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How much does employee turnover really cost?

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Re: How much does employee turnover really cost?

#161

Post by shanemhansen »

ajmurmann wrote: post #150
battlebot wrote: post #106

Earlier quoted context omitted.

You know what's even worse at trying to surface? When you saved your company millions of dollars! I'm not talking theoretical dollars here, I'm talking about last year X cost $Million, and this year due to my finding out some egregious mistakes and fixing them, that cost was measurably less by seven figures, and no one bothers to tell that story to the higher ups! I just wonder what these people do all day? Darn few…

Because of stories like this I am generally against publicly praising individual employees. Whenever you do that there is gonna be somebody who did something great you don't know about and aren't praising. There might even be people who think that what the person you are praising did something bad. I remember a all-hands meeting where somebody got praised for working all weekend. Later in private several people were…

> Later in private several people were disgruntled and claimed the person only had to do so because they had messed it up before despite being told to use a different approach repeatedly.

This sounds like every tech company ever. I used to excitedly watch youtube videos about the extreme measures startups took to scale to "massive" amounts of traffic while undergoing huge growth spurts.

Now I just kind of roll my eyes and think "Yeah, obviously a message bus in a relational databse using rails wasn't the optimal solution for scaling that app".

In the real world emergencies happen. The unexpected happens. But the truth is that if you actually prepare and have been around the block once or twice, they don't happen all that often. And when they do, there's usually a handy little knob to ameliorate the issue.

Re: How much does employee turnover really cost?

#162

Post by joshyeager »

geofft wrote: post #126
salarycommenter wrote: post #27

Earlier quoted context omitted.

There is market rate and then there is market rate. Have you ever met a manager who didn't claim to pay market rate and pull out the old "salary data" yarn. Managers seem to think that just because they say something their employees believe it when the reality is the employee doesn't care and will just replace the faulty manager.

I've always wondered how employers measure "market rate". If there were a reliable public source of market rate, negotiations would be much simpler, and they aren't. And presumably the managers themselves aren't actively interviewing at other companies to see what they'd get offered. So I think the only good source of market rate is people (either candidates or current employees asking for counteroffers), and if you'…

We buy market data from two sources every year. They get their data by collecting it from the companies that buy their data. Obviously that's not perfect, but it's more objective than most other methods.

That hardest part is figuring out which generic categories match our specific positions, since every company in the survey has different definitions and requirements.

Our employees seem pretty happy with the results, and we've had very few offers rejected for salary range reasons. So it seems like we're pretty close. If anything, we're probably a bit above our local market.

Re: How much does employee turnover really cost?

#163

Post by namiller2 »

paulddraper wrote: post #104
jventura wrote: post #100

Earlier quoted context omitted.

On my last job I had made a verbal deal with the previous CTO in which I would be raised in 6 months time after being hired. So after 6/7 months, I went to negotiate a raise with one of the owners and the product manager. I said explicitely that I was quite below market rate and would consider only a raise of at least 20%. The result? I was offered 2%-3%, to be discussed on the next annual review (still some months t…

> I had made a verbal deal with the previous CTO in which I would be raised in 6 months time after being hired > My conclusion: never accept verbal agreements again. Was the verbal agreement not honored? 2-3% after 6 months is not nothing.

If you read the statement again, it sounded like they gave them a review after 6 months, but told them the raise would come after a year review. So he did have a review, but no raise.

Re: How much does employee turnover really cost?

#164

Post by mooreds »

mr_tristan wrote: post #10

While yes, it's important to quantify, I'm not sure the article is that actionable for most startups, or even businesses that don't have large HR departments. Most software development managers I know would just pull estimated values out of their ass, instead of actually creating a formal model for tracking things like "cost of onboarding and training". It sure would be nice to have some case studies, perhaps? Has an…

I commented above, but I don't think you need to get this perfect. What you want is a baseline number, even if it is low. If that number is $X to replace this person (fully, including estimates of rampup time and lost productivity), and they want a raise of $Y, and $Y Now, is the world full of rational employers? Nope.

Re: How much does employee turnover really cost?

#165

Post by luhn »

jventura wrote: post #100
jcadam wrote: post #82

Earlier quoted context omitted.

My last job gave me a ~2% raise the first year and a ~1% the next. I left shortly thereafter. Should have left after the first lousy raise. The previous job gave me back-to-back 1% raises. Left that job after two years as well. Should have left at the one year mark. I've been in my current job a few months. I'll stick around till the first annual raise cycle to see how they treat me. I don't think I'll give this empl…

On my last job I had made a verbal deal with the previous CTO in which I would be raised in 6 months time after being hired. So after 6/7 months, I went to negotiate a raise with one of the owners and the product manager. I said explicitely that I was quite below market rate and would consider only a raise of at least 20%. The result? I was offered 2%-3%, to be discussed on the next annual review (still some months t…

Verbal agreements rarely work out. Even among well-meaning parties, it's far too easy for someone to misremember or misinterpret the agreement. If you do enter a verbal agreement, write it down in an email and send it to the other party. That way there's a paper trail to clarify any disputes.

