Thorny Issue: The True Cost of Employee Turnover

When someone important leaves your organization, it costs you lots more than money

May 22, 2015
Thorny issue: replacing staff who leave your company is costly

Ever wonder what it costs you when a valued employee quits? If you’re actually curious, plenty of experts on plenty of websites will price it out for you. Down to the penny.

Some of them will also point out that the financial cost isn’t the only measure. Suzanne Lucas, in a story at Inc., weighed in on this two years ago, before hiring became the feeding frenzy that currently exists in many construction markets. Here’s where the costs start: lowered productivity, overworked remaining staff, lost knowledge, training costs, interviewing costs, and the price of recruiters if you have to use them.

And if you do have to use them, it may be your own fault for not acknowledging the efforts of the person who left and then backing up that acknowledgement with a compensation increase that’s right for the times. Being cheap gets expensive. Citing a Forbes story, "Zen Workplace" makes the point that an average employee could expect a 3 percent increase in 2014, which “given the cost of inflation … actually amounts to more like 1 percent in added spending power,” while jumping ship for another job would probably get that same employee a gain of 10 percent to 20 percent in salary. All else being equal, why not just jump?

It makes you wonder why employers are dragging their feet on pay raises. Is it just habit? Have years of recession and post-recession, when raises were nonexistent or miniscule, blinded them to the very possibility of awarding a substantial increase to those who seriously deserve it?

“In other words,” the Zen Workplace people note, “we’ve cultivated a system in which employees who are loyal to their companies are financially punished, and those who jump ship every few years are financially rewarded.”

Seems that way.

Taking off on that same Forbes article that inspired the Zen crew, Karlyn Borysenko, in a story on LinkedIn, draws on her own experience in recalling an unexpected and pathetically inadequate raise as someone’s idea of acknowledging her conscientious efforts to save hundreds of thousands of dollars for the company she worked for at the time and how, far from persuading her to stay and put up with the daily misery, this raise, so small as to be scarcely noticeable in the context of her total paycheck, sealed the deal on her commitment to get out of there. She acknowledges that it can be expensive to invest in “compensation, benefits, training, development, engagement, and morale,” but that “it costs significantly more to lose your best employees when they jump ship for a few thousand more dollars over the course of the year.”

The HR blog Vocoli notes that younger workers today are far more inclined to tell the boss sayonara. Vocoli calls attention to a U.S Department of Labor report that shows “the median tenure at a company for workers ages 25-34 is three years.” For those between 44-64, it’s 10.3 years. And here’s more: “This trend in short term work tenure is expected to continue as the number of millennials in the workforce increases.”

Evil HR Lady—that’s another blog—points out that when someone difficult to replace leaves, like a chief information officer, you’re really out big bucks. “You may have to hire a headhunter, and that can cost you around one-third of the final annual salary.”

Ouch. PR

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