A key manager drops his resignation letter on your desk.
Let the games begin.
You now have to find an experienced professional to fill the coming void. You know the qualifications, you know the responsibilities, but do you know the cost?
The fee for the executive placement firm is pretty clear, but have you factored in advertising, training or the learning curve? What about benefits or background checks? The price can rise quickly.
So how do you keep the spiraling costs under control? The first step is to track them. To help you do that, Jim Smith of People Inc. and the Employers Resource Council have devised a formula.
To determine the average cost per new hire, multiply the dollars spent (hiring, training and learning curve) by the hourly earnings (including benefits). Included in the hiring costs are advertising expenses, recruiting fees, referral bonuses, background checks and relocation costs. Training expenses include orientation, cost of training department, cost of training materials and wages and benefits during the training period. The lost time/learning curve expense encompasses lost productivity during the learning period and/or cost of errors.
“The savvy managers realize that investing in their current employees on a regular basis, like a 401(k), means they are going to grow and bear fruit,” Smith says. “If you spend the initial money and you never add to the account, and you never invest in (employees) after you hire them, then they’re never going to grow. They’re not going to be worth any more to you, and eventually they’re going to go elsewhere because they want to be invested in.”
What does it cost?
“Everyone in business seems to accept as gospel that it is two or three or four times more expensive to acquire a new customer than to retain an old one, but what many senior managers still don’t seem to understand is that it’s the same with employees,” Smith says.
“It costs you three to 10 times more to acquire a new employee and get them up to speed than to retain an old one and invest a little bit in them. (Owners) need to think of their employees as investments and not expenses.”
According to a survey conducted by the ERC, Northeast Ohio manufacturers last year spent an average of 77 days and $4,104 recruiting an engineer, 72 days and $2,744 recruiting a scientist and 79 days and $4,840 recruiting an IT specialist. This year, the numbers changed to 56 days and $6,553 for an engineer, 44 days and $9,241 for scientists and 54 days and $8,172 for IT personnel.
In nonmanufacturing industries, the trend was the same. The number of days spent recruiting dropped from 72 last year to 45 this year, but the cost jumped from $1,259 to $4,370.
What those numbers don’t reflect are the intangibles, such as lost production time and mistakes made getting someone up to speed.
The modern touch
Much of the cost of hiring comes from the time taken up by other workers, HR professionals and managers involved in the interviewing process. Keeping track of the paperwork can be a significant expense, says Grant Cleveland, president of Gooey Industries.
That is one reason the company recently began selling a co-branded Web site, www.staffgenie.com, designed to make the process, from application to hiring, more efficient.
The Web site, personalized to each company, organizes applicants by qualification, tracks a candidate’s progress through the interview process, compares and ranks applicants’ abilities, then archives the information into a folder as a resource for future job openings.
“The way I do most of my hiring is through networking,” Cleveland says, and you can never completely eliminate the face-time side of hiring. But Cleveland says he has been able to go from 2-1/2 full-time HR spots to a single 1/2-time position.
The bottom line is money. HR professionals need to educate the executive branch on the true cost of hiring, Smith says.
“People (must) understand that training and development and investing in your managers is not a wasted expense, which is the way most companies think of it,” he says. “But if it is instead an investment, and if you can link the cost of the investment you’re making to improve retention, then you can take that formula and show the financial people, the bottom-line people, that what you’re doing is actually paying back to the organization.” How to reach: Employers Resource Council, (216) 696-3636; People Inc., (440) 885-3247; Gooey Industries, (888) 604-6639 or www.staffgenie.com
Daniel G. Jacobs ([email protected]) is senior editor of SBN.
10 employee retention myths
“The root of the problem is that too many businesses still believe in myths about employee turnover,” says Richard S. Wellins, senior vice president of marketing for Development Dimensions International, an international placement and training firm.
“Many organizations have taken some effective steps to retaining key employees, but far too many employers are ignoring valuable tools for keeping their best employees. More important, many employers are still far away from truly understanding what makes employees stay and what lures them — or drives them — into the arms of another company.”
Here are 10 myths that do the most to hamper employee retention efforts.
Myth No. 1: The retention problem is going away.
Rather than going away, job turnover is going into overdrive. A DDI survey indicates that 31 percent of employees are dissatisfied or neutral about their jobs. Also, 42 percent of the HR professionals surveyed reported higher turnover this year than last.
Myth No. 2: Companies are doing everything they can to keep employees.
In the DDI survey, 98 percent of HR professionals admitted their organizations need to do better at employee retention.
Myth No. 3: Employee satisfaction equals employee retention.
Less than 10 percent of the employees said they were dissatisfied with their jobs. But more than a quarter, regardless of satisfaction level, plan to look for a new job within the year.
Myth No. 4: Today’s HR departments understand employees’ needs and motivations.
The DDI survey showed a big disconnect between how HR professionals and employees view job retention. For example, the HR professionals ranked “finding meaning in one’s work” dead last as a reason why employees quit. But employees cited “finding meaning in one’s work” as the second most important factor in job satisfaction.
Myth No. 5: It’s all about the money.
When employees ranked what was most important, money finished out of the money — it was only the fifth most important value. The values, in order, were the ability to balance work and outside life, the meaningfulness of work, trust among employees and employees’ relationships with their supervisors or managers.
Myth No. 6: Employees have stopped caring about organization trust and loyalty.
Ninety-nine percent of employees surveyed consider trust in the workplace to be important, but only 29 percent of those employees report a high level of trust within their organization. Only 6 percent of HR professionals selected lack of trust as one of the top five reasons why employees leave, again showing the gap between the perceptions of HR professionals and employees.
Myth No. 7: Companies have embraced new retention tactics.
Companies have found that exit interviews, internal surveys, salary hikes and rewards and more open communications have helped fight job turnover. But more than half the organizations in the survey haven’t even tried tactics such as offering stock options, assigning coaches or mentors for employees, educating managers in retaining employees, increasing managers’ responsibility for retention or offering job sharing, rotational assignments and telecommuting.
Myth No. 8: It doesn’t cost much to hire a replacement.
HR professionals estimated the cost of replacing a manager at $30,000, a finding similar to that of the U.S. Department of Labor, which estimates that the base cost of replacing a worker is 30 percent of that person’s annual earnings.
Myth No. 9: The only real problem area is in high-tech fields.
The DDI survey showed that sales professionals and customer service and support staff are exiting the revolving door more than those in any other professional classification. Information technology professionals are in the top five problem groups, but they are not the only area for concern.
Myth No. 10: Organizations put more effort into retaining managers than into retaining any other group of employees.
The survey showed that 41 percent of organizations that have a formal retention strategy are using it to retain employees with specialized skills, but only 27 percent use the same strategy to try to retain managers and executives. This shows why there is a looming leadership crisis worldwide. Source: Development Dimensions International, www.ddiworld.com
