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The Key to Employee Retention

Losing an employee is costly — very costly. Yet, many organizations don't know how to ensure that its human resource assets don't just walk away.

The US Department of Labor Bureau of Labor Statistics reports that more than 2 million people voluntarily leave their jobs each month. The Society of Human Resources Management has found that the cost of replacing an employee ranges from 50 percent of the employee's annual salary to 400 percent of their annual salary. So that employee with an annual salary of $45,000 that just gave his notice — the cost of replacing him could be between $16,000 and $160,000. And the other employee, the one whose annual salary was $150,000 — the cost of replacing her could range from $60,000 to $600,000. Not inexpensive.

In July 2013, Tompkins Supply Chain Consortium released its Supply Chain Talent Report. According to the report, the supply chain industry is expected to experience an increase in turnover within the next 18 months. Most impacted will be positions in planning, procurement, and manufacturing. Reasons include plant closures, outsourcing, and the need for specialized skillsets. There are other reasons as well. Accenture conducted a study (across industries) and found the top four reasons why employees quit their jobs are: a lack of recognition (43 percent), internal politics (35 percent), a lack of empowerment (31 percent), and because they don't like their boss (31 percent).

For managers, several lessons are there to be learned. Let's start with the simple lessons. These lessons involve flipping the negatives (the reasons for leaving) to the positive (creating reasons for staying). That is: recognize employees, empower employees, and take steps to remove from the work environment as much bureaucracy and internal politics as possible. By taking these steps the employee who doesn't like you may change their tune — a bit. If not, it is reasonable to talk with an employee and determine what the issue is. If the issue is something that cannot be addressed and if it is impacting productivity and team morale, explore transferring the employee within the company.

Other keys to employee retention include buy-in and success. Specifically, it is important to gain buy-in from your employees. If an employee is going to be motivated to not just do their job, but to excel at their job — they need to buy-in. They also need to, regularly, succeed and realize progress. A great resource on achieving buy-in and enabling success is The Heart of Change by John P. Kotter and Dan S. Cohen.

While the time and expense of retaining an employee may seem daunting, the cost of losing an employee is much greater.

If you do find yourself in the position of needing to hire a new employee, I've previously written about how to hire the pick of the supply chain litter.

29 comments on “The Key to Employee Retention

  1. _hm
    November 2, 2013

    @Frank: I concur with the gist of story. However, in practice there are so many other factors into play that employee get not so good experience and eventually decides to depart.

    But we are all silent observer in this process or abetting to this process. Can I ask how many times you created or abetted or silently observed in employee unnecessarily resigning or laidoff?

    It will be good to know practical aspects of helping organization and person to avoid this unfortunate divorce.

     

  2. Daniel
    November 5, 2013

    “Losing an employee is costly — very costly. Yet, many organizations don't know how to ensure that its human resource assets don't just walk away”

    Frank, you are right, only if that employee is worth for the company. But how many of them are in industry? One or two for each company.

  3. t.alex
    November 5, 2013

    Yep, in fact it is hard. Can someone recite some companies that have good employee retention strategy? 

  4. SP
    November 8, 2013

    Its a good saying that employees leave the managers not the organizations. When a person joins a company he or she very well know the compensation they are going to get, how far its from their residence and other practical things. How your manager treats you goes a long way. Quite agree its so costly to hire a new emplooyee.

  5. Hailey Lynne McKeefry
    November 8, 2013

    I got to wondering how much in real terms an employee walking away would cost and i found some info publihsed just this summer.

    a CAP study found average costs to replace an employee are:

    • 16% of annual salary for high-turnover, low-paying jobs (earning under $30,000 a year). For example, the cost to replace a $10/hour retail employee would be $3,328.
    • 20% of annual salary for mid-range positions (earning $30,000 to $50,000 a year). For example, the cost to replace a $40k manager would be $8,000.
    • Up to 213% of annual salary for highly educated executive positions. For example, the cost to replace a $100k CEO is $213,000.

    There are many intangible, and often untracked, costs associated with employee turnover.

