Stability Index

What a stability index is

The stability index (معدل الاستقرار) is the share of current employees whose length of service has reached a time threshold the organisation announces, or passed it, out of all current employees on the measurement date. Its denominator is everyone at work today, not everyone who was at work at the start of the period, and its numerator is those among them who have reached the announced threshold or gone beyond it. It answers a simple question: of the people employed now, how many have taken root? The wording of this indicator differs among references, and the definition used here measures it over the current employees on the measurement date.

The time threshold is the first decision in the indicator. One year gives one figure and two years give another. For that reason the figure is never written without its threshold. The correct form is “stability index at 12 months”, never “the stability index” on its own.

How the figure changes when the threshold changes

Take a hypothetical organisation with 100 employees on the measurement date, spread by length of service as follows: 38 have served less than 12 months, 17 between 12 and 24 months, and 45 have served 24 months or more.

With a threshold of 12 months, those who have reached it number 17 + 45 = 62, so the index is 62%. With a threshold of 24 months, those who have reached it number 45, so the index is 45%. The organisation is the same and the employees are the same, yet the figure moved by 17 points through the threshold alone.

The threshold is chosen by asking about the work, not about the arithmetic: after how long does a new employee become settled enough? The guide here is time to productivity, the period between an employee starting work and reaching the usual performance of the role. Suppose a role needs nine months before its holder reaches usual performance. With a threshold of 12 months, an employee counts as settled only after three months beyond that point. With a threshold of six months, an employee counts as settled before reaching usual performance.

How the stability index differs from retention and average tenure

A workforce can be measured in several ways, and each measure asks its own question. Retention rate asks how many of a known group remain on the starting date. Average tenure asks how long the period is when the periods of all employees are added together and divided by their number. The stability index asks how many of those present today have reached the threshold.

Imagine the same organisation began the year with 90 employees, of whom 28 left and 62 remained, while 38 joined, bringing the total to 100. Retention is 62 ÷ 90 = 68.9%. Stability at 12 months is 62 ÷ 100 = 62%, because each person present at the start of the year has reached, by the measurement date, the announced threshold of 12 months. Average tenure, if we assume the averages of the three bands are 0.5, 1.5 and 6 years, is (38 × 0.5 + 17 × 1.5 + 45 × 6) ÷ 100, which is about 3.1 years. These are three figures from one reality, and none of them contradicts another.

The difference between the average and the index shows in this example. An average of 3.1 years suggests a settled workforce, while the index at 12 months shows that 38% of employees have served less than a year.

Why the stability index falls with growth and rises when recent joiners leave

The stability index does not count those who left. It counts only those who remain. It moves with growth and with the departure of recent joiners, and its movement under either of them does not by itself show whether employees are content or discontented.

Take growth first. If the organisation hired 50 more employees and nobody left, the denominator would become 150 while the numerator stayed at 62. The index would fall to 41.3%, a drop of 20.7 points, without anyone leaving their job. Average tenure suffers the same effect. The figure that describes the speed of growth is the employee growth rate, which in this assumption is 50% (50 ÷ 100).

Now take the departure of recent joiners. If 20 of the 38 hired during the year left, the employees present would be 80 and the index would be 62 ÷ 80 = 77.5%. The index rose by 15.5 points, and all that happened is that twenty people left the organisation after a few months. A higher index does not in itself mean people are content. It can arise because those who had not yet taken root went away and so dropped out of the denominator.

For that reason the figure is examined together with the number of joiners and leavers in the same period, never alone, and the reason for leaving is asked about before an increase is explained.

How the stability index is calculated step by step

The calculation needs the measurement date, the date each current employee joined, and the announced time threshold. The length of service of each employee is counted from the joining date to the measurement date. Those whose length of service has reached the threshold are counted, and the count is divided by all employees on that date.

Before this, the rules for special cases are written down. Is an employee on long leave counted? How is the service of people who worked for the organisation before and came back on a new contract counted? They are the boomerang employees, and the question is whether their service runs from the date of return or from the first joining. Are contractors included? The answer is a decision in the definition that the organisation writes. What follows from length of service in terms of rules and entitlements is a separate matter outside this indicator.

