Does it make more sense to recruit new employees or retain the valuable employees you already have? The answer that has been proven by numerous research studies is the most cost-effective option for your business is to retain your valuable employees. Not only does it ensure you don’t lose out on productivity, but it also has a huge impact on employee morale.
Why do valuable employees quit?
According to a survey by EY, the primary reason employees leave a position is minimal wage growth. Some of the other top reasons are lack of opportunity to advance, excessive overtime, lack of teamwork and lack of management flexibility. Another reason we commonly hear from sales people in particular is changing commission structures or commissions/bonuses not being paid out as expected.
What is the cost to replace an employee?
The hiring process alone can be expensive, from the cost of the job posting to the time spent screening and interviewing candidates to the cost of travel and relocation. Once hired, you need to train the new employee on your processes and help him or her incorporate your company culture. In a study, the Center for American Progress found this cost is anywhere from 16-percent annual salary for low-salaried positions to 20-percent annual salary for mid-range positions. Once you start looking at executive-level roles, the percentages jump up substantially. Those costs alone should be significant motivation to retain valuable employees; however, there is a much larger potential cost that is often overlooked: the loss of knowledge and productivity. In the article, “The real cost of hiring and turnover” by Pluralsight, Dr. Heather Canary says, “When you have people who don’t remember the mistakes that you’ve learned from, the chances of the company repeating those mistakes increases.” We’ve seen this happen in companies where there is a lot of management turnover. This is also a big concern as the baby boomer generation gets closer to retirement. In addition to the cost of loss of knowledge, there is also the loss of productivity while you’re hiring and training a new employee. Some studies suggest it can be up to two years before the new employee is as productive as the predecessor.
Effect on employee morale
Another potential cost often overlooked is the effect on employee morale. When a valuable employee leaves a company, it creates questions: Why did the employee leave? Is there something going on that I don’t know? Should I leave, too? A “state of the work- place” study from Gallup estimates 70 percent of American workers are not engaged with their work. Having disengaged employees leads to decreased productivity. In fact, Gallup estimates these disengaged employees cost the U.S. $450 billion-$550 billion a year.
Retaining valuable employees, improving employee morale
One great way to retain valuable employees and to improve employee morale is to invest in training. Remember, two of the rea- sons given for leaving a position were lack of opportunity to advance and lack of teamwork. Team training is a great way to offer both. In the article, “The real cost of hiring and turnover,” Adam Sadler says, “Companies have a much higher chance of success if they provide employees with the skills they need to succeed.” And here’s monetary proof of that. A study by the University of Pennsylvania found spending 10 percent of a company’s revenue on training improves productivity by 8.5 per- cent. At BIC Recruiting, we meet for monthly lunch-and-learns. We listen to a webinar given by an industry expert and then discuss the ideas as a group. Your employees represent a huge investment and one you want to hold on to. By putting processes into place to retain your valuable employees, you will create a work- force of dedicated and driven employees who see themselves as a team working toward a common goal.