Employee Turnover - The Risks

When bottom line profitability, productivity and organizational performance are being discussed, employee turnover needs to be in the same conversation. It's a critical metric that has a huge impact on those key performance indicators.

The flip side of employee turnover is employee retention. Organizations need to foster employee retention and pay attention to the extent of employee turnover. While employee turnover is a part of doing business, losing valued, quality employees shouldn't be.

With the substantial "direct" financial costs and the "indirect" intangible costs, employee retention should be the among the top human resource priorities. Like money being flushed, ripples of uncertainty and disruption are created by vacant positions within organizations.

With that troubling picture in mind, let's have a look at the "direct" costs. The adage that it is cheaper to keep a current customer rather than acquire a new one also applies to employees. The costs and impact of losing a valued employee can be significant.

A Society for Human Resource Management's 2008 study identified that the total costs of replacement, including training and loss of productivity, can range from 90% to 200% of an employee's annual salary.

Employee turnover is defined as the rate at which employees enter and leave a company in a given fiscal year. The SHRM's 2011-2012 Human Capital Benchmarking Database shows an annual average employee turnover rate, across all industries, of 15%. This means that an average of 15 out of 100 U.S. employees who were working at the start of the year had left the organization by the end of the year.

Plugging in the numbers, it can cost an organization from $45,000 to $100,000 to replace an employee with an annual salary of $50,000. An organization of 100 employees, with employees averaging $50,000 in salary, could be looking at replacement costs from $675,000 to $1,500,000. Irrespective of a company's size, these are impactful expenditures.

Now, with an appreciation of the direct costs, let's have a look at the "indirect" costs.
  • Loss of talent - This can negatively impact customer relationships, disrupt customer commitments, and hinder new development.
  • Diminished productivity - The timeliness and quality of an employee's own work can be jeopardized when taking on the additional responsibilities of a vacant position. The training of a new employee also has an impact on an employee's current role.
  • Lost knowledge - The intangible costs of lost knowledge, lost technical know-how, and lost contacts need to be considered.
  • Loss of customers - The costs of retaining customer's of a service representative or salesman who leaves. There is the possibility of an employee taking a customer with them.
Other intangible impacts of turnover include:
  • Employee resentment at being asked to work above-and-beyond without any tangible benefits
  • A disgruntled employee's impact on co-workers before leaving
  • The disruption or damage that can happen to client relationships
  • Underperformance of new employees while they "learn the ropes"
  • A decline in morale and an unease as a result of departing employees
  • A disruption or a break in lines of communication
  • A reduction in customer service
An additional point to consider, in regards to employment turnover, is that the most productive and competent employees are the ones that are most able to leave: they are the employees with the skills, the know-how, and the experience to find positions in other organizations.

Employee turnover needs to be managed with the same care, managerial focus, consideration, programs and planning that are used to foster all organizational capital considerations. An organization's bottom line is at risk by not fully appreciating and addressing the potential costs. Without putting too blunt an emphasis on employee turnover (or more importantly, employee retention), it represents a "wake up and smell the coffee" or "you snooze - you lose" scenario for organizations.

Retaining employees pays huge dividends - don't leave employee turnover to chance, take steps to avoid the risks.

Are your employees engaged, satisfied, happy in their jobs? Are they happy with the lines of communication within the organization? Are they being heard? Without the answers to these and other questions an organization is at risk. They need the answers and an action plan to take advantage of this valuable employee input. That's your human capital talking!

The essence of most business is being profitable, watching the bottom line, and being competitive in the marketplace. The retention of knowledgeable, company-focused employees is critical to the profitability, the bottom line, and the organization's ability to compete.

There is significant evidence that, as employee job satisfaction and engagement increase, so too does an organization's financial performance, as a direct result of higher employee productivity, improved employee retention and greater customer satisfaction.

Take the risks out of employee turnover - take action towards improving employee retention. Maximize your human capital - influence the key drivers of job satisfaction and engagement. With a well-designed and executed employee survey you can take the important first step on the journey toward building and sustaining a committed and engaged workforce.

Calculate the price of turnover in your organization using this simple employee turnover cost calculator. The numbers may shock you.

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