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How much does employee turnover really cost?

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Re: How much does employee turnover really cost?

#61

Post by shanemhansen »

I've often been shocked at how a theoretically rational profit seeking business will happily throw millions down the drain rather than compensate an individual based on value. Ultimately I've concluded that although they may be greedy, most businesses don't make rational profit seeking decisions. They make decisions that stroke their ego, and sometimes their ego can't accept the value that certain employees bring to the table. They are just coders right? /s

Nowhere was this more apparent than at my first big job. The company's first full time engineer was still working there, and still extremely essential to the operation of the business. (It was actually bad that he was so essential, but that's another story). This company made several hundred million dollars a year. Online. And almost daily this individual used their tribal and historical knowledge to keep the site up. He left. I doubt he was paid a million dollars, but I have no doubt that paying a million dollars to keep him around would have been a cost saving measure.

Re: How much does employee turnover really cost?

#62

Post by std_throwaway »

jedrek wrote: post #56
dtnewman wrote: post #16

Two thoughts: * It's a good idea to try to quantify the cost of losing an employee. If you at least understand what basic costs you'll incur, such as cost of hiring, training, etc. it'll give you a basis for realizing the importance of minimizing turnover (perhaps you'll even conclude that turnover isn't a big deal in your case). But it's very hard to quantify some of the largest costs such as employee moral. I was o…

I've been to management seminars where they downplay the importance of money, saying that employees are mostly motivated by other factors. Then I talk to my co-workers, the ones that are quitting, and about half of them leave because they've been working for 2+ years without a raise. I worked at a company where a company decided to introduce a new management program (LEAN) into one department. That 16 person departme…

Did they quit because they had a better offer elsewhere?

Or did they quit because they increasingly felt they've become stuck, left behind and not valued highly by their employer?

Re: How much does employee turnover really cost?

#63

Post by sputknick »

shanemhansen wrote: post #61

I've often been shocked at how a theoretically rational profit seeking business will happily throw millions down the drain rather than compensate an individual based on value. Ultimately I've concluded that although they may be greedy, most businesses don't make rational profit seeking decisions. They make decisions that stroke their ego, and sometimes their ego can't accept the value that certain employees bring to…

It's not about what salary that engineer deserved, but what they could command. That engineer might have done $1 million worth of work a year, and deserved a $1 million salary; but he couldn't go to another company and proclaim he was worth $1 million. He could probably go elsewhere and get a slightly above average salary, your company knew that, and that is why they paid him that.

Re: How much does employee turnover really cost?

#64

Post by cmdrfred »

rbcgerard wrote: post #34
Balgair wrote: post #25

Earlier quoted context omitted.

On 2: Ok all, why do diagonal promotions occur? I understand the issues around promoting when there is no room in the org chart, but I don't understand the issues with pay. Employees will shop the resume around, that is expected these days. And as the article points out, there are massive costs to a firm when those good employees up and leave. So why not just give a raise? Maybe you don't have the budget, I get that,…

I've noticed that many companies fail to recognize this, and hire two types of employees 1. Good ones who take the job for some reason, realize there are better options and leave shortly and 2. Bad ones that stay Rinse and repeat, and the cycle gets shorter, and the problems get bigger

I call it the burn and churn model. Game studios and IT MSP's both engage in it habitually. The firm I work for has a 200% yearly rate of churn for IT managers. They expect 24/7/365 on call and pay below market. Really its just a place where people go until they find a new job.

Re: How much does employee turnover really cost?

#65

Post by Swizec »

std_throwaway wrote: post #62
jedrek wrote: post #56

Earlier quoted context omitted.

I've been to management seminars where they downplay the importance of money, saying that employees are mostly motivated by other factors. Then I talk to my co-workers, the ones that are quitting, and about half of them leave because they've been working for 2+ years without a raise. I worked at a company where a company decided to introduce a new management program (LEAN) into one department. That 16 person departme…

Did they quit because they had a better offer elsewhere? Or did they quit because they increasingly felt they've become stuck, left behind and not valued highly by their employer?

Money is a good way to tell me I'm valued.

Re: How much does employee turnover really cost?

#66

Post by shados »

jedrek wrote: post #56
dtnewman wrote: post #16

Two thoughts: * It's a good idea to try to quantify the cost of losing an employee. If you at least understand what basic costs you'll incur, such as cost of hiring, training, etc. it'll give you a basis for realizing the importance of minimizing turnover (perhaps you'll even conclude that turnover isn't a big deal in your case). But it's very hard to quantify some of the largest costs such as employee moral. I was o…

I've been to management seminars where they downplay the importance of money, saying that employees are mostly motivated by other factors. Then I talk to my co-workers, the ones that are quitting, and about half of them leave because they've been working for 2+ years without a raise. I worked at a company where a company decided to introduce a new management program (LEAN) into one department. That 16 person departme…

raise doesn't always mean money. It's counterintuitive, but from my experience, it's more the act of being passed up or not cared about than the actual $$ count that matters.

Like, you might still make less money than you would elsewhere, but if your employer at least makes an effort, people are much happier.

Re: How much does employee turnover really cost?

#67

Post by georgeecollins »

Here is a strange thing I have seen: Turnover is bad for a company overall, but good for H.R. HR teams are more important the more there is a need for recruitment. I have seen them be the part of the company that says "we are a team like a sports team, not a family," implying churn is OK. That is good for their productivity, particularly if their workload is on boarding and "culture" as well as recruiting.

Re: How much does employee turnover really cost?

#68

Post by lostcolony »

dpweb wrote: post #50

There should be some further study in this area. I'm skeptical of the quoted costs of replacing employees and missed productivity ie.. 213%. Not to mention replacing poor performers can often be a value gain not loss. About cost, we're talking managers' time - but maybe hiring is most valuable thing they can be spending time on, other than directly generating revenue.

I think this is predicated on the idea of replacing an employee who leaves of their own accord, that you would have preferred to hold onto. Not of one you let go, or are glad to see leave. Basically, just the employees who are worth the amount you are paying them, or more; not those who are worth less.

Re: How much does employee turnover really cost?

#70

Post by qntty »

sputknick wrote: post #63
shanemhansen wrote: post #61

I've often been shocked at how a theoretically rational profit seeking business will happily throw millions down the drain rather than compensate an individual based on value. Ultimately I've concluded that although they may be greedy, most businesses don't make rational profit seeking decisions. They make decisions that stroke their ego, and sometimes their ego can't accept the value that certain employees bring to…

It's not about what salary that engineer deserved, but what they could command. That engineer might have done $1 million worth of work a year, and deserved a $1 million salary; but he couldn't go to another company and proclaim he was worth $1 million. He could probably go elsewhere and get a slightly above average salary, your company knew that, and that is why they paid him that.

Is it rational for a a company to risk losing $1mm+ while training his replacement rather than pay him more? Assuming he would have stayed if they offered him more money. And if the same situation repeats itself with his replacements, maybe it's a matter of $1mm every (say) 6 years, which would justify paying $166k more per year (surely enough to keep him on indefinitely).
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