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Beware Of The Hidden Costs Of Staff Turnover

While the implementation of an effective exit interview process will help point to the reasons why people depart your business, you really know the cost of each departure?

Research shows 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 it's obvious why staff retention is quickly becoming a burning management priority. This article discusses the hidden costs of staff turnover and suggests a number of practical measures to help improve staff retention and motivation.

The Cost of Staff Attrition

Nearly 25 per cent of Australian employees plan to look for a new job in the next twelve months, according to 'What's Working' - the Mercer Survey of Australia at Work, conducted by Mercer Human Resource Consulting in March 2004.

And, the international HR Group adds, even if only half of those people saying they're contemplating leaving do in fact leave, Australian business face a potentially huge cost - ranging somewhere between $30 billion and $89 billion. To add to this, Mercer Associate, Randall Pearce, says that this is a conservative estimate since an additional eight per cent of Australian employees are also considering leaving, but not within the next year.

On a more micro level, reviewing the cost of staff turnover for individual companies is perhaps even more disturbing. Mercer estimates that staff turnover costs range from 50% to 150% of annual salary depending on the role and level of seniority. So, in a company with 250 employees earning an average annual salary of $49,000 each, and using Mercer's forecast 2004 staff attrition rate of 25%, the cost of turnover for that company would be more than $3 million per year. Furthermore, if that same company had annual revenues of $30 million and a profit margin of 12%, staff attrition would represent 10% of total revenues - and 85% of profits.

It is clear from these figures that the development of effective staff retention strategies should be high on the agenda for every organisation across Australia.

Tip Of The Iceberg

The figures from the Mercer survey are valid, but some experts argue that they are only the tip of the iceberg.

Organisations need to factor in the costs of decreased productivity, lost investment in training and development, loss of revenue for key sales or management executives, administration set up, equipment purchase, recruitment costs, the new employee's induction into the business culture, management downtime in interviewing candidates, legal fees and payout commitments. There can be a lot more to staff turnover costs than first meets the eye, which is why it's so important to recruit the right candidate first off and then do what you can to keep them challenged and satisfied.

The Link Between Retention And Company Performance

Research confirms a clear link between effective staff retention strategies and well-performing companies. If you take Fortune Magazine's list of 'the 100 best employers' (many of whom have exceptional staff retention records), 80 per cent have outperformed their peers on the Standard and Poors Index. Furthermore, an Aberdeen Group Report in 2001 found that top performing employees deliver 12 times the value of mid-level performers. It's obvious. Happy employees are motivated, remain loyal and employers reap the rewards.

"The most successful companies globally are all staffed by motivated people - motivated people are consistently core to high performance," says Michael Rennie, director with McKinsey & Company.

So, How Do You Keep Employees Happy And Motivated?

Here are seven practical initiatives you can take to help keep your staff happy, motivated and recognised:

1. Listen to your people - make your employees feel you are interested in them personally. Use surveys, individual or group meetings to gain the insights and information to help you plan your retention strategy around areas most important and relevant to your staff.
   
   
2. Reward and Recognise - build your employees' esteem. Show them you value their opinion and ideas and that you're watching their performance. Sometimes a simple monthly 'Star Performer' Award handed out by a Divisional Manager in front of co-workers can have a far greater impact on motivation and retention than any financial reward.
   
   
3. Career development - craft career development planning strategies for individual employees that align with each employee's needs and desire for future growth. It may mean keeping certifications up to date, sending employees to seminars, or just providing subscriptions to magazines and journals. Whatever the effort you make to help this person's career it will long be remembered.
   
   
4. Provide challenges - employees should be given new job assignments to keep them alert and challenged. What better reason to stay with a company than to snare a new job or project assignment? Providing employees with challenge and excitement can encourage them to stay; they don't want to risk missing a good opportunity.
   
   
5. Work/life balance - consider providing staff with the flexibility to achieve a satisfactory mix of time at home and on the job. Perhaps offer reduced working hours or work-from-home options, where possible. The French, for example, have adopted a 35-hour working week as a mandatory part of society, and employees are reporting a better work-life balance as a result. The message? Long hours and satisfied employees rarely mix.
   
   
6. Salary Watch - McKinsey's and other recent research studies confirm what management gurus have maintained for decades: as long as salary is in the general range for a particular role, most employees will not consider it the deciding factor in job satisfaction. So, check to see you are paying at an appropriate level. And consider creative salary options that align with the individual's own needs such as childcare, gym memberships and 'work from home' days.
   
   
7. Mentors - partner inexperienced and experienced workers together so both can benefit from the other person's knowledge. The experienced worker may impart technical skills, for example, while the new person may bring social/cultural lessons to the relationship.

According to Fortune magazine, a century ago the most valuable US corporation was US Steel, whose primary assets were smokestack factories. Today's most valuable corporation is Microsoft, whose most valuable assets go home every night. Companies that want those assets to return every morning must pay attention to the workplace.

Don't let your investment in staff and the massive amount of knowledge they possess slip through your fingers. Take the time and energy and invest in keeping your staff happy, motivated and productive, and you'll reap the rewards.