    In a recent article on employee retention, Josh Bersin of Bersin by Deloitte outlined factors a business should consider in calculating the “real” cost of losing an employee. These factors include:

    • The cost of hiring a new employee including the advertising, interviewing, screening, and hiring.
    • Cost of on-boarding a new person including training and management time.
    • Lost productivity… it may take a new employee 1-2 years to reach the productivity of an existing person.
    • Lost engagement… other employees who see high turnover tend to disengage and lose productivity.
    • Customer service and errors, for example new employees take longer and are often less adept at solving problems.
    • Training cost. For example, over 2-3 years a business likely invests 10-20% of an employee's salary or more in training 
    • Cultural impact… Whenever someone leaves others take time to ask “why?”

     

  6. Daniel
    November 9, 2013

    Hailey, in many cases, cost wont be a factor. Finding a talented, skilled with in  ahort span of time may be the difficult situation.

  7. Daniel
    November 9, 2013

    Thanks Hailey for sharing this staticts

  8. Hailey Lynne McKeefry
    November 12, 2013

    @Jacob, i agree–and there are a lot of soft costs to people walking away. There are tasks that get lost, time when various things are neglected while the new person is found and brought up to speed, etc. Also, if the employee is customer facing you have the loss of those personal relationships–you may still have the customer but they are less connected to the company. It's very costly.

  9. Hailey Lynne McKeefry
    November 12, 2013

    @Rich, i have to disagree–i think we need to apply the 80/20 rule. Perhaps 80 percent of the employees fall into the scenario you sescribe. Then you have the superstars found in every organizatoin. these are hte folks who drive innovation in the organization, who hold corporate knowledge on important and strategic topics, who make things happen… These are the folks you want to retain. These are the folks that your competition are wooing.

  10. Daniel
    November 12, 2013

    “there are a lot of soft costs to people walking away. There are tasks that get lost, time when various things are neglected while the new person is found and brought up to speed, etc.”

    Hailey, there is no doubt that the new person has to spend reasonable time to get familiarized or harmonized with the new situations and new responsibility.

    What are the soft costs?

  11. Daniel
    November 13, 2013

    “think we need to apply the 80/20 rule. Perhaps 80 percent of the employees fall into the scenario you sescribe. Then you have the superstars found in every organizatoin. these are hte folks who drive innovation in the organization, who hold corporate knowledge on important and strategic topics, who make things happen.”

    Hailey, you are somewhat right. Other than specialized organizations, only 10-15 percentage peoples drive the innovation and technology. More than fifty percentage are workers, I mean they need some driving force to work and rest are on average or below than that.

  12. Daniel
    November 13, 2013

    “But, that philosophy sure does a lot to justify trying to get government to raise the supply of “trained” people, doesn't it? It lowers costs for companies, but injures the well being of its employees at the same time”

    Rich, the fact is none of the experienced peoples would prefer trainings; they always have a feel that they know everything. Only career oriented peoples and fresher's are willing for such trainings. I know in my company whenever the continuing education department lists the employees, who have to undergo training, peoples start say for asking excuses.

  13. Daniel
    November 14, 2013

    “Well, no need to be open minded and fair in our judgments of others, anyway, eh?”

    Rich, this not a judgment or assessment. These are the things we experienced in our day to day routine work. I shared this from my own professional experience.

  14. Hailey Lynne McKeefry
    November 16, 2013

    @Jacob, i would say that the two biggest ones are the loss of historical understanding when someone leaves and loss of productivity while a new person gets up to speed.  Anyone else, what would you say?

  15. Hailey Lynne McKeefry
    November 16, 2013

    @Rich, thanks for taking time to expand on your other comments. Really interesting thoughts. I have to say you are right: In most organizations the  “good people' definitely outweigh the bad people. I wasn't clear enough. I think those people are definitely woth retaining. In every organization, though, there are one or two folks who are clearly leaders, who understand the technology, teh goals of the organization and the rest–and who would be even harder to replace than the regular solid and worthwhile employees.

  16. Daniel
    November 17, 2013

    “i would say that the two biggest ones are the loss of historical understanding when someone leaves and loss of productivity while a new person gets up to speed.  Anyone else, what would you say?”

