The True Cost of Employee Turnover and What to Do About It

Most organizations that calculate employee turnover costs do a good job of capturing the hard numbers. “Soft costs,” however, can be hidden until you investigate the impact on your organization.Estimates of turnover cost for one employee differ, depending on the job role, industry, and organization. We most often see them as a percentage of salary, and they range from about 20% for entry level workers to 400% for top executives.

The good news is that small investments in retention and better hiring can not only save money and improve business results but will enhance your company brand and your ability to recruit talented people.

Hard and Soft Costs

We separate turnover costs into two categories: hard costs and soft costs. Hard costs are those that we can easily quantify:

• Administrative cost
• Severance pay
• Recruiting costs: advertising, screening, and selection.
• Onboarding: pre-employment processing, orientation, training, administration.

Soft costs can be harder to estimate, but they are real and worth the effort to quantify them. We can give you some suggestions, but our list is not all-inclusive. Your firm may have costs that do not apply to other industry sectors, but this list will give you a starting point.

• Reduced productivity between the time the employee becomes disengaged to the time of separation.
• The adverse effect of on work teams of an employee not carrying a share of the load.
• Absenteeism.
• Impact on customer service.
• Impact on employer reputation. Disengaged employees about to leave may not act in the company’s best interest.
• Supervisor time spent on resolving performance issues.
• Lost expertise and skills
• Lost productivity and cost of developing a replacement.

If you do not have the analytics capability to measure these costs, you can work with line-of-business leaders to agree on a method of estimating them. You may find the data hidden in sales reports, customer surveys, and other productivity measures. What is important is that leaders and managers in your organization understand the true impact of turnover so they can commit to doing something about it.

Understanding Why

Analyzing costs is the starting point. Next on your agenda should be to learn why the turnover is occurring. It will require a hard, honest look into organizational culture and practices, and may require you to have uncomfortable conversations.

First, assess your culture. Do your company's purpose and strategy fit the culture? Is the culture employee-centric, and do managers develop and nurture their talent? Are practices consistent with company values?

Second, assess hiring practices. Examine the entire pipeline from the competency model to the hiring decision.

• Does the job description describe the position accurately?
• Are you reaching the right candidates?
• Do you present an engaging candidate experience?
• Does your recruiting process reflect your company culture?
• Are hiring managers well trained?
• Are you using your recruiting analytics to improve quality of hire?

Making better hiring decisions may require a change in the way people operate. For example, we now know that analytics and assessments, used correctly, help hiring managers make better decisions.^[1] Getting experienced managers to accept assessment tools can be a challenge. You will need to lead them gently to acceptance of assessment results.

Next, review your onboarding process. Do you nurture your candidate up to and including the first day of work and beyond? Do new employees feel valued from day one?

Finally, review how your managers nurture and develop talent. Do employees feel supported and valued? Do they believe that your organization has an interest in their personal and professional growth?

Into Action

Before you spring into action, create a cross-functional team to analyze and address the needs you have identified. Addressing issues in isolation will not gain the results you need. The problems you will solve are not HR problems or training issues or employee issues – they are business problems. The direct participation of the line-of-business leaders responsible for the results is necessary for the changes that will become a part of your culture.

References:

1. Greenfield, Rebecca. "Machines Are Better Than Humans at Hiring the Best Employees." Bloomberg.com. November 17, 2015. Accessed July 14, 2016.