May 2013
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Cost of High Turnover

The problem of employee turnover is a dilemma for any organization. One would think that during an era of high unemployment that turnover rates would be low, but the reality is far from that. We have all heard how costly high employee turnover is for companies. But are we talking hundreds, thousands, or millions of dollars? Exactly how much does it cost an employer to replace an employee? A review of 30 case studies between 1992 and 2007 found a remarkable commonality. For almost every type of position, from jobs paying $30,000 to jobs paying $75,000 and even for physicians and executives, the average cost of replacement is about one-fifth of the employee’s salary (Boushey and Glynn 2012). So, for an employee making $30,000 per year, their replacement cost is $6,000now hiring and for an employee making $75,000 per year, their replacement cost is $15,000!

These numbers may seem steep, but the costs accrue at every step of the process. A company encounters direct costs stemming from severance pay, overtime for other staff to cover an employee’s duties, replacement costs for advertising, interviewing, and testing, and training costs such as orientations and certifications. Companies also have to deal with the indirect costs of lost productivity and reduced morale.

So, is it really any wonder why there is such a strong link between companies with high turnover and low financial performance? The first step in addressing this issue is an understanding that it is vital to learn the importance of hiring well in order to be a successful company.

First, the company should nail down the numbers. Figure out exactly how much turnover is costing the organization. This is necessary to impress upon senior staff and company leaders the necessity of finding the right person for each job. They will be more open to finding solutions if the impact is tangible. Moreover, when reviewing the data look for patterns. If you can successfully predict turnover, then you have a better chance to prevent it.

Second, when recruiting, consider the attributes of your most successful employees. The most effective way to reduce turnover costs is to focus on finding an employee that fits within the culture of your organization and possesses the closest match for the skills necessary to perform the position instead of trying to simply hire people quickly. Figure out what makes current employees successful, and then search for those traits in the potential candidates.

Thirdly, develop a culture that promotes employee engagement from their first day on the job to their last. The best way to do this is to LISTEN to employees and encourage their input. You must trust your employees if you expect them to trust you. This can be accomplished by instituting regular employee surveys or an open door policy. Ask them to be honest about areas that need improvement.

Retention strategies and hiring well will drastically reduce the costs of turnover. Most importantly, however, a company with low turnover is more productive. Not only do the employees know and trust each other and their employer, but low turnover also makes it easier for the company to focus its time and energy on the business at hand rather than adjusting to new staff.

 

 

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