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DECREASING
THE STAGGERING COSTS OF
TURNOVER IN YOUR ORGANIZATION
Employee turnover significantly affects the financial
performance of your organization. HR Focus (1996),
an American Management Association publication,
provided information related to employee turnover
costs. Did you know that:
- The
US Department of Labor estimates that it costs
a company one-third of a new hire's annual salary
to replace an employee? Using a wage rate of only
$6 an hour, it costs a company $3,600 for each
departing employee.
- Many
fast-food companies calculate the cost at $500
to replace one crew person and about $1,500 to
replace a manager? For a fast-food operation with
500 employees and 100 percent turnover, the annual
cost of turnover is $250,000.
- In
the trucking industry, managers estimate the per-driver
replacement expense between $3,000 and $5,000?
- A
major insurance company recently estimated that
its average cost per hire was $35,000?
- Employee
turnover is very costly to an organization and,
ultimately, takes its toll on organizational performance,
productivity, and profit.
There
are direct and indirect costs associated with employee
turnover. Direct costs include the time involved
in recruitment, selection, and training of new personnel
as well as the costs associated with advertising
expenses and manpower. The time a manager spends
in the selection process could otherwise be devoted
to other management responsibilities of his or her
everyday function. Indirect costs include the increased
workloads as coworkers pick up the slack until new
employees are hired and trained as well as the decreased
productivity associated with low employee morale.
Causes
of Employee Turnover: Many factors contribute
to employee turnover such as: poor fit between the
person and the job or the organization culture,
inadequate employee training, noncompetitive compensation,
and organizational practices (e.g., recognition,
performance evaluations, vacation/leave policies)
that weaken employee morale. These factors are not
independent. High turnover usually results from
several of these factors and more.
Strategies
for Improving Employee Retention: To improve
employee retention in your organization, develop
a plan for examining and addressing employee turnover.
The plan should include the following steps:
- Assess
the current impact of turnover on your organization.
Identify turnover rates for different jobs and
different divisions or geographic areas of the
company. Compare turnover rates with internal
or external standards and identify priority areas
(e.g., jobs, geographic areas, etc.) for addressing
employee turnover.
- Identify
characteristics of your organization and the job
that contribute to employee turnover. You can
obtain this information using employee surveys
and interviews. Examining the differences between
successful and unsuccessful employees also provides
information about potential factors affecting
employee turnover.
- Review
your organization's recruitment strategies. Specify
your recruitment goals and identify the appropriate
applicant pool or pools. Make sure that your recruiting
activities consider not only job requirements
but organizational culture factors as well.
- Examine
your employee selection methods. Identify the
critical requirements for each job as well as
factors that contribute to a good fit between
the person and the organization. Job requirements
define the content of the job while organizational
culture often drives how the job is done. Implement
selection methods (e.g., interviews, testing,
etc.) that focus on both job and organization
requirements to guarantee that your organization
hires the best person.
- Analyze
your performance management and compensation practices.
Performance management process and compensation
practices that link employee performance to organizational
values, goals and objectives will financially
benefit your organization and motivate your employees.
- Evaluate
your employee training and development activities.
Training employees in the skills they need to
successfully perform their job will contribute
to the overall success of your organization and
improve the productivity and morale of your employees.
Summary: The financial and non-financial
outcomes of reducing employee turnover are significant.
Reviewing various aspects of your organization
and taking appropriate action will help you reduce
your organization's employee turnover. While this
process requires time and effort, it will save
the organization time, effort, and money in the
long run. The result of this process is improved
organizational performance, productivity, and
profit.
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