Employer discussing roles of employees with a manager
Posted on by Marcia Zidle

Is Employee Turnover Costing You? You Bet It Is!

Turnover is costly – just how costly? Research studies have shown that the cost of replacing a professional or managerial employee runs 1.5 to 3.0 times his or her annual salary. And it can cost up to five times annual salary if you are looking at the intellectual capital – what a key person knows – when he or she walks out the door.

For example, to replace a $50,000 top notch sales person with a large customer base can cost you $171,500. And a $150,000 technical manager can ultimately cost $380,000 to replace. That’s no small pocket change. Here are 4 steps to retain your best people.

1. Calculate the True Costs
This includes the direct administration cost of recruitment (ads, background checks, assessments, paperwork plus the manager’s and HR’s time for interviewing, training, orientation) PLUS the indirect costs of performance differential (lost productivity, impact on customers, disruption to the team, lower morale and the lost ‘institutional wisdom’)..

2. Study the Demographics
Understanding and conquering turnover requires probing into the details. For example:

  • Who is leaving (high performers or low performers, older versus younger people, recent hires or people with long tenure)?
  • What job categories or departments are experiencing the most turnover (production staff, systems analysts, salespeople, nursing staff)?
  • When are they leaving (after two weeks, six months, five years, or ten years)?
  • Where are they going (your competitor, another industry, back to school, out of town?)

3. Target Strategic Positions and People
Not all turnover is equal. Simply looking at an annual turnover rate of 17% doesn’t tell the complete story. The loss of a top engineer with ten years of experience, strong customer contacts, and good relationships with suppliers is obviously more troubling than losing a filing clerk you hired a month ago

4. Identify the Real Causes
First, you need to understand the current state of mind of your workforce. Start by identifying why people are staying and what you are doing that creates that desire to remain. Then find out what troubles people and would lessen their commitment to your organization. Focus groups and employee surveys are effective ways to obtain real time employee feedback; to identify the ‘push’ and ‘pull’ drivers of employee satisfaction; and to develop realistic solutions.

Then, examine the data for the key reasons people stay and leave. Do further research on selected individuals or employee segments. The person who left because their spouse got a fantastic job in a different city may not be worth further exploration. But the outstanding performer who left for ‘better opportunities’ or ‘personal reasons’ may be worth a follow-up call, even a year or so after.

How It Works:
In one company, a detailed analysis revealed that 30% of its IT and 40% of its MBA new hires were leaving in less than 36 months. It then estimated both the direct and indirect costs for these segments. And it came out to a whopping $1.5 million dollars.

Focus groups were conducted with current and departed IT / MBA employees. Compensation and benefits were not the key turnover drivers, but rather, the day-to-day work was not challenging. These young ‘bucks’ were bored and fearful of losing their edge. In addition, supervisors lacked basic management skills and were unable to state clearly performance expectations or provide meaningful feedback. Only then could solutions be developed to deal with the real causes of the turnover.

Management Success Tip:

Employee retention is an extraordinarily complex issue. There is no one magic bullet. What I have consistently found is: That it’s NOT the money. When someone leaves for ‘better opportunities’, what has happened is that certain dissatisfactions – like the ones above – caused the person to put out feelers, or to become curious about recruiter calls, or to start surfing the job boards.

Do you want to develop your Management Smarts?