TURNOVER is costly – just how costly? Research shows the cost of replacing a professional or managerial employee runs 1.5 to 3.0 times the annual salary. It can cost up to five times based on the intellectual capital – what a key person knows – when he or she walks out the door.
For example, to replace a $70,000 sales person with a large customer base can cost you $250,000. A $150,000 technical manager can ultimately cost $450,000 to replace. That’s no small pocket change. Therefore, in any business situation—growth, downturn, merger, or even stability—it makes business sense to retain your top talent.
Four Steps to Turn Around Employee Turnover
- Calculate the True Costs
This includes the direct administration cost of recruitment (ads, background checks, assessments, paperwork plus the manager’s and HR’s time for interviewing, training, orientation) PLUS the indirect costs of performance differential (lost productivity, impact on customers, disruption to the team, lower morale and the lost ‘institutional wisdom’).
- Study the Demographics
Lowering turnover requires probing into the details. For example:
- Who is leaving (high performers or low performers, older versus younger people, recent hires or people with long tenure)?
- What job categories or departments are experiencing the most turnover (production, systems analysts, sales, nursing staff)?
- When are they leaving (after two weeks, six months, five years, or ten years)?
- Where are they going (your competitor, another industry, back to school, out of town?)
- Focus Your Attention
Not all turnover is equal. Simply looking at a turnover rate of 17% per annum does not tell the complete story. The loss of a top engineer with ten years of experience, strong customer contacts, and good relationships with suppliers is obviously more troubling than losing a filing clerk you hired a month ago. The cost of turnover is highest for jobs that have strategic, bottom line impact.
- Identify the Real Causes
Start by identifying why people are staying and what you are doing that creates that desire to remain. Then find out what troubles people and would lessen their commitment to your organization.
Focus groups and employee surveys are effective ways to obtain real time employee feedback; to identify the ‘push’ and ‘pull’ drivers of employee engagement and to develop realistic solutions.
In one company, a detailed analysis revealed that 30% of its IT and 40% of its MBA new hires were leaving in less than 36 months. It then estimated both the direct and indirect costs for these segments. And it came out to a whopping $1.5 million dollars.
Focus groups were conducted with current and departed IT / MBA employees. Compensation and benefits were not the key turnover drivers, but rather, the day-to-day work was not challenging. These young ‘bucks’ were bored and fearful of losing their edge. In addition, supervisors lacked basic management skills and were unable to state clearly performance expectations or provide meaningful feedback. Only then could solutions be developed to deal with the real causes of employee dissatisfaction.
Smart Moves Tip:
Employee turnover is an extraordinarily complex issue. There is no one magic bullet. What I have consistently found is: That it’s NOT the money. When someone leaves for ‘better opportunities’, what has happened is that certain dissatisfactions – like the ones above – caused the person to put out feelers or to become curious about recruiter calls or to start surfing the job boards. Be proactive – here are ways to keep your star performers.