The division is trivial; the denominator, acquisitions and how a fund adds companies together decide whether two turnover figures can be compared.
Employee turnover rate is the number of leavers in the year divided by the average headcount over the year: leavers / average headcount × 100. For a fund, add the leavers and the average headcounts across companies before dividing. On an illustrative four-company portfolio, 477 leavers over an average of 1,881 employees gives a turnover rate of 25.4 per cent, 19.4 per cent voluntary. The simple average of the four companies' rates says 21.3 per cent, because it gives a 201-person software company the same weight as a 925-person logistics business.
Worked in full in The ESG Manager in Private Equity by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Turnover is one of the social metrics limited partners ask for every year, and one of the few that a deal team also cares about, because in services businesses it is a cost line and a capacity constraint. The division is trivial. What makes two figures incomparable is the denominator, the treatment of acquisitions, and how a fund adds companies together. An ESG manager who fixes those three in the data dictionary once, and applies them to every company, has a number that can be compared across years and defended to an LP.
| Company | Start | End | Average of month-ends | Leavers | Of which voluntary |
|---|---|---|---|---|---|
| Software | 180 | 220 | 201 | 34 | 28 |
| Logistics | 900 | 940 | 925 | 310 | 230 |
| Healthcare clinics | 420 | 400 | 412 | 85 | 70 |
| Industrial services | 300 | 450 | 343 | 48 | 36 |
| Portfolio | 1,800 | 2,010 | 1,881 | 477 | 364 |
Industrial services bought an add-on with 130 employees in October; its end headcount includes them, but they were on the payroll for only three months of the year. Leavers are employees who left for any reason; voluntary leavers resigned. Headcount here is people, not full-time equivalents; pick one and use it everywhere.
1. Average headcount = average of the twelve month-end headcounts (or of the thirteen including the opening)
2. Company rate = leavers / average headcount. Logistics: 310 / 925 = 33.5%
3. Voluntary rate = voluntary leavers / average headcount. Logistics: 230 / 925 = 24.9%
4. Portfolio rate = Σ leavers / Σ average headcount = 477 / 1,881 = 25.4%; voluntary 364 / 1,881 = 19.4%
Excel, with leavers in E2:E5 and average headcount in D2:D5: =SUM(E2:E5)/SUM(D2:D5)
| Company | Total rate | Voluntary rate | Rate on (start + end) / 2 |
|---|---|---|---|
| Software | 16.9% | 13.9% | 17.0% |
| Logistics | 33.5% | 24.9% | 33.7% |
| Healthcare clinics | 20.6% | 17.0% | 20.7% |
| Industrial services | 14.0% | 10.5% | 12.8% |
| Portfolio, pooled | 25.4% | 19.4% | 25.0% |
Logistics is 49.2 per cent of the headcount and 65.0 per cent of the leavers. Without it the portfolio rate would be 17.5 per cent. The fund-level figure is a statement about one company, which is what the engagement plan should say, the same lesson as for TRIR and LTIFR, where rates must also be pooled on hours, not averaged.
The opening-plus-closing shortcut is harmless where headcount moves smoothly, 17.0 against 16.9 per cent for software. It fails at industrial services: counting the October add-on as if it had been there half the year gives an average of 375 and a rate of 12.8 per cent, when the employees actually on the payroll averaged 343 and the rate is 14.0. An acquisition flatters turnover in the year it closes unless the average is built month by month.
| Definition | Portfolio rate |
|---|---|
| Pooled, average of month-ends | 25.4% |
| Pooled, (start + end) / 2 | 25.0% |
| Pooled, opening headcount | 26.5% |
| Pooled, closing headcount | 23.7% |
| Simple average of company rates | 21.3% |
A 5.2-point spread from the same data, and the lowest number is the one with no defensible meaning. Fix the definition in the reporting template before the first collection round, not after the LP compares two years.
What turnover costs is the reason to manage it. At an illustrative 9,000 per leaver for recruitment, induction and lost output, the portfolio's 477 leavers cost about 4,293,000 a year, and logistics 2,790,000 of it. Cutting logistics' voluntary leavers by a third, 77 fewer departures, takes its rate to 25.2 per cent, the portfolio's to 21.3, and saves about 690,000 a year, which belongs in the value creation plan as a costed line, as in what an ESG value creation plan adds to enterprise value.
The core metric set as a data dictionary, the collection calendar and the validation log are among the working documents in the free companion files for this book.
Leavers in the period divided by the average headcount over the period, times 100. Build the average from month-end headcounts. An illustrative logistics company with 310 leavers and an average of 925 employees has a turnover rate of 33.5 per cent; counting only resignations, 230 of them, its voluntary rate is 24.9 per cent.
Add all leavers and all average headcounts, then divide, so each company counts in proportion to its workforce. Four illustrative companies with 477 leavers and 1,881 average employees give 25.4 per cent. A simple average of their four rates gives 21.3 per cent, under-weighting the largest and highest-turnover company.
Acquired employees are not hires and should enter the average headcount only from the month they join. In the illustrative case 130 employees joined in October; averaging opening and closing headcount gives 375 and a rate of 12.8 per cent, while the month-end average of 343 gives the correct 14.0 per cent.
This article is one calculation from The ESG Manager in Private Equity. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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