THE COST OF TURNOVER
The high price of turnover is the third major reason that retention is so important. Employee turnover involves three types of costs, each of which negatively affects a company’s bottom line!
1. Opportunity costs : including customer satisfaction, the overall workload and the employees morale. Will other employees consider quitting if their co-workers are leaving the company? Will customers follow the employee who left?
2. Direct expenses: including the cost of recruiting, interviewing, hiring, and training replacement for those who left. Keep in mind that in a tight labor market like we have now, replacements may require higher salaries, more time off, and even a signing bonus.
3. Opportunity costs: including lost knowledge and the work itself that doesn’t get accomplished because managers, HR, and other employees are focused on filling their opening and getting that new hire trained and up to speed.
It is somewhat difficult to put a specific amount on the money lost due to turnover. Estimates vary widely, mostly because every amount is situational to the employee’s position, cost of training, and the industry. The findings are rarely low! The U.S. Department of Labor estimates a turnover cost of about one-third the new person’s salary. When studying Management, Executive and Professional positions, the percentages dramatically increase. Estimates for the upper level positions are in the range of one to two times the deportees’ annual salary. These figures obviously have a lot of variability. Much of the discrepancy comes from the effectiveness of the employee a company is losing. The cost of losing a highly productive employee is much higher than the cost of losing an average performer.
There is another way of looking at the cost due to turnover. The turnover of incompetent employees may not produce any cost to the company. It may actually eliminate certain hidden costs. For example, if an employee had consistently made poor decisions and was in a key position, those decisions may have had a negative financial impact on the company.
Bradford Smart has estimated the cost of inept Middle Management at a costly $1.2 million every year! This cost increases again when you consider Sr. Level Management incompetence and poor judgment.
There is not really an accurate measure that can estimate how much loss there is due to low morale as a result of incompetent Management at all levels. The key once again is that corporations need to do whatever it takes to retain their top talent so they don’t incur the major cost of replacing them!
Nancy J. Phillips, CPC
