“The most successful companies locally are all staffed by motivated people – motivated people are consistently core to high performance” – Michael Rennie, Director with McKinsey & Company.
One of the largest contributing costs to thinning the bottom line is the cost of labour – be it, hiring, firing, retirement, poor performance or the unwanted attrition of good people.
All of the above have costs associated to them. The obvious monetary costs include recruitment fees if you used an agency and cost of salary. What is even more costly, is the time taken to recruit, train, organising tools of trade such as business cards, mobiles, communication pieces to staff; relationships with clients that continually change or go by the wayside and the impact on the team when staff come and go for whatever reason, which undermines stability and erodes loyalty, commitment, performance and the like.
Investing in programmes that support employees by making them feel valued, included and motivated is paramount. The costs of not doing this have been proven to far outweigh investment, rewards and sales created.
Let’s take a quick look at highlights of research that validate this argument.
- On a micro level, the cost of losing an employee in their first year of employment is estimated at three times their annual salary for lower to mid-level staff and five times the salary for senior and executive level staff. Add to this, recruitment/replacement cost of approximately 15% to 20% – a loss of up to $157,500 for an employee on a salary of $50,000. Multiply that by the number of staff lost over a 12 month period and you’ll soon see the costs mount.
- According to ‘What’s Working’ – the Mercer Survey of Australia at Work nearly 25 per cent of Australian employees will change jobs this year. And when you consider staff turnover costs are up to 150 per cent of a person’s annual salary its obvious why investing in your staff quickly becomes a burning management priority.
- A new employee’s first three to six months is generally considered the highest period of risk in terms of potential turnover. The reason for this shocking statistic is that many businesses are ill prepared to support and nurture new employees.
- Other hidden costs associated with staff exit is also felt across other aspects of the business – decreased productivity, interrupted client relationships, negative impact on team morale, disruptions to core business activity, management downtime in recruiting replacement etc.
It is clear from the above that the development of effective staff retention strategies should be high on the agenda for every business across Australia.
Imagine what you could create in terms of culture and loyalty by investing this money before it gets to that stage or if you are currently experience high turnover, now is the time to turn it around.
Depending on the context of the staff attrition – poor performance and redundancies non-withstanding – the loss of good, high performing employees comes at a significant cost to business. According to Travis Bradbury, co-author of Emotional Intelligence 2.0, this usually results because of the following:
- Overwork – burning out good employees with an overload of responsibilities.
- Poor recognition and reward – absence or lack of recognition and reward for a job well done.
- Poor workplace relationships – managers need to know when to balance professional and human relationships with subordinates.
- Not honouring commitments – making promises that are not kept or followed through on.
- Hiring and promoting the wrong people – getting stuck with incompetent co-workers or manager is often a deal breaker.
- Failure to develop skills – not providing avenues/opportunities that would allow people to professionally develop.
- Lack of intellectual challenge – an absence of challenging goals that push boundaries and takes the routine and boredom out of the daily routine.
In reducing staff turnover, the Wall Street Journal reiterates some of Bradbury’s key points in addition to highlighting the importance of ensuring that when interviewing prospective employees, that they not only have the right skills but are also the right fit with the company culture, managers and co-workers.
Given our original example of the $50,000 employee, the total of all the costs can easily reach $157,500 to replace them. The costs and impact associated with an employee who leaves the company can be quite significant.
However, given the high price tag and consequences in running a business, a well thought out programme for employee recruitment, retention, motivation and reward will easily pay for itself in a very short period of time.
To access further information on how to calculate the cost of staff attrition, please click here to view.
