Cost of Employee Turnover vs Retention Proposition

Measuring the cost of employee turnover is a global phenomenon posing a recurring challenge to employers all over the world. From an economic aspect, employee turnover creates disruption in a company’s overall employee productivity. It’s hard to devise a standard employee retention policy that works well enough to retain the best talent. Nevertheless, the managers can work on reducing it to best employee retention practices.

Employee Turnover Means…

When an employee takes a voluntary resignation, gets fired or retires, the organization losses an asset. This accounts for a measurable cost of employee turnover, faced by any company, irrespective of its nature and size.

In industries like retail, hospitality, sales, and customer service, the tolerable turnover rates are as high as 30%-40%. In fact, these jobs are designed as such that the new recruit can adapt to the specified role quickly and smoothly.

Employee Turnover Statistics

According to Josh Bersin of Deloitte, the total cost of employee turnover can range from tens of thousands of dollars to 1.5-2X of their annual salary.Forbes stated that for entry-level employees, mid-level employees, and highly skilled-level employees, the associated cost comes to 30-50 percent, 150 percent, and 400 percent of their annual salary respectively. In US companies, employee turnover already costs $160 billion a year. Tragic statistics!

Employee Turnover

Source: Altman, J. “How Much Does Employee Turnover Really Cost?” Huffington Post. Jan 19, 2017

Causes & Consequences

In the real world, it is quite difficult to segregate between causes & consequences. The vicious circle makes the situation worse and complicated to resolve. In fact, the causes may not be the company, but the managers.

According to Harvard Business Review, 80 percent of employee turnover is poor recruitment decisions.

The Society for Human Resource Management reports that on average:

36% of new hires fail within the first 18 months.

40% of senior managers hired externally fail within 18 months of being hired.

It costs on average one-third of a new hire’s yearly salary to replace them.

Generally, the employee leaves because:

  • Stagnant Growth: No opportunities for professional escalation in terms of quality work or lack of training generates non-satisfaction.
  • Non-competitive Pay/ Benefit Packages: A Forbes report added that the employees who stay in companies longer than two years get paid 50% less.
  • Better Job with Higher Pay: Employer branding matters in this competitive world. Employees are attracted to work for the companies that provide excellent work environment or higher pay.

The quantitative numbers associated with loss of a human asset in an organization is the cost of sourcing, hiring, onboarding, training, ramp time to peak productivity, compensation pay and exit interview. The concurrent intangible fee is the loss of engagement from others due to high turnover, lesser productivity of new hires, and general culture impacts. This is a kind of investment loss for which nobody can account for!

  • Lower Morale and Engagement of Remaining Employees: Any company survives on a well-coordinated teamwork and a shared vision. Employees’ moral breaks down with high-turnover companies. When co-workers leave, remaining employees constantly have to cycle through the process of getting to know new employees.
  • Lesser Productivity of New Hires: Expecting a similar performance by new hires by comparing it to a high-performance ex-employee, is not a great practice. However, this decreases the organizational performance rate and increases customer service errors.
  • Disruption in Management: Constant change in employees makes it difficult to execute the plan as scheduled. Hiring new employees drain managers’ precious time and effort.

Employee Retention: What Can You Do

Bersin explained employee retention through his version of Maslow’s Hierarchy of Needs. Make people feel “financially safe”, followed by delegating meaningful work, applying their personal skills and interests, endow with public and personal recognition, and be proud of the company they work for.

Employee Turnover Retention

Source: Josh Bersin, “Employee Retention Now a Big Issue: Why the Tide has Turned”, LinkedIn Article, August 16, 2013

Anna Verasai
Anna Verasai
Anna Versai is a Staff Writer at The HR Digest; she covers topics related to Recruitment, Workplace Culture, Interview Tips, Employee Benefits, and HR Leadership. She also writes for Technowize, providing her views on the Upcoming Technology, Product Reviews, and the latest apps and softwares.

Similar Articles

Leave a Reply

Your email address will not be published. Required fields are marked *