Re: How much does employee turnover really cost?

#166

Post by shawn-furyan »

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.

There are multiple ways for firms and employees to value contributions. The 'how much can the employee command on the market' method that you outline is a commodity model of valuation, and it seems to have been a poor fit for this situation on the part of the firm, since the employee held enormous non-commodity value to the firm.

Employees aren't worth the market value of their job title on the open market. They are worth the cost of replacing their contributions to the company's bottom line plus any gap in contribution that the market is unable to replace. Often early employees (regardless of objective skill level) hold tremendous non-commodity value to fast growing companies. It is ultimately very costly behavior to think of these employees as commodities.

[late note: the bottom line oriented valuation method that I outline, can of course be negative. If we take the gp's assertions as given, then the employee in question is clearly worth more to the firm than his/her 'commodity' price on the market. But it is possible for the commodity value to be higher than the value of a given employee, even once the transactional turnover costs are taken into account. In such cases, it may be preferable to allow the employee to seek his/her fortunes elsewhere. I note this to make it clear that this sort of valuation model doesn't unduly bias the firm toward retaining low or negative producing employees. By the same token, it frees the firm to recognize value in excess of 'replacement value', as any reasonable worker productivity model should]

Re: How much does employee turnover really cost?

#167

Post by runT1ME »

mevile wrote: post #40
nullnilvoid wrote: post #12

Many managers have the mindset that they can find replacements easily. If you don't do the job, there are 5 people lining up for this position. They don't realize the cost of turnover, partially because it is hard to quantify the cost. In the good old days, IBM and other blue chips would spend lots of money and send employees back to school and train them well. Nowadays, everyone is considered to be replaceable.

In my experience, this is not true in San Francisco. I've never worked anywhere in the bay area where engineers were thought of as easily replaceable. Everyone knows how hard it is to hire competent engineers around here. Even if people were lined up to replace a lost employee, just the interview process for hiring people is expensive as it takes multiple people out of their role to sit and interview someone for a da…

I agree. I switched to working remotely for a Silicon Valley division of a major company, and I definitely feel the difference in appreciation. I'm not by any means treated as a special snowflake, but rather I very much feel it's a two way street, I feel lucky to work there, they feel lucky to have me.

This is in stark contrast to when I was consulting in LA/OC, where I was constantly having to justify my not so high hourly rates/fixed bid projects.

Re: How much does employee turnover really cost?

#168

Post by nine_k »

euphoria83 wrote: post #29

This article missed the fact that the cost to the company in trying to keep the employees who will leave every year might be greater than the cost of losing them. For e.g., in the example given in the article, the company loses 1.57 million due to employee turnover. However, who knows how much the company might have to spend to keep those employees from leaving. The cost would be high because the effort spent on empl…

Let's estimate.

Assume that the company loses 10 employees and loses $1.57M as a result.

This means that it would be better off if it spent less than $157k on each employee, on the average, to prevent the loss.

$157k is a yearly salary of a senior developer, or maybe the entire yearly cost of a senior employee outside the hotbeds like SV or NYC.

We can cautiously suppose that a company could retain the employees with measures less drastic than paying them twice as much for a year. OTOH paying them +20% for 5 years would be the same. So, if they can keep hiring cheaper developers, even while losing productivity due to onboarding issues, maybe they can actually save money!

Re: How much does employee turnover really cost?

#169

Post by softawre »

phaus wrote: post #136
beat wrote: post #123

Earlier quoted context omitted.

I was strongly influenced in my thinking by Jason Cohen's "Rich vs King" article, he talks about the S-curve of wealth utilization. Once you hit a few million in the bank, you have enough money to fund a reasonably lavish lifestyle, without working, for the rest of your life. At that point, how do you motivate someone?

I make low 6 figures doing network security. If I hit 200k, literally the only thing you could do to motivate me would be to treat me well and give me interesting things to do. Fortunately, my employer already does both of those. I just wish it wasn't almost a requirement to leave in order to get a decent raise. Note: I'm not expecting to make $200k in a technical role as a security analyst any time soon, its just hy…

It is also interesting to think your number, 200k, is strictly based on how much you make now.

What would your 18yo self said about 100k?

What do you think about a Netflix engineer making 300k? They'd probably be happy with 500k (though, cost of living, derailment ahead..).

Re: How much does employee turnover really cost?

#170

Post by gm-conspiracy »

bubblesocks wrote: post #135
camelNotation wrote: post #91

Earlier quoted context omitted.

If it's catastrophic, you're probably not taking advantage of the resources available. I know many people who feel pigeon-holed or trapped simply because they are unaware of how insanely easy it is to drop what you're doing, go to school, and get hired elsewhere. There are so many resources and options out there if you're willing to weather the change. Most people are just too scared to consider it and they misinterp…

Exactly! I switched careers by doing nothing more than studying in my local library, and then applying for jobs once I felt I was ready to interview.

Excellent that you and the parent are representative of all of humanity.
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