Keeping The Best
Fund Employee Retention Not Replacement
What positive, conscious, vigorous steps is your organization taking to retain its personnel? If you cannot relate policies, procedures, goals, objectives and plans specifically designed to address employee retention, then you need to start now.
The best place to find an ideal workforce for your organization is right in the corridors, offices, work stations and break rooms of your own company. It is far easier and more enlightened to keep a valuable employee than it is to find a new one. If you do not take care of your current workforce, you will find them looking for other opportunities. In an economy with low unemployment they will not have to go far.
HOMEWORK: This month?s column comes with a homework assignment. I am a college professor, after all, and it was only a matter of time. How much does it cost your organization when it loses a valuable employee? This month I will present a formula for calculating the cost of replacement. Use the formula or give it to someone in your organization who can employ it to discover the financial impact of turnover.
Armed with this information, you will be able to make a case for implementing the measures I will be outlining in next month?s column. Employee retention is not a cost-free endeavor, but as you will see, it can be very cost-effective.
SHORT CUT: According to the American Management Association, the minimum cost to replace employees is 30 percent of their annual salary including benefits. For those with high-demand skills, the cost can rise to 1.5 to 2 times their annual salary.
Costs of replacement can add up faster if there needs to be extensive recruiting, costly training, a home buy-out agreement, moving costs, or a long search process. List the people who have left your organization and work with their actual salaries and benefits or use your turnover rates and an average salary figure.
CUSTOM CALCULATION: Costs are not easy to capture since they come from many different departments and various budgets. Much of the expense relates to less tangible costs, such as the loss of known relationships, the gap in the historical perspective of the team that no amount of orientation can replace, the reduction of loyalty, lost personal relationships and possible frustration and frenzy.
Still, getting closer to actual figures will give your calculations more credibility. Attach figures to the following costs:
1. Cost of the person leaving the organization: The paperwork involved in separating someone from the organization varies with the company, but it is not a matter of someone just walking out the door. Include the opportunity cost of working on the termination process. What could they/should the human resources department be doing instead?
2. Recruitment and selection: The placement of ads, reviewing resumes, taking applications, conducting multiple interviews, etc.
3. Orientation and training: From classroom training to formal coaching, consider the cost of trainers, materials and time spent in these endeavors. If you also use coaches and mentors, calculate the cost of these higher- paid employees.
4. Loss of productivity during the candidate?s learning curve: Everyone learns at a different pace, but everyone needs to be instructed on procedures and processes unique to the organization. This takes time, and during that time, the employee will not be producing at full potential. The more complicated the tasks, the longer the learning curve. Output will be lower and efficiency will take time to recapture.
5. High-level time and attention during all the stages of this process: Human resource professionals, supervisors, team leaders, coaches, mentors, operations personnel and other organizational decision makers will be involved in the process of planning, recruiting, selecting, orienting and training. This includes the supervision of the entire procedure.
6. Loss of customers and organizational reputation due to longer lines, less service, and more time spent on business transactions.
7. The cost of a vacancy in a critical position: Worse than substandard service is no service at all.
8. The cost of temporary cross-training: Moving employees around and putting them into positions where they have minimal experience and hasty training will frustrate them and their customers.
9. The disenchantment of the employees left to deal with daily frustrations, unfamiliar work assignments, added work loads or all three.
The best place to find an ideal workforce for your organization is right in the corridors, offices, work stations and break rooms of your own company. It is far easier and more enlightened to keep a valuable employee than it is to find a new one. If you do not take care of your current workforce, you will find them looking for other opportunities. In an economy with low unemployment they will not have to go far.
HOMEWORK: This month?s column comes with a homework assignment. I am a college professor, after all, and it was only a matter of time. How much does it cost your organization when it loses a valuable employee? This month I will present a formula for calculating the cost of replacement. Use the formula or give it to someone in your organization who can employ it to discover the financial impact of turnover.
Armed with this information, you will be able to make a case for implementing the measures I will be outlining in next month?s column. Employee retention is not a cost-free endeavor, but as you will see, it can be very cost-effective.
SHORT CUT: According to the American Management Association, the minimum cost to replace employees is 30 percent of their annual salary including benefits. For those with high-demand skills, the cost can rise to 1.5 to 2 times their annual salary.
Costs of replacement can add up faster if there needs to be extensive recruiting, costly training, a home buy-out agreement, moving costs, or a long search process. List the people who have left your organization and work with their actual salaries and benefits or use your turnover rates and an average salary figure.
CUSTOM CALCULATION: Costs are not easy to capture since they come from many different departments and various budgets. Much of the expense relates to less tangible costs, such as the loss of known relationships, the gap in the historical perspective of the team that no amount of orientation can replace, the reduction of loyalty, lost personal relationships and possible frustration and frenzy.
Still, getting closer to actual figures will give your calculations more credibility. Attach figures to the following costs:
1. Cost of the person leaving the organization: The paperwork involved in separating someone from the organization varies with the company, but it is not a matter of someone just walking out the door. Include the opportunity cost of working on the termination process. What could they/should the human resources department be doing instead?
2. Recruitment and selection: The placement of ads, reviewing resumes, taking applications, conducting multiple interviews, etc.
3. Orientation and training: From classroom training to formal coaching, consider the cost of trainers, materials and time spent in these endeavors. If you also use coaches and mentors, calculate the cost of these higher- paid employees.
4. Loss of productivity during the candidate?s learning curve: Everyone learns at a different pace, but everyone needs to be instructed on procedures and processes unique to the organization. This takes time, and during that time, the employee will not be producing at full potential. The more complicated the tasks, the longer the learning curve. Output will be lower and efficiency will take time to recapture.
5. High-level time and attention during all the stages of this process: Human resource professionals, supervisors, team leaders, coaches, mentors, operations personnel and other organizational decision makers will be involved in the process of planning, recruiting, selecting, orienting and training. This includes the supervision of the entire procedure.
6. Loss of customers and organizational reputation due to longer lines, less service, and more time spent on business transactions.
7. The cost of a vacancy in a critical position: Worse than substandard service is no service at all.
8. The cost of temporary cross-training: Moving employees around and putting them into positions where they have minimal experience and hasty training will frustrate them and their customers.
9. The disenchantment of the employees left to deal with daily frustrations, unfamiliar work assignments, added work loads or all three.
Who wants to save a million dollars? If your organization has 1,000 employees at an average salary of $30,000 and you have a turnover rate of 10 percent, it costs $900,000 to replace them if they are relatively easy to replace and up to $3,000,000 if they are not.
Elaine Beaubien is professor of business at Edgewood College and CEO of Management Training Seminars ? www.elainetrain.com.Copyright 2001 by Madison Magazine. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
