Employee Retention and the Real Cost of Employee Turnover
It’s easy to think that the only guaranteed way to retain employees is to pay them more money than your competitors. If only it was that easy because there’s a lot more to employee retention than that.
Beyond paying a competitive salary…
What kind of benefits do you offer?
How about bonuses or other incentives?
What about career development? Are you giving your people opportunities to advance in your organisation or have you just put them in a seat and left them there? (which is a fool- proof way to be sure you won’t retain them.)
Have you given them all the tools and resources they need, not only to make their jobs easier but so they spend less time trying to find motivation-sucking workarounds and more time being productive? (Remember, it’s not just the fact they will be more productive that’s important; it’s also that they won’t feel frustrated not having what they need to do their jobs well.)
Do they trust you as a leader? When they need your support are you there for them? If you're not the one who oversees them day-to-day, what about the person who does? When your staff know that their leader or manager is present, approachable, and has their best interests at heart that goes a long way towards keeping them satisfied and retained.
Before we get onto the cost of recruiting new staff if you can’t retain your present workers, let’s think about how turnover of staff can affect your team’s morale.
People don’t like to see other people leave.
A recent US study showed that 70% of employees who had a friend at work felt a lot happier. If it was someone they considered to be a best friend, 50% of employees said it made them feel a stronger connection to the company they work for.
When your employees leave it can often have a negative impact on the employees who are left behind. Especially if you couldn’t retain the person who left because they felt negatively about their job or your company.
There’s another factor too. Losing an employee means they won’t be there to do the job, which won’t only impact your company’s output and earnings; if you try to fill the ex-employee’s role (even temporarily, until you find a replacement) by giving their work to the rest of the team, it’s a guaranteed way to make the situation worse.
Now let's talk about the financial cost.
Aside from losing the valuable skills and knowledge that the outgoing employee has taken with them, finding, recruiting, and training a replacement employee can end up costing you hundreds (or, more, likely) thousands of pounds. Not to mention the revenue that your company won’t be generating while the new employee is settling in and learning what they need to know.
On average, it can cost between six to nine months’ salary to find and onboard a new employee and bring them up to speed depending upon the role they’re filling.
It looks a bit like this:
For high-turnover, lower paid roles, you’ll typically pay approximately 16% of the employees’ salary to replace them.
For middle management roles, that rises to around 20% of the employees’ salary.
For executive positions (you might want to sit down for this) an employer can expect to pay up to 213% of the employees’ salary to put their replacement in the seat.
What is the actual cost of employee turnover?
Recruitment costs: including advertising, interviewing, screening, and hiring (or bringing in a recruitment expert to do it for you.)
Salary: just because someone new is coming in to do the same job as the person who left doesn’t mean they’ll be happy to accept the same salary. Depending on how urgently you need the position filled, you might find yourself having to do some pay negotiating.
Onboarding costs: including training.
Downtime and lost productivity costs: It can sometimes take a new employee one to two years to reach the level of skill the employee you couldn’t retain has now taken to one of your competitors. They’re also inevitably going to make mistakes, which may cost you money as well.
Lost knowledge: especially if the employee who left was in your business for a long time so they had institutional knowledge and contacts you won’t find in the company handbook.
Damaged employee morale: 1. As I mentioned a moment ago, people don’t like to see other people leave. 2. When someone leaves, the people who are left behind start wondering why. It makes them feel insecure about their own future, it makes them question the company’s leadership, and Chinese whispers (i.e., false rumours) can kick your team member’s morale in even further.
How do you retain your employees?
Paying them their true worth is a given. If your employees know they can earn a better salary and receive more benefits elsewhere, you’re going to have you work cut out holding onto them.
Empower them to do their jobs well and then trust them to get the work done. No-one wants to have a leader or manager standing over their shoulder, watching their every move, dictating to them how to do their job.
Offer them career development opportunities. Sit down with each team member individually and put a plan in place so they have a substantial career goal to aim for. When they see there are genuinely worthwhile promotion opportunities ahead if they stay with your company and perform their role well, they’ll be much more inclined to remain. However, make sure you’ve got their full agreement and cooperation or the career plan won’t work. If they’re unhappy with the new position you’re moving them into, or if they suspect that the reason they’re being manoeuvred into that role is for the good of the company and has nothing to do with their own job satisfaction, you’re not going to retain them for much longer.
