In today's society, it is fairly common for someone to change jobs every few years instead of staying with the same company for the duration of his or her employment. And while a change of scenery may be desirable for employees, companies are left to deal with increasing, and costly, turnover rates. That said, the real cost isn't the quantity of employees taking flight, but the quality. However, companies can take steps to prevent the loss of their valued workers by implementing an employee knowledge management and development program, which helps employers identify the employees companies should be focusing their retention efforts on, thereby helping to mitigate some of the more extensive turnover costs.
How Expensive Is Employee Turnover?
The Society for Human Resource Management, estimates that it costs $3,500 to replace one $8- per-hour employee when all costs are taken into account. For the more qualified workers, however, costs escalate quickly. It's estimated that replacement costs for employers add up to 30 to 50 percent of the annual salary of entry-level employees; 150 percent of middle-level employees; and up to 400 percent for specialized, high-level employees. And with the average employee turnover rate in the U.S. up to 14.4 percent a year, according to the Bureau of National Affairs, these replacement costs quickly become a serious issue.
This serious issue, however, often is largely underestimated, or not even estimated at all. In one survey, it was found that only 44 percent of its respondents had a process in place to estimate turnover costs; 43 percent of companies relied on perception; and 13 percent had no process in place at all. Companies should be looking at everything from recruiting and interviewing costs to customer dissatisfaction, company reputation, and productivity lapses when estimating employee turnover costs. This will help prevent companies from neglecting a growing problem that otherwise would be overlooked with miscalculations.
Focus on High-Performers, Not Underperformers
Despite the high costs of employee turnover, replacing poor or unproductive employees with more qualified, efficient workers is an inevitable and necessary part of business. However, companies spend so much time and money trying to bring underperforming employees up to scratch, only to incur high costs when they fall short and need replacing. As high as those costs are, however, the real blow to employers is when they have to replace the high-quality performers who never should have left in the first place. This is where companies should focus their precious time and resources—on retaining valued performers.
An effective way to identify those employees with real value is through an employee knowledge management and development program. By utilizing an online diagnostic tool that measures competence and confidence, you can determine who is best suited for their job. To secure a stable future for companies, even in unstable times, it is critical to recognize which employees possess the knowledge and ability to effectively carry a company forward amid the high turnover rates of their less qualified coworkers.
Human capital knowledge management and development systems are more robust and less subjective than face-to-face appraisals. They not only address flight risk and turnover problems, they help mitigate another equally concerning problem: employee poaching. Drastic times often call for drastic measures, and when the economy and country are facing volatile conditions, many employers will not waste their time on recruits who are fresh out of college, but instead will focus their resources on going after employees who already have extensive training and on-the-job experience. This is yet another reason companies need to identify their top performers who may appear desirable to other companies within their industry, so they know on whom to focus their retention efforts.
One type of under-rated employee companies like to poach is the employee-student. Often, companies that provide tuition assistance programs do not make the effort to retain or encourage their employee-students because they see such employees as costing the company additional money. On the contrary, these are exactly the kinds of valuable employees other companies would benefit from acquiring. Employees who are making the effort to advance their knowledge in their profession appear desirable and will benefit their employer greatly in the long run. Therefore, recognizing this added value through employee knowledge management and development systems early on, before graduation day, and making the effort to retain such employees, will help sustain a company's valuable workforce.
While incompetent employees cost the company money, losing and replacing competent ones costs more. Companies and employers need to recognize employees who are truly excelling by utilizing customized systems that assess employee competence and confidence and then incentivize them by providing opportunities for advancement or simply recognizing their achievements. This should be as much of a priority as retraining and coaching underperforming, inadequate workers, especially when you take into account the fact that a 10 percent reduction in employee turnover adds up to more money than a 10 percent increase in productivity, or a 10 percent increase in sales. Efforts to retain valuable employees are worth the risk.
Mary Clarke, CEO of Cognisco, has significant experience in assisting Fortune 500 companies intelligently assess employee knowledge gaps and implement customized solutions to improve employee performance and confidence, thereby preventing costly issues such as employee flight risk, turnover, and poaching.