Leadership

Employee Retention: The True Cost of Losing Your Best Talent

 

How do you spot a great manager? 

It’s someone who fosters a culture of productivity and excellence. Someone who’s fun to work with, and connects with their teammates on a personal level. Someone who knows how to inspire and lead their team to success. 

In short, someone who makes people want to show up — and stay. 

Low turnover on your team may make you feel like a successful manager. After all, if you only lose a handful of people on your team each year, you must be doing something right.  

But what if that high employee retention rate is actually a negative—an indication that you’re failing to challenge employees and creating a culture of complacency? 

What if the few people you’re losing are actually your best and brightest? 

Employee turnover already costs US companies $160 billion a year

Replacing an employee can set your company back as much as 2x their annual salary. And with high performers delivering approximately 400% more in productivity than the average employee, losing even a few of your star workers can have an astronomical impact on your bottom line. 

Not only do high-performers cost more to replace, new research by SAP and Oxford Economics shows that less than half of them are satisfied with their jobs, and 1 in 5 say they’re likely to leave in the next six months.

It’s time to redefine successful employee engagement and retention. Let’s examine the true cost of losing an employee, beyond the obvious hiring expenses, and uncover the real reasons high-performers and high potentials leave their jobs. 

Got $13 Billion? The Real Cost of Employee Turnover

According to the US Labor Department, the number of Americans who quit their jobs is now the highest it’s been in nearly a decade: 3.1 million people voluntarily left their jobs in January 2017. 

That employee turnover is expensive. From advertising and recruiting to training and lost productivity, costs add up quickly for organizations that fail to actively invest in their workforce. 

  • Hiring costs: Between advertising open positions, screening applications, and interviewing candidates, the recruiting process alone represents a significant expense for companies. It costs $4,000 and takes 52 days on average for US businesses to fill an open position, to the tune of $13 billion a month
  • Onboarding costs: On average, businesses spend the equivalent of six to nine months of an employee’s salary to locate and train their replacement, not including valuable time spent by management and supervisors during on-the-job training. 
  • Lost productivity: These “soft costs” are trickier to quantify, but still have a significant impact on a business’ bottom line. New hires simply aren’t as productive as the person they’re replacing, and may take a year or two to get to that level. Not to mention potential errors made by new employees who are unfamiliar with your company’s processes, tools, and policies. 
  • Poor engagement: When a teammate leaves, the rest of your employees are bound to wonder why, and may even consider leaving as well. This ripple effect can lead to a significant uptick in disengaged employees, which costs US companies up to $550 billion a year in lost productivity. 

To put these figures in more relatable terms: for a salaried worker earning $60,000 a year, your company will likely spend $45,000 to replace them

Warning Signs Someone is Ready to Quit

Just as a poker player’s “tell” hints at the content of their hand, a team member’s behavior can tip you off that they’re looking to leave. 

A new study by researchers at Utah, Florida, and Arizona State Universities defines a set of 13 “pre-quitting behaviors” that managers can use to identify those at risk for turnover—and possibly intervene in time to convince them to stay. 

These behavioral cues include: 

  • Decreased productivity 
  • A reticence to commit to long-term timelines
  • Dampened enthusiasm for the organization’s mission 
  • Less willingness to act as a team player 

Stereotypical signs of an employee’s impending departure, like wearing a suit to a casual office or a sudden rise in the number of doctor’s appointments, did not show as strong a statistical correlation with employees who quit soon after. 

Researchers have also found that job hunting jumps by 6% around an employee’s work anniversary, increases 12% around birthdays, and spikes to 16% around non-work-related gatherings like school reunions, when people are more inclined to reevaluate the state of their life goals.

With these figures, it’s tempting to accept employee turnover as a fact of life. But many of the reasons employees quit are surprisingly simple, even for high performers, and managers who fail to ask why their workers want to go may be needlessly losing people who are costly to replace. 

The New Employee Retention Model

While competitive pay and benefits packages remain an important part of the equation, it’s no longer enough to retain your top talent. 

