The Cost of Staff Retention and Replacement
Did you ever spend much time thinking about – and ideally understanding – the idea that people join companies when starting a new job, but in the end leave their managers? While this isn’t always the case, several studies have found that the most common issue in management is that around 70% of employees are disengaged at work, which basically means that they are not working as hard as they could be. A critical factor to a worker’s engagement is the relationship between a manager and employees. Bad boss = poor performance for the whole team.
If you consider the costs associated with that, wow, it’s huge!
The cost of disengaged employees
Gallup Research shows that in the American workforce (when are they going to have these studies for the NZ context – ya feelin’ us?), the U.S. is losing out on $450 billion dollars due to the high number of disengaged employees and their lost productivity. These are incredible numbers and the challenge for most managers is:
to do what is needed to keep vast numbers of individuals interested in their work,
feeling good about their organization and
working as productively as they can.
In simple terms – managers are struggling to get their teams to GAS (give a shxt), feel good and work smarter (not always harder).
As a leader, the single biggest decision in your job will be to decide who the managers in your organization are. So take time and make sure it is someone who also GAS, can motivate, engage and build relationships employee to ensure their productivity levels are high.
The cost of replacing an employee
We know what the impact is of a disengaged employee but what about the ones that don’t stick aroun? Even if the ones leaving are already disengaged, and ideally make way for an engaged employee, there is still a substantial cost to replacing them.
According to Bill Bliss from Ere (link to article) it will cost at least 150% of a person’s base salary to replace them. We realize that this is a lot, but if you break it down, things can add up pretty quickly. A Turnover Cost Projection Model was created and it indicates four main cost groupings:
Cost due to a person leaving, e.g. lost productivity, time spent on exit interviews, training that was provided to her/him and the knowledge, skills and contacts of him/her, that might even be vital to the organization. It can make up 85% of the overall cost.
Hiring cost, such as advertisement, HR related costs, interview times and so on. This can make up 15% of the overall cost, which can rise up to 38% if a hiring agency is involved.
Training cost, once you hired a new employee, they need to be oriented, go trough an induction process and receive specific job training. It is highly unlikely that someone can do their new job in full capacity and productivity on their first day, thus about 13% of the overall cost should be calculated for this part.
Lost productivity cost, relating to the previous cost group, it will take time until a new employee achieves full productivity. Using a rule of thumb, a productivity level of 25% is to be expected in the first month, increasing by 25% each month until full productivity is achieved three months after starting the new job. This last category is making up 32% of the position’s base salary.
We all know ya don’t want staff that have been there since the dawn of time, it is good to have some level of turnover. However, we seriously recommend spending some time thinking about how you can engage your awesome staff, the ones that really do care, and how to get the others to dial up their GAS. Its worth it – when you consider these significant costs, it will pay for itself in no time!