The Costs of Employee Turnover

turnoverYou have heard time and time again how much it costs to replace good employees. I would argue it costs more to replace bad employees that you shouldn’t have hired in the first place, but that’s a different post. The truth is that there is nothing more exciting that having all the right people on the bus sitting in the right seats, and conversely there is nothing more demoralizing than losing a member of a team and having to replace them. Not only do you lose momentum but you lose money too! It actually costs you money to replace employees.

Dr. Kim Ruyle, hosted a webcast on this subject for members of SHRM a national society of Human Resource professionals. In his presentation, he explained that while costs may vary in replacing an employee. To calculate the true costs, you must consider the following variables:

Costs to off-board current employee
+
Costs-per-hire for replacement
+
Transition costs, including opportunity costs, training, loss revenue until full performance is reached
+
Costs from long-term disruption of talent pipeline

To be less scientific about it, the estimate to replace an average employee is 6-9 months’ salary in recruiting and training alone. So picture this, you hire a manager at $50,000 per year, if you fail to engage, grow, and connect with that manager, it will cost you $37,500 to replace them plus the salary of the new hire and loss of income from the turnover.

Are you starting to see the tangible value of developing your culture and your personnel? This cost is exponentially higher when we are talking about losing key employee or position that require special skills. Paige Robinson, Founder and CEO of Will Reed Jobs says, “Replacing talent is expensive and extremely disruptive. Companies are faced with the costs of talent acquisition, as well as, the loss of momentum on key projects. There is rarely a good time for a company to lose key personnel.”

So what can you do to keep good employees? I think there are 3 fundamentals that cause employees to want to stay. These are assuming you have the basic standards met. Example: You have to be competitive in benefits. You cannot create a culture of loyalty and lasting relationships if your people are being under-provided for based on the market value of their skill or talent. Assuming that the compensation package you offer is in line with your employees’’ skills, there are other ways to make your employees want to “stay put”.

  1. Stop assuming they are going to leave you. I see this a lot, where an employer acts off what they assume to be true. “Well, these millennials change jobs almost every 18 months so I should not invest too heavily in them because then I’ll be training my competition.” Listen, I’m sorry you’ve been burned before. This mentality generally comes honest to a boss that invested heavily in someone that burned them, but this thought process is a self-fulfilling prophecy.   When you assume employees are going to leave you, then don’t invest in their long-term success, the employees feel that you aren’t investing in their future with your company, so they leave to find someone who will put faith in them. If you are start giving people the benefit of the doubt, you will for sure get burned, but you will also find and the cream of the crop this way.
  2. Set a path. It doesn’t matter how small or large your company is, employees need to be able to see where they can go. I know the corporate ladder analogy comes with a negative connotation but it has positives too. Employees, especially Millennials, are competitive with themselves and extremely goal-oriented. Show them from the beginning what growth within your company looks like. Show them that with hard work, experience, and time they can get from point A to B then to C, D, E, and F. They need to feel like they always have a chance to achieve something better. For goodness sakes please don’t say things like, “Well you gotta earn your keep before you can advance in this company!” No one is asking for a handout or to skip in line, the next generation employees just want to know if they perform that will you honor your word and allow them to climb the ladder? The great thing about this new generation is that they actually work harder longer if they have something to work toward.   Dangle the carrot.
  3. Show their vision and impact. I told a story of a deckhand that shoveled coal into the engine of steam boat at a leadership summit we held in Mobile, AL earlier this year. The jest of the story is that his job boring, hot and overall pretty terrible, but at the end of the trip the captain calls him up to the bridge and looking out at the dock said this, “Look what you’ve done. Because you were willing to shovel all that coal we made it here safely, and all these families have been reunited. All that cargo for all those businesses made it here and created even more jobs in the community. None of this would have been possible if you weren’t willing and able to shovel that coal.” How do you think that employee felt then? Energized? Appreciated? Loyal? You bet your BB  Q sandwich he did and the same is true for your company. Your employees that aren’t on the front line need to see the impact and the long-term vision they are sweating for. Show them what the company they work for stands for and promise them that if they stay they will be part of the change you are determined to make.

Some companies spend time and resources on planning to replace employees that leave. What if instead that time and budget was spent to create bonds with the current workforce so they don’t want to leave. Starting acting like employees will stay long-term and stop treating them like temporary desk occupants, give them a path to success and a picture of what their future can be, and show how the company vision makes an impact coupled with your sincere appreciation for their hard work. Not only will your company culture improve but these warm fuzzies will reduce your turnover and actually save you money.

calebCaleb Bagwell/Employee Education Specialist
John Maxwell Certified Leadership Coach
Grinkmeyer Leonard Financial
Toll-Free: 866.695.5162 / Office: 205.970.9088 
1950 Stonegate Drive / Suite 275 / Birmingham, AL 35242
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