Why High Turnover Isn’t Financially Feasible

While some employers may be reveling in the fact that there are so many talented and willing employees at their disposal, it’s still important to remember to keep your current employees satisfied to avoid high turnover rates. There very well may be an employee out there who is equally qualified and willing to work for less than your current employee, but there are so many hidden costs associated with training, that it will likely end up costing you more in the long run. It’s almost always less expensive to give a current employee an increase in salary, than to hire and train a new employee from scratch.

What is it that costs so much? David McGiverin,  Northwest Food Processors Association’s Sustainability and Productivity Manager, attempted to explain just that in his blog “The True Cost of Employee Turnover.” I’ve selected some of his points, and attempted to give them my own spin, to illustrate that no matter what the unemployment rate is, HR pros should always strive for high retention rates.

  • Training- Training is extremely costly because you have two employees on the clock, not working at full productivity. “A survey of 610 CEOs by Harvard Business School estimates that typical mid-level managers require 6.2 months to reach their break-even point” according to the Studer Group. So during that first 6 month period, you are paying an employee to not work at full capacity. This loss in productivy during the training period alone is enough to make many employers weary of letting a new employee go, to hire a new seemingly, less expensive candidate.
  • Hiring- The hiring and recruiting process itself can be a costly endeavor for a number of reasons. If you choose to use a third party recruiting company, the costs can be astronomical for both the employee and the employer, with rates commonly at 20-30 percent of the employees base salary. If you choose to do the hiring yourself, the advertising and labor costs are worth metnioning as well.
  • Morale and Productivity- Morale, employee engagement, and productivity all go hand in hand. Keep employees happy and engaged, and productivty will increase. Anybody who has tracked the ROI  on employee engagement programs can tell you that. If employees see their workplace as somewhere that doesn’t appreciate it’s workers, and is willing to let someone go so they can hire someone who is going to cost them less, their morale will be low, and their productivity will decline as well. Remaining employees not working at their full capacity is another costly effect of high turnover.
  • Weakened Public Image- No talented employee will work for a company with poor retention if they can help it. If your business has a reputation for not being able to keep employees for long, there’s no doubt that having this kind of image will not only keep potential employees away, but more conscientious customers and clients as well. It’s hard to undo this kind of negative PR, so it’s best to avoid these kinds rumors about your company as much as possible.
  • Possible Law-Suits- The more ex-employees a company has, the more liable they are, it’s as simple as that. No matter how ethical the terms of a termination or resignation were, there’s always the possibility that the ex-employee is disgruntled and has an axe to grind. If L and I gets involved, it’s going to get expensive, even if you win the case.
  • Processing- There are unavoidable processing costs associated with both hiring and exiting. These costs vary depending on the procedure, but inevitably there’s going to be, at the very least, some labor costs affiliated with paperwork. The less established employees leave, and new employees come in, the less processing has to be done.
So even though it may seem cost-effective to hire a new employee who will cost you less than your current one, often times that’s just not the case. A focus on retention and employee engagement, ends up improving productivity and the bottom-line. There’s simply too many costs associated with recruiting, getting a new hire up to speed, and having an employee leave, to have high turnover be a fiscally sound policy. If you are thinking of letting an employee leave due to salary issues, make sure to consider all of the costs before you say no to their raise.

 

 

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Aaron

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