In many industries, employee turnover is at a record high. And turnover costs more than you think. Replacing an employee involves all of the direct costs of hiring, including advertising and recruiting costs, as well as hours of management time spent reviewing resumes, interviewing and checking references. There are also orientation and training costs for the new employee. There are also less obvious costs of turnover. A veteran employee takes expertise, knowledge and the productivity that comes with experience with him when he leaves.
However, you should know that no company has a turnover problem. Turnover is not a problem that can be fixed. Rather, turnover is a symptom of deeper organizational issues. Only by resolving those issues will turnover decrease. Beware of anyone who tells you there is a silver bullet for reducing turnover. Employees don’t leave because they didn’t get a gold watch or gift basket. They leave for intrinsic reasons such as decreased engagement, poor employee-manager relationships or a lack of meaningful and challenging work. Below is a seven-step plan that can be used by companies to create retention strategies. Following these steps will help you better understand your workforce, identify the root causes of turnover and create targeted solutions to retain your best employees.
STEP 1: CALCULATE THE COST OF TURNOVER
The first step is to quantify the impact of employee turnover at your firm by calculating the cost of turnover. There are dozens of variables in a true cost-of-turnover analysis. But it’s possible to apply useful estimates. To estimate turnover costs at your firm, first calculate the average salary of your employees. Let’s use the New York metro area average annual salary of $48,980. From our research, we know that most firms incur turnover costs from 25% all the way up to 250% of the separating employee’s annual salary. At the lowest end of the spectrum (25%), it costs $12,245 to replace the average worker. If that same employee has extensive experience, has tenure with your organization or has strong relationships with your customers, it could cost you as much as $122,450 to replace him or her.
STEP 2: MAP THE EMPLOYEE LIFE CYCLE
The employee life cycle (ELC) represents the employee’s entire experience with the organization, from attraction, hiring and onboarding through separation. We consider that there are eight stages in the life cycle of an employee. Comprehensively mapping your firm’s ELC will help you gauge the strengths and weaknesses that exist between an organization and current or potential staff. You can do a quick self-check here. Give your company a grade from A to F for each stage. How well does your company perform in each of the stages below?
Stage 1: Attraction (Prior to having an open position): Your ideal candidates regularly apply to work at your firm even when jobs are not open.
Stage 2: Recruitment (From open position to hire): You selected the best candidate for the position and the company.
Stage 3: Expectancy (From hire to start date): You informed and prepared your existing workforce of the new hire’s role, responsibility and background.
Stage 4: Formative Days (Start through the first two weeks): You provided the new employee with the necessary tools, contacts and information in order to succeed in the new job.
Stage 5: Development (From two weeks to six months): You developed your employee’s skills through mentors, training, peer groups and employee feedback.
Stage 6: Growth Enablement (six months to 24 months): Your employees are leveraging their skills to improve and innovate your processes, products and services.
Stage 7: Work/Life Actualization (18–24 months to disengagement): Your employees have professional development opportunities and work-life balance.
Stage 8: Separation (disengagement through active departure): Your separation practices preserve the knowledge and relationships of the employee so the transition can be navigated seamlessly.
STEP 3: FIND THE ROOT CAUSES
Where did you get a C — or lower? Where did you need improvement? Knowing where the breakdowns occur in your employee life cycle helps to pinpoint why there are breakdowns. By drilling down into an underperforming stage, an organization can often spot morale or workforce issues that are the root causes of turnover. Frequent root causes of turnover include the lack of recognition for good performance, no opportunity for career development, a lack of meaningful and challenging work and not having the tools, technology and resources to do the job. Contrary to popular belief, most people don’t leave a job because they’re unhappy with their paycheck.
How do you gather information about sources of employee disengagement? There needs to be continuous feedback from your staff on the topic. In regular discussions with employees, managers should ask about and address each stage of the employee life cycle.