Is employee turnover just an HR headache, or a portfolio risk? Revelio Labs analyzed workforce data from thousands of public companies to track the relationship between attrition and stock performance. The findings were stark: a portfolio of companies with the highest employee turnover rates consistently underperformed the broader market by approximately 3.5% annually. Conversely, firms with stable workforces (low turnover) exhibited lower volatility and superior long-term compounding. The market often fails to price in the 'friction cost' of constantly replacing talent until it shows up as a margin miss.
https://reveliolabs.s3.us-east-2.amazonaws.com/Employee+Turnover+-+2020-12-08+-+Revelio.pdfWe view turnover as a 'silent tax' on capital. High turnover forces a company to perpetually re-buy its own operational capacity, paying recruiting fees and training costs just to stay flat. This is a massive destroyer of ROIC. We treat low turnover not as a cultural 'nice-to-have,' but as a form of operational leverage. A stable workforce allows management to compound knowledge rather than constantly replacing it.
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