Reference no: EM132237688
Mortgage originator California-based IndyMac Bank focused on building customer relationships and pursued a growth strategy. The overall turnover rates at the Pasadena, California, office were 500 to 10 percentage points above industry benchmarks, ranging from over 40 percent for sales and operations to the low teens for professionals and management. Traditional turnover analysis suggested that IndyMac should be hemorrhaging money. Instead, the company substantially outperformed its competitors.
How could this be true? The answer lies in the bank’s understanding of the costs and benefits of different types of turnover. In fact, the company calculated the break point where the financial benefits of the firm’s turnover outweighed the costs. For example, higher turnover was acceptable for low-impact, nonexempt operating positions. When an employee left one of these jobs, IndyMac pocketed the savings when other employees picked up the workload for the 30 to 60 days that the average position is open, plus additional savings when an annual bonus was not paid out to the person who left or when a replacement employee was brought in at a slightly lower salary level. On the other hand, turnover among the firm’s high-impact professional and managerial employees could cause a six-month delay on a multimillion-dollar project and cost IndyMac millions of dollars.
Optimal turnover rates were measured within a green–yellow–red range and differed for each job category and for performance levels within each category. The turnover rates in the green band were financially beneficial for the firm; the turnover rates within the yellow band (the broadest band) were cost-neutral and had a minimal impact on the company. By contrast, turnover rates that climbed into the red band begin to significantly hurt the organization.
After calculating the break point of turnover for different job categories, IndyMac turned its attention to understanding the drivers of turnover and analyzed data on many of its 5,000 employees to identify what matters most to specific segments of its workforce. It used the results of these analyses to better retain top performers. The bank also used steep performance-based pay differentials to maintain desired turnover rates among its high and low performers.
a. What financial benefits did IndyMac Bank receive as a result of its turnover?
b. What were some of the financial costs of turnover for IndyMac?
c. What are some of the likely long-term consequences of the bank’s turnover strategy?
d. If you were in charge of improving the retention of IndyMac’s bank managers, what process would you use to do this?