Recent years have brought about a significant shift in the employee/employer relationship dynamic: today’s young professionals expect to work for many companies over the course of their career, and require a sense of purpose and personal growth at each stage. 

This shift belies a need for a new employee retention model that begins with hiring, and extends to creating an enriching work environment. 

Effective employee retention strategies start with hiring the right person

One of the most common reasons people leave their jobs within the first 12 months is a poor fit, so don’t oversell the position to candidates. Be honest about what the job really entails and how success will be measured.

Lori Goler, Global Head of People at Facebook, shares her favorite interview question with The Wall Street Journal

“‘On your very best day at work when you go home and you think, I have the best job on the planet, what did you do that day?’ I want to be sure that whatever job or role the person is coming into is something that has a lot of whatever that is in it. That is how you get someone to play to their strengths from the very beginning.”

Job fit isn’t the only thing to consider when hiring; culture fit is more important than ever.

Millennials now represent over half of today’s workforce, and the who of their daily work matters to them just as much as the what. They want to work alongside people they like and enjoy collaborating with. And if they’re not finding that at your company, they’ll look for it somewhere else. 

So how do you create that culture of camaraderie? 

In an article published on LinkedIn Pulse, Josh Bersin, founder of Bersin by Deloitte, urges managers to apply Maslow’s Hierarchy of Needs when cultivating a vibrant workplace culture that meets high-performing employees’ expectations. 

Once people are “safe” (paid well) they want their work to be meaningful, apply to their personal skills and interests, to feel appreciated, and to work for a company they’re proud of. 

Recognition and rewards remain an important and practical way to create a positive culture, so raises, promotions, and public recognition for your star employees are critical to keeping them engaged. 

As Jean Martin and Conrad Schmidt explain in an article for Harvard Business Review, “Even employees who haven’t been dubbed high potentials work harder in a place where good things happen to those who deserve them.” 

While public recognition remains a key element of a thriving company culture, high performers also require more frequent feedback and recognition from their own managers. 

50% of high performing employees expect at least a monthly sit down with managers, but only 53% say they are getting the feedback they want from their superiors. 

Busy managers must make the time for frequent one-on-ones with their top team members, or risk them feeling that they’re under-appreciated or stagnating in their careers. 

Another crucial aspect of a company culture that retains high performers is that of ongoing education—which is not only a benefit for your workers, but good for your organization. High-performers and high potentials represent future company leadership, and that process should start early in their careers. 

But it’s no longer enough to send people to conferences, workshops, or 3-day certification programs. Today’s top employees demand continuous learning opportunities, delivered through innovative platforms that fit their individual schedules. 

Ongoing education must be woven into the everyday priorities and schedules of your best performers. Even managers with limited funds for training can frame new projects and assignments as learning opportunities to keep high performers engaged.

Implementing all of the above employee retention ideas doesn’t guarantee that you’ll retain your top talent, however. 

At the end of the day, people simply won’t stay with a company where they feel stuck. 

Even after controlling for factors like pay, job title, and industry, a study conducted by Glassdoor found that workers who stay longer in the same job without a title change are significantly more likely to move to another company for the next step in their careers. 

Keeping your best employees means giving them clear paths to advancement, and acknowledging them as future leaders early on. 

One large company profiled by Glassdoor solves this problem by giving high achievers access to exclusive online discussion boards, led by the CEO, that are centered around the company’s most pressing challenges. High achievers share their solutions and volunteer for new assignments, which not only ups transparency and involvement, but gives the executive team a direct line to the company’s rising stars.

Solutions to Employee Turnover

Companies are now experiencing a shift towards what Deloitte terms the “new organization,” characterized by highly empowered teams and workers. 

To retain top employees and stay competitive, companies must go beyond traditional engagement strategies like competitive pay and benefits packages. Smart managers will recognize the need to create an engaging workplace based on a strong learning culture, and define a new model of leadership and career development for their teams. 

As Josh Bersin writes, “High-performing companies serve their employees just as well as they serve their customers.”

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