Turnover: What it costs, why it exists, and what you can do about it
Turnover rates in Canada average 7% with some industries running as high as 20%. In the United States these numbers are reaching as high as 40%. These turnover rates come at a cost of roughly 11 billion dollars per year in the USA alone.
SHRM found that it costs between 6–9 months of an employee’s salary, for example, the loss of an employee with a $60,000 salary will cost between $30,000 and $45,000. When we think of expenses associated with the loss of an employee, we usually think of the costs of recruiting and training a new hire to replace them.
But this figure of 6–9 months of an employee’s salary can run much higher when other, less tangible costs are taken into consideration.
Studies have shown that positions that pay more and senior positions in particular, result in much higher turnover costs, to the tune of over double their salary. For a firms that pay in the six-figure range, turnover costs have been shown to reach as high as 1.5 to 2 times an employees salary. Facebook is working to relocate their employees close to their offices, and offers a $16,000 relocation benefit. With programs and incentives like these, Facebook makes a substantial investment in their employees right from the get-go, so their turnover costs are much higher than average.
Having said this, you don’t have to be a Fortune 500 paying six-figure salaries and lavish benefit packages to experience high turnover costs. There are a number of less tangible costs like lost knowledge and lower productivity that impact an organizations overall performance when an employee leaves. For example, when an employee leaves an organization, it takes on average 42 days to fill the position and replace them. When they leave, their workload still remains, and if it isn’t transferred to someone else, it won’t be completed and overall performance will decrease. Unfortunately, in many cases the employee or employees that are tasked with this workload will become overworked, less productive, and most likely disgruntled.
Why People Leave
People leave because they don’t feel their inputs are generating high enough correlated outputs. These outputs can be external or internal. As humans, we are constantly evaluating and weighing options. We want to determine whether or not we are getting high enough returns on our time and money invested. In the workplace, we weigh the time invested against the knowledge we acquire, the good we create in the world, the money we earn, and the seniority of our position.
How To Keep Your People
Purpose: Are you encouraging your people to create value in the world? Do they use their skills and possibly your companies products or services to make the world a better place? Companies that have taken the 1% pledge have done an excellent job of this.
Recognition: Create a culture of recognition. Everyone wants their work to be recognized. They might not want it to be announced across the entire organization, but it can go a long way to send them an encouraging or congratulatory note. Create a culture that fosters recognition from management as well as between coworkers.
Opportunities: Provide growth and advancement opportunities. Compensation plans and advancement opportunities are one of your greatest tools to motivate and recognize your employees.
Goals: Set company-wide goals, and encourage your employees to set personal goals. Allow them to determine what outputs they want to receive, then work with them to determine what inputs need to be made to achieve them. People are much more likely to grow professionally and personally when they have a tangible set of goals to monitor their progression.
Taking the time to thoughtfully improve the culture within your organization is more valuable than people might think. People are no longer working for a pension, they work for purpose. Investing in your workforce and instilling a culture of giving and gratitude will create an environment that attracts and retains good people.