Make enhanced Pension contributions to the legal minimum requirement.
Engage with your staff. Listen to what they have to say and act on it when appropriate. A lot of employees quit because they don’t believe they’re being heard or that their opinions are being taken seriously.
Make your staff part of your Vision, and make sure that each of them understands their place in your Vision. One of the most basic reasons staff morale takes a dive is when your employees don’t understand the company’s goals and don’t feel like they’re being given any direction.
Create a better workplace culture. Make it inclusive, and the more diverse the better.
Encourage flexibility and remote working.
Provide better employee benefits and incentives. Some examples are:
Introducing an employee wellness program, including a company health insurance plan.
Offering perks like:
free or subsidised meals on site.
substantial employee, friends and family discounts on your company’s products.
low-price membership of the local gym.
Offer commuter benefits, like subsidised travel or a company travel loan scheme so employees can spread out their commuting costs. Install EV charging points for electric and hybrid cars, which will tick the ‘You’re a leader who cares about the environment’ box too.
Other ways to retain your employees
Hire the right people from the get-go.
Find out, before you hire them, what their expectations are, including perks and benefits.
Set your expectations + clear goals and make sure those goals and expectations are reflected in the work they’re doing.
Recognise their achievements and reward them for strong performance.
Enforce a no-blame culture. If something goes wrong, don’t point the finger. Look for solutions and use the situation as a learning opportunity for your employee, the team, your managers, and also yourself. Only recognise blame if the employee is wilfully not performing their role correctly or it becomes obvious they’re not capable of reaching the level you expect and are regularly causing problems that could be avoided.
Have a conflict resolution strategy in place so that disputes between your team members are resolved quickly and fairly and are less likely to fester and explode.
Give them plenty of opportunities for upskilling and career growth. Never let your employees stagnate.
Never assume your employees are happy. Hold regular one-to-one and group feedback sessions to find out what your people are thinking and feeling, and if there are any issues nobody has told you about.
in a group setting, you’ll get a clear idea of the common issues that are affecting all the members of your team.
in a one-to-one setting, some people may feel more comfortable discussing problems with you than they would in front of their other team members.
Be transparent, as much as possible, about what’s happening in your company, especially if the plans you’ve got will directly impact your employees.
One of the biggest factors behind ‘The Great Resignation’ I discussed in a recent article was that employees didn’t believe their leaders and managers were being open and honest with them. As a result, they left their jobs to work for employers who (they believed) were offering them more care and security.
If you've read my article you’ll also know that a large proportion of the employees who left their jobs are now apparently suffering from ‘The Great Regret’ because their new role and employer isn’t the golden ticket they expected after all. Whether the person you couldn’t retain will eventually end up regretting leaving your company or not, it doesn’t change the fact that you’ve now got the expense and hassle of replacing them, with everything else that involves.
But what if you’d led them more transparently? What is you’d made yourself more available to them and communicated with them more effectively? They might never have left at all.
What if you can’t retain an employee, no matter what you do?
Let them go.
Part company as amicably as possible. If appropriate, let them know the door will always be open. That way, they’ll feel less uncomfortable about reconnecting with you if they ever find out that leaving was a mistake.
If you can, find a replacement before they leave so there will be a proper handover of responsibilities and disruption to the rest of the team will be minimised.
Always conduct an Exit interview so you’re clear about the reasons they’ve left and the opportunities this new move is giving them that you weren’t able to provide. Don’t be tempted to use this Exit interview as an opportunity to make them a last-minute counteroffer. Instead, consider it part of the continuous learning that will make you an even better leader. After all, now you know why the employee left, you’re also better placed to make the changes that will ensure it’s less likely to happen again.
Taking steps to retain employees is always a lot less costly than losing them.
That’s why it’s essential to get your retention strategy right from the very beginning.
Trust me; when you do, it will save you a bunch of massive headaches in the future.