The High Cost Of Turnover

Why holding on to your employees can improve your bottom line

Are you having a hard time keeping talented employees? Is your company or department becoming a revolving door? Experts say it’s your fault, and the cost of productivity loss, training and development, advertising, and recruitment can total millions of dollars. That figure is compounded by the cost of losing talented employees.

Shel Hart, vice president of emerging practices at Spherion, a professional recruiting group in Orlando, Florida, says, “Good supervision is a minimal requirement for employee retention. No matter how much you invest in great company attributes, a bad supervisor can override all those efforts and cause employees to leave.” In a Spherion survey of more than 20,000 employees, 35% said they’d leave within the first year if there were no provisions for mentorship. In that same group, 41% said they’d quit within 12 months because of inadequate training. Of those who would rate their manager’s overall performance as poor, 40% said they would leave in the first year.

What’s reasonable turnover for a department or company? And how do heavy rotations affect your bottom line?

“In quantifying financial loss, it really depends on the company and the type of expertise required,” says David Saxby, president of Measure-X, a company that provides services for increased business performance.

The American Management Association estimates the cost of replacing an employee at 30% of his or her salary. Thus, if a middle manager earning $90,000 a year with a small- to mid-size company quits his job after 18 months, the replacement cost would ring up at $27,000.

Dexter Bridgeman, CEO of Diversified Communications Group Inc., a diversity management consultant company in New York City, says that the cost of training and development for one employee is roughly equal to his or her yearly salary, more in some instances. According to WorkRelationships (www.workrelationships.com), the Del Mar, California-based company that specializes in improving work relationships through training, the national employee turnover rate is 15%. In fact, a certain amount of turnover is healthy, but every industry has a standard. “Your company should not exceed the industry standard,” cautions Saxby. He says that such reports are generally available through industry associations. But Saxby concedes that employers spend more time and money on recruitment and training, and not enough on identifying the right types of people to hire. “A recent study by Harvard University showed that nearly 80% of turnover is due to hiring mistakes,” Saxby explains. “Missing from hiring procedures is personality profiling to determine the right fit.”

Experts advise reversing the revolving door by doing the following:

  • Understand that there has been a paradigm shift. The workforce is becoming more emergent and less traditional, explains Hart. “The traditional worker is more patient and believes that tenure dictates growth in a company. The emergent worker is driven by opportunity.” Spherion studies show that 29% of the workforce is traditional and 22% is emergent. Because of downsizing and consolidating, 49% of employees are moving from traditional to emergent. “If you don’t become an emergent-minded company, you’re going to continue to lose workers.”
  • Recognize work
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