How to separate the effect of growth from the effect of departures

Suppose a department has 50 employees, of whom 35 have reached the threshold, which is 70%. In the next quarter the department hired 10 new employees and nobody left, so the headcount became 60 and the index 35 ÷ 60 = 58.3%. It fell by 11.7 points because of expansion alone.

In the quarter after that, 3 of those who had reached the threshold left and nobody was hired, so the numerator became 32 and the denominator 57, and the index is 56.1%. It fell by only 2.2 points. In this example the departures cost the department 3 people who had taken root, yet they lowered the figure by less than the hiring of ten newcomers did. The index alone therefore does not show where the damage lies. It is examined beside the number of leavers who had reached the threshold, because the departure of these people is what shows the loss of those who had taken root.

How often the stability index is measured

We suggest measuring it every quarter with the threshold held constant, and presenting it beside the number of joiners and leavers and the headcount at the start and end of the quarter. Monthly measurement is swayed by short waves of hiring, and an annual measurement alone is slow to reveal what is happening in a particular department. Past reports are kept together with their time thresholds so that the calculation can be repeated if the threshold changes.

How the stability index is examined by segment

The overall figure hides differences between departments. Suppose the earlier organisation has three departments: sales with 30 employees, of whom 12 have reached the threshold; finance with 20, of whom 17 have; and operations with 50, of whom 33 have. Their indexes are 40%, 85% and 66%. The total who reached the threshold is 12 + 17 + 33 = 62 out of 100, so the overall figure is 62%. It does not reveal that sales stands at 40%.

Segments whose holders are hard to replace deserve closer attention. This is the subject of workforce segmentation: dividing the workforce into segments, each managed by a different policy according to its impact and how hard it is to replace its people. In our judgement, the stability of a critical role weighs more than the stability of seasonal work, even when the two figures are equal.

What an organisation does with a low result

It does not begin with a conclusion. It begins by examining the composition of the figure: did it fall because the organisation is growing, or because people who had taken root are leaving? It then looks at the figure by department, by direct manager and by role, since the fall may be concentrated in one place.

Next it considers why those who had reached the threshold left during the period, and what those who have not yet reached it say about what keeps them. If growth turns out to be the cause, the figure is sound and the need is to settle the new employees in. If those who had taken root are leaving, the problem lies in the work itself.

What moves the stability index

If the aim is to raise stability, the effort falls on those who have not yet reached the threshold, not on everyone. The reasons people leave in the first months are learned from the exit interview, and those still in their first year are asked what keeps them in a stay interview. The plan that gathers these efforts is the retention strategy. Its aim is selective retention of people who are hard to replace, which is a different goal from a high figure at any price.

How the stability index is misunderstood

One misuse is to publish the figure without its threshold, so that nobody knows whether it stands at one year or two. Another is to compare two organisations of different ages. An organisation eight months old cannot have any employee pass a one year threshold, so its index is zero by virtue of its age.

A serious error is to make the figure a target for managers. If a manager is held to account for raising it, the manager may avoid new hiring because hiring lowers it, and the index rises while the work stalls.

In a small department, the departure of one employee out of five changes the figure sharply, so small departments are merged or their headcounts are shown beside their percentages. Another error is to interpret the figure without adjusting for growth, which leads people to think that a fall caused by expansion is a problem in the work environment. A further error is to mix temporary contractors with permanent employees, because their lengths of service depend on the type of contract and not on the employee’s wishes.

What counts as a good stability index

In the references we consulted, we found no established percentage that could serve as a benchmark for a given organisation, and we do not propose a figure of our own. This follows from the nature of the indicator: each user chooses the time threshold, and the age of the organisation, the speed of its growth and the seasonal character of its work change the figure regardless of the quality of the work environment. A figure of 62% may mean one thing in an expanding organisation and another in one whose headcount is stable. The time threshold and the measurement date are therefore written beside the figure.

This is an explanation of the concept, not legal advice.