What is 'Attrition'

Attrition in business can mean the reduction in staff and employees in a company through normal means, such as retirement and resignation, the loss of customers or clients to old age or to growing out of the company's target demographic.

BREAKING DOWN 'Attrition'

This type of reduction in staff is one way a company can decrease labor costs: the company simply waits for its employees to leave and freezes hiring. Such a method contrasts with more more severe labor-reduction techniques, such as mass layoffs. Waiting for attrition naturally is usually better for company morale. However, it can also have a negative impact on the employees that remain if the duties from the eliminated positions are transferred to them with no pay increase. It can also limit promotions within the company if these jobs are eliminated, which can result in further attrition and turnover.

Attrition can also refer to a business or professional losing customers. Customer attrition generally has a negative effect on the company's profits and growth. To learn more about this type of attrition, and for examples from the financial industry of how to reduce it, read "How Financial Advisors Lose Clients."

Can a Company Cause Attrition?

Changes in management style, company structure, or other aspects of the company might cause employees to leave the company voluntarily, resulting in a higher attrition rate. Another possible cause of attrition is when a company eliminates a job completely. However, firing and laying off employees also results in attrition, as long as the company doesn't fill those positions. When Whole Foods Markets Inc. (WFM) decided in 2015 to get rid of many jobs in order to follow a new business strategy, it lost employees due to attrition.

Turnover also occurs for many of the same reasons as attrition, and attrition can be similar to turnover. In both cases, employees leave the company for one reason or another, but the key difference is whether or not the company seeks to fill the vacated position.

Often, when a company ends a worker's employment due to attrition, the employee will receive some sort of severance package, or a continuance of benefits in the cases of retirees.

Reasons a Company Might Desire Attrition

Often, when a company is faced with debt or closure, it must make tough calls and cut back its workforce to stay afloat. In these cases, the company might develop a layoff plan, with no intention of filling those positions again. Changes in company structure or business model, such as a merge or a change of focus, might demand that certain departments be trimmed or eliminated to fit the new business model.

Voluntary Attrition

Voluntary attrition occurs when an employee leaves a company of his or her own accord. This can occur when employees leave their current positions for another job, leave the workforce entirely, or retire. The reasons for leaving a company can vary from personal reasons, such as desiring career advancement or moving to a different city, to company-based reasons, such as an unwanted change in company structure or management.

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