Retain your good employees
The right people in the right places
Studies show that the average cost to replace a worker in the US is $17,000.00 (AVERAGE!!). Some HR managers use the rule of thumb that whatever a person’s annual salary is, it will cost a lot to replace them. A study evaluating the effects of the US Family Medical Leave Act found that “turnover costs for a manager average 150% of salary, including actual hiring costs…and intangible costs, such as the inefficiency of the new worker and the loss of productivity while the job is vacant.”
The costs of lost productivity are just as important as direct costs, such as advertising or temporary staff. Total costs easily reach 150% of annual compensation. The cost will be significantly higher (200% to 250%) for management and sales positions.
Bliss & Associates Inc., a Wayne, NJ consulting firm
Oh, and if you think you can hire temporary workers and avoid all those costs, think again. The cost of hiring and obtaining production from a temporary worker is almost 40% of the temporary worker’s salary, and temporary workers tend to have higher hourly rates than permanent workers, as well as higher turnover rates.
Let’s put it in real terms. The lowest number I have seen anywhere says that it will cost you at least 30% of an employee’s total annual compensation to replace him. Suppose you have 100 employees and your average wage is $10.00 per hour. At $10.00 per hour + benefits (at 20% of wages), your employees receive ~$12.00 per hour in wages and benefits. Let’s say you have to replace 15% of your employees each year. Taking the most conservative estimate of employee turnover costs that I could find (30% of their annual wages and benefits); each employee you have to replace costs you $7,488.00.
100 employees X 15% X $7,488 (including benefits) = $112,320 per year.
And that’s using the most conservative cost percentage I can find. If we decide to use the national average ($17,000 / employee replaced) the cost becomes $255,000.00. Using the ‘rule of thumb’ (100% of your annual salary – $20,800.00/ employee replaced), the cost will go to $312,000.00…Amazing!
Why are the costs so high?
Why does it cost so much to replace an employee who leaves? Some costs, like paying for increased vacation time or the cost of a help-seeking ad, are obvious.
Other costs include:
- Rising Unemployment Insurance Costs
- Loss of productivity while there is a vacancy
- Separation Interview (Exit) Time Costs (if your good employees are leaving, you NEED to know why)
- Separation agreement costs (legal, financial, medical, cash withdrawal, etc.)
- Overtime from other employees to fill the vacancy (which can lead to burnout or absenteeism)
- Costs of time to review summaries
- Time costs to interview candidates
- Candidate interview fees
- Possible travel expenses
- Possible relocation expenses
- Bonus signing or headhunting fees
- Additional accounting; payroll, 401k, etc
- Additional Record Keeping for Government Agencies
- Reduced productivity while the new worker catches up
- training programs
- lost corporate history
- Morale can be affected
- lost intellectual property
There are also risks associated with losing an employee.
- lawsuit threat
- Bad public relations from a disgruntled employee
- Threatening that the employee will take customers to a new company.
What can you do about it?
Job Descriptions:
Put together a complete job description with tasks and duties outlined clearly and concisely so that when someone responds to your wanted ad, they know what you’re applying for. Minimize that general phrase “Other assigned tasks.” In this way, the employee knows what is expected of the position and the manager knows what to assess for performance reviews.
Pre and Post Employment Testing:
Job match/satisfaction can be measured by using the test and evaluation systems that are available through RP2-Consulting. The cost of these evaluation and testing programs is significantly less than the cost of churn in the first example above. We can assess a candidate before they even show up for an interview and tell you if they have the right attitude, will show up to work when expected, and if they won’t take everything in the supply cabinet home. We can match new candidates to a given position. We have all heard of the ‘Peter Principle’ (an individual rises to his level of incompetence). We can look at your existing employees and match their skills and personalities to open positions in the organization. We can also help you identify the right people to team up with. When teams are balanced (one person’s strengths cover another’s weaknesses), results improve significantly. Finally, managers (and CEOs) need to know their strengths and weaknesses, as perceived by those who work with them. Testing can show you what your true strengths and weaknesses are so you can focus on improving those things that need improvement.
Training:
Expecting someone to produce when they don’t know how to produce or what results are needed is absurd. Yet every day people are hired to do jobs for which they have little or no formal training. Make sure your employees receive the training and guidance they need to meet your expectations. This will lead to better employee job satisfaction and reduce management stress. As a significant secondary benefit, well-trained employees are more likely to gain recognition for a job well done; and appreciation and recognition among peers is a great motivator. We can help you design your training programs to meet your individual needs.
Leadership:
The best plans and initiatives are in vain if your leadership doesn’t focus on what’s working and where you want to go. Have you ever been backing out of your driveway focused on the trash can you had to avoid hitting at all costs? It’s right on the mirror, right behind the vehicle, if you hit it your whole morning will be ruined. laser, you run into him…
We go where we focus. A key to your success is to focus on retaining your employees. Working to make them successful is much less expensive than replacing them. Treat them with respect and honor while making them feel like they have a stake in the company and that their success will lead to your success. Focus on where you want to go, not where you don’t want to go. To look at mistakes and find fault is to focus on the past and the mistakes made there. Learn from mistakes and move on. Plan the future your organization wants. Focus on applauding success, both individually and for the team/company.