so wellness investments can improve their ROI over time through both the direct impact on employee health-related costs and productivity, as well as an indirect effect through lower turnover.
Each employer's own ROI experience will depend on the state of employee wellness, the cost and effectiveness of wellness initiatives over time, as well as turnover rates over time, but the overall effect is likely to follow a pattern similar to the illustration. This makes it worthwhile, if not essential, to consider as well as address turnover rates, among employees in general, as well as among wellness participants, when planning, implementing and evaluating wellness investments.
About The Author
Scott MacStravic, PhD is a former health management executive and professor, writing mainly in the domain of workforce wellness planning, implementation and evaluation. He is the author of ten books and over 1000 articles on wellness and related topics.