Managing auditor turnover

How can you mitigate and reduce your auditor’s turnover?

I read here and there that many auditors stay on their job between 1 to 3 years @tom Oreilly), moving too soon to another firm or another function. Some say that this rapid turnover is driven by the market, by different expectations by the new generations… But what about internal causes? It is probably good to assess the problem, then to understand its causes, before an action plan can be defined to get to an acceptable and healthy level or turnover.

Is there a problem? The rule of 8 and the cost of turnover

Turnover is not per se unhealthy. I have always argued that each professional should experience 5 to 6 positions or firms or geographies in a career that lasts 40 to 45 years. This means that it probably makes sense to consider rotating every 8 years, with a maximum spent in each job. I have also argued that this “rule of 8” can be adjusted based on seniority. A young professional can rotate faster as he is still on a steep learning curve, and he costs less to the firm, meaning that the return on the investment made by the firm is faster. A more seasoned auditor will have to spend more time on the position: first, to prove herself (it may take longer on a more senior role to deliver and have a transformational impact), and second, because with a higher compensation, the return on the firm investment is longer. A “rule of thumb” to gauge this is to divide the age of the auditor by 8 (I call this “the second rule of 8”): at 24, the auditor can spend 3 years on the job. At age 48, 6 years in the position is a good average.

Whether you agree with this kind of super simple rules or not, what matters is that expecting no turnover at all is probably unrealistic. You need to define your yardstick to establish that there is a turnover problem: are people leaving more or earlier than what you expected? Who leaves and why?

Turnover has a cost, and you need to have an economic approach to the problem to assess its criticality. As per salary.com, the compensation of an entry-level internal auditor in the US is about 65kUSD (it varies per location and sector, I guess), which is a loaded cost of about 85kUSD for a company. It is estimated that the replacement cost of an employee ranges from 50% to 200% of his full cost, i.e., about 105kUSD on average. For a CAE or Director of internal audit, according to RobertHalf.com, the average compensation is around 200kUSD, which would mean a replacement cost of about 325kUSD.

Maybe you will do a different calculation: my point is that you need to have an idea of what turnover costs you to define proper and proportionate mitigation measures.

Finally, understand who wants to leave: a high potential that could be the future of the function, maybe even one day your successor as a CAE? An exemplary or inspiring pillar of the team? Is the spine of your team affected, or not? I will sound cynical by saying that sometimes the news of some individuals leaving is a good one! In which case, as a leader, you probably should have pushed that individual out a long time ago…

Why is there a problem? Looking at the internal factors of turnover

• Workload and quality of work. Are your team members underworked, or overworked? Is there too much rigidity and bureaucracy? Is there enough flexibility? Do you even know? Feedback loops and open conversations are necessary and largely help to detect and address this problem.

• Diversity and interest of the work. If things go well, an auditor (in my experience) participates in 5 to 8 audits per year. It depends on your organization of course, but part of the value proposition of the IA job is that you get to see enough, if not a lot, so that after a few years, you have seen close to everything that is going on in your company. Are you offering this diversity of perspectives in planning the audit engagements?

• In general, what is the level of engagement of your auditors? Do you manage the right level of delegation and autonomy of individual auditors, of team leaders? Is initiative encouraged? Are the company goals and the IA objectives clear enough and adhered to? Do you perform a regular anonymous engagement survey? How would you describe the culture of the team? Is there a gap with what you aspire this culture to be? Do you perform an exit interview with the auditor that decides to leave?

• Are individual and collective performance recognized and rewarded? Are failures discussed and lessons learned openly? Are there internal conflicts, leadership issues, or toxic behaviors that are not addressed? Are you handling debriefs after each audit or are you just having an annual performance review? Etc.

• What are the career perspectives, both within internal audit but also in other functions? Do your auditors have a personal development plan? Does the CAE handle a regular career and development committee with HR? Are the compensation levels benchmarked to comparable industries and geographies? Is it understood that an auditor is primarily an employee or an executive of the firm and should not be treated as the “exclusive property” of internal audit? As a CAE, do you have the mindset whereby you accept “losing” a talent to another function in the firm because you believe in a greater good, and you see internal audit as “the place to be” for a few years of those who will tomorrow lead the company?

• Do you attract talents from other functions in the firm? If not, why do you have an attractiveness problem: look at the five points below! And think about how you “market” the audit function internally (for example, town halls, annual “IA days”, etc. what is your communication and image?

Then, do you have a clear remediation plan (issues, timeline, KPIs, etc.) for each point above? And then do you have a toolbox of emergency measures to take when an auditor indicates that he or she will leave? Does this include retention bonuses: if a resignation costs you 100kUSD to 300kUSD (read above), putting some money on the table might be a wise move. Sure, you do not want to be played or blackmailed, but a bit of pragmatism does not hurt, or does it?

If not managed, turnover drains your team. It should be a core attention point of a responsible CAE

PS: A big thank you to Herve Jouffe. His post on LinkedIn inspired me to write this post

#talent #internalauditing #HR