Do You Know the Hidden Costs of Turnover? 

By Joel Myers

Turnover costs money.  In fact, turnover costs a lot more money than most managers recognize.  The hidden costs of turnover can easily exceed the annual income of the employee that you lose!  Let’s look at an example.  Your company just received the resignation letter of Joe, an 8-year veteran of the Maintenance Department.  Joe’s pay plus benefit cost is $27 per hour.  The following is a breakdown of the direct costs associated with his departure:

Separation Costs    
Clerical staff to handle paperwork $100
Payout of accrued time off $2,400
Replacement Costs
Staff OT to cover work $2,400
Mgmt time handling scheduling work $150
Recruitment Advertising $1,000
Candidate background screening $500
Medical/drug screen $300
Recruiting staff time $500
Mgmt Time spent interviewing $150
Hiring bonus $3,000
Training Expense  
Lost productivity (50% effective X 2 wks) $1,080
Training materials & safety equipment $1,000
Total Direct Costs $12,580

In addition, there are indirect costs of turnover.  There will be production delays, quality decreases, potential loss of other employees and significant morale disruptions.  Any circumstance that has the potential of negatively affecting customer satisfaction carries the risk of lost business.  While these hidden costs are more difficult to quantify, they are real and substantial.

Measure and Monitor

The first step in managing turnover is to measure it.  Choose to measure turnover in a targeted fashion.  Do your current turnover statistics reflect the differences in voluntary and involuntary separations?  Would you benefit from departmental breakdowns of your overall turnover figure?  Establish metrics that support your business initiatives and monitor these figures on a monthly basis. 

Identify Specific Turnover Causes

Once you measure and monitor turnover, you are ready to identify the specific causes of employee separations.  It is critical that you work from hard data and not assumptions.  Once an employee decides to leave, you may choose to use an exit interview or a post-exit questionnaire to ascertain the underlying reasons for their departure.  Employee attitude research is the proactive way to identify specific turnover causes and manage your organization’s turnover rate.

Implement Strategies for Improving Retention Rates

The invaluable data provided by employee attitude surveys, exit interviews and post-exit surveys will enable your organization to select and implement strategies to improve your overall retention rate.  Here are some of the strategic possibilities:

Selection Process Review
Do your managers conduct effective interviews?  Are you hiring the right employees?  Are candidates provided a realistic preview of the job?

Training and Development Analysis
Do new employees have adequate orientation?  Do existing employees have ongoing skills training and development opportunities? 

Compensation and Reward System Redesign
Is there a sense of internal equity?  Are you externally competitive?  Can you link employee pay to performance?

Supervisory Training
Are supervisors able to motivate employees?  Do they treat employees with respect?  Are they aware of legal pitfalls?

Performance Management System
Do employees receive regular feedback?  Is there adequate documentation?

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