It might sound cold to say it, but employees are important assets to a company, and when an employee leaves, it results in significant costs to replace that person.
Ironically, the proliferation of modern technology has led to more businesses depending on the abilities of their employees. As technology becomes increasingly complex and powerful, the pace of business accelerates, and companies live and die by their capacity to regularly innovate.
Most companies realize their long-term viability rests with their people. However, too few businesses think seriously about how to boost worker retention.
A big reason company leaders don’t put enough thought into worker retention is because they don’t understand how to assess the impact of turnover. Fortunately, there are methods for associating dollar values with turnover, and ways for addressing employee retention issues.
Staff members are appreciating assets that are more and more valuable as time passes, which explains why their loss is so costly. Ranging from 1.5 to 2 times the departing worker’s yearly salary, turnover costs include recruiting, onboarding, training, lower productivity due to inexperience, lower morale as a result of high turnover, higher error rates and cultural effects.
Generally speaking, a company’s cost of worker turnover is equal to the amount of undesirable departures times the average cost of those departures. The amount of undesired departures is equal to the number of staff members at a company, times yearly turnover percentage.
Considering these costs, the overall cost of turnover can be calculated by this formula:
Annual Turnover Cost = (Hiring + Onboarding + Development + Unfilled time) x (Number of Employees + Annual Turnover Percentage)
For example, a 150-person company with 11 percent annual turnover, hiring costs of $25,000, turnover costs of $10,000, and lost productivity costs of $50,000 has an annual turnover cost of almost $1.6 million.
Addressing turnover costs
To start with, company leaders must recognize worker satisfaction is one issue that cannot be solved with money. Several scientific studies indicate that while under compensation can play a role in worker churn, overcompensation isn’t the most effective way to address turnover, as workers will leave an employer for less pay but a better work environment.
A better approach to mitigating turnover is to address psychological needs, specifically employees’ needs to grow, have a meaningful impact and feel appreciated.
Employees need real opportunities to advance or at least grow their skill sets. They also want to feel like the work they do matters; whether to their organization, to the outside world or both. Finally, workers need to feel like their employer acknowledges their importance both inside and outside the workplace, possibly through performance-based bonuses, schedule flexibility, investments in amenities and team bonding events.
At SSi People , we support all the employee retention programs of our clients and help them when they need to address staffing deficiencies. Please contact us today to find out more about how we can help your organization.