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Underestimating Turnover is a Costly Mistake
10/12/04
By: Teresa M. McAleavy, The Record
Paul Dorf wants employers to know they make a mistake if they underestimate just what it costs every time a valued employee opts to leave.
“Most companies totally underestimate the value of people who walk out the door,” says Dorf, a veteran compensation consultant. “When I ask them, they’ll say it’s about $1,500 to find a new person, but the reality is it’s somewhere between 1 ½ and 2 ½ times that person’s annual salary. And that’s just the hard costs associated with it.”
Dorf is founder and managing director of Compensation Resources Inc., an Upper Saddle River consulting business that specializes in compensation and other human resource-related issues. It just released an annual turnover survey that found more folks are starting to jump to new jobs.
The 2004 Turnover Survey indicated that from May 31, 2003, to May 31, 2004, the average voluntary turnover rate was 11.3 percent.
The majority of respondents indicated this rate had either increased or remained the same, whereas 20.9 percent said the rate decreased in the prior 12-month period.
“Companies need to take a serious look at this issue,” says Dorf. “Especially because all the demographics I have seen indicate the U.S. labor market is going to get short – the graying of America has more people leaving the market than coming into it.”
Dorf recently talked about the survey and its implications for businesses.
Q. You Mentioned the hard costs associated with employee turnover. Why are they so high?
The hard costs have been measured in terms of salary. So that for someone who was making $50,000 a year, it could cost the company somewhere between $75,000 and $125,000 and that’s a lot of money. It includes things like recruiting fees, newspaper ads and charges to search firms, the time it takes for a manager to interview and training costs.
Q. What are the other costs involved?
They’re called soft costs. When somebody leaves, other people do that work. … There’s also a loss of Institutional knowledge, with the history of the company going out the door.
Q. What else did you find?
Well, we find this silly, but when we talk to a lot of companies they say “Turnover is down because of the things we did right.” They’re deluding themselves. Turnover is fairly low because the marketplace is down and people are afraid to leave. A study done earlier this year, not by us, said 67 percent of people queried would look for another job as soon as the market improved.
Q. So what do you hope employers get from this survey?
A couple of things happened when the market started going down in 2000. Companies cut back on training programs because there was no immediate, direct payoff. They began to cut back on things like human resources and froze new employment, or had layoffs, which put a lot of work on remaining employees.
Companies said, “We did the right thing” and told employees, “If you don’t like it, tough.” So we’re left in this position where a lot of people are just bearing it and , when they can, they’ll leave. Employees just don’t think companies love them anymore and they don’t enjoy being there, so they’re saying, “The heck with this.”
Q. But didn’t companies need to cut costs to weather the recession?
Yes, of course. And a lot of companies do get ir right in terms of appreciating employees. But in tight times, they have to balance what they cut against what they can lose, and bring back programs and incentives when they can. A lot of it is attitude. Money is not the only motivator. They have to ask, “Would an employee go for $40 more a week, uproot themselves, if they thought there was career opportunity where they are?
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