    Hailey, there is no doubt about that. Obviously there will be a gap for a short while and till the new person gets familiarized with the new ecco system. Now corporate management also realized that and they made a second layer within the team to nullify these gaps and for a smooth run.

  17. Anand
    November 21, 2013

    Employees may also resign from their positions due to workload. Floor managers have a tough task of balancing so many plates on his hands. He should first address to the internal politics and create a set of rules for employees to follow to the letter. Not just the usual dress code, but also their conduct. Secondly he should try to improve the work environment. Nobody wants to come to work knowing that a gruelling set of paperwork await his/her arrival. The working conditions in a floor have to be upped. There should also be aptitude and behavioural tests conducted each month, and a board of skilled professionals to analyse the test results that will help them know which employee needs help, spiritual, mental, and physical.

  18. Hailey Lynne McKeefry
    November 26, 2013

    @Jacob, and I don't mean to say that new people don't bring potential benefits with them as well. Often, new people are not stuck in the old rut of the organization and see things in new and creative ways. A mix of newcomers and oldtimers is probably the best option of all.

  19. Hailey Lynne McKeefry
    November 26, 2013

    “There should also be aptitude and behavioural tests conducted each month, and a board of skilled professionals to analyse the test results that will help them know which employee needs help, spiritual, mental, and physical.”

    @Anandvy, this sounds very cool but i suspect that most people would rather be left to their jobs and paid more or given more time off than to be tested and helped in this way.

  20. itguyphil
    November 26, 2013

    Very true. Although companies try to perpetuate an ideal that they care about employees' well-being, I'm pretty sure most people would like to be left alone.

    Not to mention that they probably already have people meddling in their lives on a personal level. No one wants that to also include their professional lives.

  21. Daniel
    November 26, 2013

    “I don't mean to say that new people don't bring potential benefits with them as well. Often, new people are not stuck in the old rut of the organization and see things in new and creative ways. A mix of newcomers and oldtimers is probably the best option of all.”

    Hailey, so you are suggesting for a change in role for employees after a certain time frame. In my office, especially with supporting groups like Admin, MMG (Material management group), purchase, Finance, they use to shuffle the responsibility once in a year. This will help everybody to well verse with all type of roles and responsibilities.    

  22. Hailey Lynne McKeefry
    November 26, 2013

    @Pocharie, I saw a survey once that when presented with a list of opens (bigger salary, an extra day off, etc.) the extra day off won (with American workers) by a large margin. I bet that would go a long way to retaining employees yet employers here in teh US remain reluctant to allow job sharing and other types of programs. there's an idea that the company somehow loses out. is that true in other places or is it different?

  23. Hailey Lynne McKeefry
    November 26, 2013

    @Jacob, that's an interesting approach. I think cross training is really smart–for helping people stay intersted but also for coverage when people are on vacation or leave a job suddenly.

  24. Daniel
    November 27, 2013

    “that's an interesting approach. I think cross training is really smart–for helping people stay intersted but also for coverage when people are on vacation or leave a job suddenly.”

    Hailey, that's the main intention. Prepare themselves to take any responsibility at any moment.

  25. itguyphil
    November 29, 2013

    I agree. I worked for a company whose overtime policy was days off the next week or 1.5x pay. Most people went with the days off. You can't buy time… especially here in the US.

  26. Hailey Lynne McKeefry
    November 29, 2013

    @Pocharie, especially when you consider that money is taxed and comp time isn't, it seems like a very good deal.

  27. itguyphil
    November 30, 2013

    Exactly. So even when you chase the money, you get less. THe time off is priceless, expecially on weekdays when you can get things done.

  28. wolsen
    January 18, 2014

    There is one word in this, referencing another article, that spellls out exactly what is wrong with the whole business of employee retention: “litter.”  If you have a regard for future or present employees that makes you think that you can refer people in this fashion, you are not going to retain employees.  You can use all the incentives, “buy-in” strategies, anti-bureucratic workflow modeing you want, but people as individuals sense when they are appreciated or not.  And that is what they value.  If you have no underlying concern for your employees they will see right through it and they will walk – and they should.

  29. itguyphil
    January 28, 2014

    I won't disagree with you on that. This is why the “best” organizations now go out of their way to make employees feel appreciated & happy.

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