What Is the Real Cost Of Employee Turnover The employee turnover rate and the retention of skilled employees is a major problem businesses face. "Conservative estimates put the cost of replacing a lost employee at 25 percent of the annual compensation amount. For the typical full time employee who earns $38, 481 and receives $50, 025 in total compensation, the total cost of turnover would amount to $12, 506 per employee." This being the case employee turnover is a major cost and can significantly influence the bottom line so it should be avoided if possible. (Bliss) "Employee turnover is a critical cost driver for American business. The cost of recruiting and filling vacancies, lost productivity from vacant jobs, and the costs of training new employees increase operating costs, reduce output, and cut into profits." (Orville 5-7) Estimates of the costs of employee turnover vary widely and depend on whether all cost elements are recognized. The three primary elements of turnover cost include: o Staffing - sometimes called cost-per-hire include the costs of exit interviews, recruiting, job applications, screening applicants, relocation expenses and signing bonuses.
o Vacancy - While a position is vacant, the productivity of the former employee is lost and the productivity of the overall organization is reduced, as remaining workers have to cope with being short-handed. o Training - No new employee starts work at 100 percent efficiency. The replacement employee's time, other employee's time and valuable resources must be expended to train each new employee and to facilitate the transitions. So how do employers retain employees? Many employers try gimmicks, games, and prizes.
F. Leigh Branham, author of Keeping the People Who Keep You in Business offers the following advice for retaining employees: o Don't always hire the best, but hire the "best fit." o Have the insight to realize that no matter what the job not just anyone can do it well. o Focus on matching the person's strengths to the right challenge and the right role, not on improving weaknesses to the point that every employee is well rounded. o Build a culture of trust by giving people free reign to achieve outcomes in their own way, instead of insisting that they do things the way you would do them. o Manage different people differently.
Know that not all people have the same motivations. o See yourself as serving your people, and not the other way around. o Be tolerant of diversity, but intolerant of nonperformance. o Surround yourself with the most talented and don't feel threatened.
o Care about your people and take a personal interest in what is going on in their lives. o Let your people move on to a growth assignment outside the team instead of blocking the move. o Give feedback, praise, and recognition on the spot. o Know when to confront nonperformance and either redesign the job so that it fits the individual, reassign the person to a better fitting job, or terminate when necessary.
The bottom line is the way you treat employees has tremendous impact. "True solutions require management attitudes and behaviors towards the employees to change." Some of the factors that influence an employee to leave are the lack of challenging and stimulating work, fair pay, the tools and resources needed to do their jobs, recognition for work well done and involvement in the decisions that impact their day to day lives at work. "However, not every employee who leaves your company is dissatisfied. Some will retire, relocate, quit because of family circumstances, change professions, or even start a business of their own." (McNally 16 - 19), (Branham 30 - 75) Is all employee turnover bad? No, in fact research has demonstrated that some turnover is healthy, indeed essential to the organizational well-being. It provides a way out for poor performers and creates vacancies for new and possibly outstanding employees. Turnover is also a means for improving the match between employees and their jobs and organizations.
Without turnover, many workers would be stuck in jobs for which they are ill suited and companies would be saddled with employees who aren't positioned to contribute maximally. Turnover also creates opportunities for advancement. "Companies in no-growth situations need turnover to open slots for high-performers who are ready to advance." (Javitch) Perhaps the most positive effect of turnover concerns the nature of human capital itself. Turnover allows companies to re-tool and replenish their workforces, and to prevent stagnation.
New ideas, new capabilities, new experience from the outside are generally required if an organization hopes to remain competitive. In closing I will say, you need to look at all the factors before forming an opinion of what the cost of employee turnover is in each situation. If the employee would be better off in another company or if your company would be better, off without the employee you are facing a positive situation and the financial impact may be a small sacrifice. However, if the employee is a true asset to your company it may be worth your time to try to sway him or her to rethink their decision to leave. The true cost of employee turnover can only be determined by weighing all the facts and looking at how it impacts your organization. You need to look at all the factors, monetary as well as organizationally to determine if the outcome was negative or positive.
Works Cited Bliss, William. "Cost of Employee Turnover." The Adivsor. 11 Nov 2004 web Leigh. Keeping the People Who Keep You in Business.
: Amacom Books. Javitch, David. 'How Much Turnover is OK? .' 01 2003. Entrepreneur. com.
Entrepreneur. com. 01 Dec. 2004. McNally, Steven. 'Turn Away Turnover.' Security Services.
September 2004: 16 - 19. Orville, Wilbur. "Calculating the Cost of Work/Life Turnover." Workforce March 1997: 5-7 Unknown. 'Employee Turnover - A Critical Human Resource Benchmark.' hr Benchmarks December 2002: 20 - 23.