HOW MUCH DAMAGE WHEN AN EMPLOYEE IS LEAVING YOUR COMPANY? | GOALIFY
As a leader, a manager, you do not just only focus on delivering the product, increase your revenue and take care of your customer. Another critical era that you need to look at, which is your most valuable asset of the company: your people.
We all know it for so long, but we are rarely doing something about it. We just get urgent and panic when receiving the resignation email or feel the unhealthy environment when about to see the exit interview answer.
Moreover, with the rise of digital and technologies, more and more company now compete with other base on their people, that is the soul of their services, their innovation, or intellectual that help them to rise ahead.
However, with the well knowing that people for the long-term advantages to growth, not much company serious about reducing their employee retention rate.
I am once not very serious about keeping people until I know how to accurately calculate the impact of employee’s leaving my team.
Everything is normal until you notice the number.
To be honest, we will never care about the thing that does not make us fear or something will thread to take our benefits away. Particularly for the turnover, I know many of our clients or our friend companies, 30-40% is the common rate of their turnover. They just get used to it and build the structure and process to adapt to the issue but rarely think about the way to decrease this rate. However, I will share with you the research of Josh Bersin from Deloitte, according to Josh, “Many studies show that the total cost of losing an employee can range from ten thousands of dollars to 1.5 - 2 times the annual salary.”
And Josh also pointed out the real cost of losing an employee:
Consider the real “total cost” of losing an employee:
Cost of hiring a new person (advertising, interviewing, screening, hiring)
Cost of onboarding a new person (training, management time)
Cost of losing productivity (a new person may take 1-2 years to reach the productivity of an existing person)
Cost of Losing engagement (other employees who see high turnover disengage and lose productivity)
Cost of customer service and errors (new employees take longer and are often less adaptive at solving problems). In healthcare, this may result in much higher error rates, illness, and other very expensive costs (which are not seen by HR).
Training cost (over 2-3 years you are likely to invest 10-20% of an employee’s salary or more in training, which is now gone)
Invisible cost of cultural impact (whenever someone leaves, other staff often take the time to ask “why?”).
Also, people are the most “appreciated assets” - The longer they stay with an organization, the more productivity they improve - they see through the system, they know the products, and they are able to learn how to work together.
So from this point of view, you can determine the formula:
Turnover ROI Formula
I carry back here the post from “The Cost of (no cap) Hiring A new employee” By Annie Mueller,
The Break-Even Point
So, all this investment leads to increase production, hopefully, at least that’s why businesses make the investment. But it can take a while for the cost to get covered and companies to see a return on their investment. According to the Studer Group, “A survey of 610 CEOs by Harvard Business School estimates that typical mid-level managers require 6.2 months to reach their break-even point.”
Bliss breaks down the productivity scale into three periods: during the first month or so, after the training is completed, and after your new employees are functioning are respectively at about:
25% productivity, which means that the cost of lost productivity is 75% of the employee’s salary.
The level goes up to 50% productivity for weeks 5 through 12, with the corresponding cost of 50% of the employee salary.
Week 13 -20 usually brings the employee productivity rate up to 75%, with the cost being 25% of the employee salary.
Around the five-month mark, your companies can expect a new hire to reach their full productivity. (3)
Let make an example:
If your annual salary is $50,000 USD, so your cost to replace an employee break down will be.
Let’s say you have 50 employees, and the turnover rate is 20%. So, your damage of losing 11 employees is:
(8,333 + 3,125 + 4,167 + 2,083) x 50 x 20% = 177,083 USD.
You can play around with this ROI calculate from our Goalify.plus website.
Alright, now we understand exactly how expensive it is. What can we do?
For sure the immediate solution is to raise their salary up. However, that is just an instant solution. Your employee, they do not just only work for paid. They demand more than that.
Following the Hays group’s article, “Salary & Benefits key reason employees in Singapore leave a job but work-life balance why they stay.”
You will see the top 5 key retention factors for the employees in Singapore in other of preferring are:
• Work-life balance (60%)
• Salary or benefits package (40%)
• Work location (37%)
• Career progression (31%)
• The management style & company culture (30%)
Let’s take a look at the USA and Australia market.
The USA, The APA’s “Workforce Retention Survey” was conducted by Harris Interactive in early August. Some 1,240 full-time and part-time workers, in the age of 18 and above, were asked to evaluate nine common reasons for staying with a current employer. Here’s how their answers ranked, as measured by the percentage of participants who said they “agreed” or “strongly agreed” with a statement:
• I enjoy the work I do (67%)
• My job fits well with the other areas of my life (67%)
• The benefits (60%)
• The pay (59%)
• I feel connected to the organization (56%)
• My co-workers (51%)
In Australia, accordingly to “Pulse retention and turnover 2015” from AHRI, the factors that increase the employee retention are:
• Training and development opportunities (61.13%)
• Flexible work options (51.16%)
• Performance appraisal and feedback system (49.67)
• Recognition for employee contribution (40.86%)
• Employee opinion/climate survey (38.87%)
Overall, we can see the most crucial reasons for people to stay in a company are:
1. Adding value to their career paths.
Be clear to the position & role required, and goal needed achieving with your employee or team. Give them the accurate information that helps them to understand the big company picture. Don’t make them feel bored because of the daily job and misunderstanding the ideas how they are contributing to the business value.
Empower them to be a part of the innovation process, encourage them to provide the ideas and resources, and furthermore, give them opportunities to challenge and grow beside the daily operation tasks.
2. Create an inspiring culture.
Many companies define a very complex definition for their culture. However, to me, culture is simply considered as the factor that makes an employee happy when coming to work and feel included in the workplace. It helps your employee understand how to ‘communicate’ in the same ‘language’ with the rest of the team and what is expecting from the quality value to deliver it to work result and to your customers.
3. Recognition and reward exceptional work.
78% of employees said that being recognized motivates them in their jobs.
Receiving appreciation, kudo, and recognition will encourage positive behaviors and help the employee to promote long-term top performance. Sometimes, earning kudos and thanks is more important than getting something tangible. This thing creates benefit and powerful reinforcement of inspiration behaviors immediately; as well as sets an example to other employees of desired behaviors that align with organizational objectives. It gives individuals and teams at all levels the opportunity to recognize their good work by other teammates, and it also creates the opportunity to acknowledge their good work.
4. Give your employees a voice.
Benefits are significant, but empowerment gives people a sense of importance within the organization. Let people know how they can contribute to an organization’s success, and then leave them do their job.
5. Align your company values with employee’s values.
Company needs to share the value with their personality is the expectation from Gen X and millennials. These values can be shared via company operation, sustainability initiatives, or personal benefits such as time-off for volunteering.
Sources
2. https://www.americanprogress.org/wp-content/uploads/2012/11/CostofTurnover.pdf
3. http://www.investopedia.com/financial-edge/0711/the-cost-of-hiring-a-new-employee.aspx
