Employers may feel that the sluggish economy of recent years has given
them a pass from worries about employee turnover. When unemployment
is high, unhappy employees are less likely to look -- or find -- a new
job.
But
with the economy in recovery and the number of available jobs growing in
certain sectors, employers still unconcerned about turnover may soon get a
rude awakening.
"The irony is that, at the very time employers need their people because
business is improving, they may begin to see their ranks thin because
people are walking out the door," said Joan Lloyd, owner of Joan
Lloyd & Associates Inc., a management consulting and training firm in
Wauwatosa. "This is the very worst time for employers to spend their
resources to fill these holes."
Employee turnover is a reality -- and it's costly.
When an employee quits,
turnover can cost a business 25 percent of an employee's salary to 1.5
times the salary
depending on the person's job, human resource specialists say. To
minimize turnover, companies should gauge employees' satisfaction every
year. From such data, employers can determine which positions are
the most important to focus on and what employers are looking for in their
jobs and then implement strategies such as better benefits, training or
communication, human resource advisors said. Such efforts are
critical, especially as the job market improves and employees feel more
comfortable switching jobs.
In 2003, the turnover rate for the north central region of the United
States, which includes Wisconsin, was 9.6%, according to the
Bureau
of National Affairs Inc., a Washington DC based research
association. The turnover rate means employers in that region
see 9.6% of their employees turn over during the year. Nationwide,
the annual turnover rate was 10%.
Understanding the Cost
Human resource advisors said
many employers do not have an accurate understanding of the potential cost
of turnover at their business.
Typically, they don't
even think about it until the employee leaves.
Once
companies conduct a cost
analysis in advance, however, they will have a better sense for how much
and how to invest in order to keep their employees, human resource experts said.
(See Labor Intensity
Quotient)
Turnover costs come from four general areas: transition, lack of
productivity, and hiring and training their new employee, according to
Colleen Dougherty, managing principal for the Wisconsin offices of Right
Management Consultants Inc., a Philadelphia-based career transition and
organizational development firm which has offices in Appleton, Madison,
Milwaukee and Mosinee.
Transition expenses include the cost to do exit interviews, pay separation
or severance or from continued benefits. Costs associated with a
vacancy can stem from additional overtime required from other employees or
additional temporary help. Replacement costs include entrance
interviews, reference checking, moving expenses and recruiting fees.
In-house
recruiting and screening could cost an average of $8000 to $12000 for a
new employee (although outsourcing the effort should provide cost relief),
according to Jessica Ollenburg, President of Human Resource Services,
Inc., a management consulting firm based in Greenfield.
Training for new employees can include orientation, coaching,
materials and benefits.
The more complex the position and more productive the employee, such as in
sales, the more expensive turnover will be, Dougherty said.
In a 2003 survey on turnover and absenteeism at 281 businesses in
Wisconsin and Illinois, MRA - The Management Resource Association Inc. of
Waukesha found that (according to perception by employers who responded to
survey) external hires cost companies about $1,200 per
position, which included advertising, recruiting, travel, relocation costs
and referral bonuses. It did not include training time,
administrative support or staff time. While those numbers seem low,
if companies take into account most turnover takes place during an
employee's first three years on the job, the costs add up, said Mary
Hunter, senior manager in employee relation services at MRA.
Companies experienced 60 percent of employee turnover within an employee's
first two years according to MRA's survey.
"Look at all the time you spend in finding the right person, bringing them
up to speed and getting them ready so they are really making a productive
contribution." Hunter said. "If you turn them over within two
years, do you really get a return on investment?"
Money Saved for Retention
The money
companies save on turnover can be applied toward retaining employees.
After calculating the costs, companies then can figure out which positions
are the most costly to lose and therefore more valuable, Ollenburg said.
From there, employers can concentrate on selection and retention
strategies.
"Once you determine the costs of turnover, you can make some bottom line
decisions as to how much to spend to attract, screen and retain,"
she said. "As long as you are saving more money then spending, it is a
good business decision."
Numerous turnover rate calculators, such as an online tool provided by the
University of Wisconsin-Extension's Center for Community Economic
Development, are available to help companies, said Bill Pinkovitz, a
UW-Extension Professor who created the calculator, available at
http://www.uwex.edu/ces/cced/publicat/turn.html.
Most often employees leave a
position because of a (perceived) better opportunity or dissatisfaction
with their current position. The first factor might be
inevitable, but the second factor can be addressed, said Tim Lawler,
president of The Lawler Group, Management Recruiters of Milwaukee North, a
Mequon recruiting firm.
To understand what keeps employees happy and engaged, employers should
survey their workers' job satisfaction no more than once a year, Dougherty
said. She also recommended employers conduct a survey during times
of great change, such as a merger, acquisition or company restructuring.
(HRS recommends
strong caution here! Among other caveats: Be careful not to
heighten awareness of dissatisfaction nor solicit information regarding
issues the employer cannot/will not change!) Most often employees
are looking for a clear career path or advancement opportunities,
mentoring programs or better job descriptions.
(Visit recent HRS employee motivator survey.)
Others may be searching for
more flexible scheduling. Companies can also provide something as
simple as additional communication, Ollenburg said.
By keeping employees aware of
company changes and asking their help in bringing about such changes,
employers will create a more engaged employee.
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