Many businesses are noticing that as hiring picks up, long-term employees who’ve stayed loyal during the downturn are starting to look at alternative positions. John Allen, President of G&A Partners, shares his insights on preventing workforce turnover. Read on for the full article and visit the Houston Business Journal to share your commentary.
Remember the story of Frankenstein, the quiet, unassuming monster who lived just outside a small village? No one was aware of the potential danger Frankenstein presented until he got too close to the villagers. Workforce turnover is a bit like Frankenstein. As employers, it’s relatively easy to ignore the emminent risk until a valued employee turns in his resignation and we come face-to-face with the ghastly beast.
Losing one employee may seem harmless enough. Do we really need to light our torches and grab our pitchforks? Certainly, we can avoid the hysterics, but employers shouldn’t be complacent. As hiring picks up, longterm employees who’ve stayed loyal during the downturn may be enticed to make a move. And when faced with the expense of turnover, it can be truly frightening.
Experts estimate that turnover costs companies anywhere from one half to five times an employee’s annual wages depending on his positon within the company. If that sounds like monstrous exaggeration, just consider the efforts required to replace just one employee. Let’s call him Frank. Frank was a regional sales manager.
When Frank decides to make a move, there are some obvious and some not-so-obvious costs. There are administrative costs associated with halting his payroll and benefits. (If the company were to initiate Frank’s termination, administrative costs could be even greater because Frank may be eligible for severance, COBRA and unemployment benefits. As a result, the company would see an increase in their unemployment insurance premiums.) There are also costs associated with lost productivity while Frank’s position is empty, but scarier still is the cost of lost knowledge, relationships, and potential sales that walked out the door with Frank.
There are still more costs associated with replacing Frank. Recruiting an experienced sales person can be pricey. Perhaps a professional recruiter will be required. Ka-ching! Does the company conduct drug screens and back ground checks for the final few applicants? Is there a signing bonus for Frank’s replacement? What does it cost to add the new guy to the payroll and initiate his benefits? Let’s not forget to calculate for the cost of a new cell phone, new computer equipment, and maybe even a new company car. Finally, there is the cost to train the new guy. That includes formal training courses as well as time spent by managers and coworkers to provide informal training. And all the while, productivity in the sales department is at a fraction of what it had been when Frank was at his desk.
If you still don’t think turnover is a monster, do the math. Let’s assume the average salary of employees at a midsize company of 500 is $60,000 per year. With the cost of turnover at 150 percent, it would cost the company $90,000 for every employee that leaves. Now assume this company has a fairly standard turnover rate of 10 percent. When you multiply $90,000 by the 50 employees the company loses each year, turnover costs the company $4.5 million annually!
So how can employers tame the turnover beast? According to Harvard University, the surest way to avoid turnover is to hire smart. A recent study conducted by Harvard found that 80 percent of employee turnover could be attributed to mistakes made during the hiring process. A carefully conducted interview process with thorough aptitude assessments can help.
Another sure way to keep people in their jobs is to keep them satisfied with their jobs. Create a company culture that engages employees and recognizes their efforts in meaningful ways. Offer competitive pay. Provide opportunities for professional growth and development. Reward achievement with possibilities for advancement.
Of course, employers can never completely tame turnover. It is inevitable, so find the beauty within the beast. Turnover offers opportunities for others to step up within an organization and demonstrate their potential. It also opens the door for new blood and new ideas to enter the company. And in the end, peace returns to the village.