Here is a brief excerpt from an especially timely article by Josh Bersin for LinkedIn. He observes, “I can tell the economy is recovering: we’re suddenly seeing companies tell us that ’employee retention’ has become a critical issue. Let me give you some research-based perspectives on this critically important topic.” To read the complete article and check out other articles that discuss recruiting & hiring, please, please click here.

Photo: Marin Barraud/OJO Images via Getty Images

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What does Retention Mean?

Nearly all companies measure turnover. In some industries (retail, customer service, hospitality) turnover rates of 30-40% are common and sometimes even accepted. I had a conversation with one HR manager who told me “we design our organization around high-turnover: we make sure jobs are easy to learn so we can rapidly assimilate new people.”

While this may be a reality in many companies, our research shows that it’s not a sound strategy. Regardless of the role they play, tenured employees drive far greater value than those who are “cycling through” the business.

Many studies show that the total cost of losing an employee can range from tens of thousands of dollars to 1.5-2X annual salary.

Consider the real “total cost” of losing an employee:

o Cost of hiring a new person (advertising, interviewing, screening, hiring)
o Cost of onboarding a new person (training, management time)
o Lost productivity (a new person may take 1-2 years to reach the productivity of an existing person)
o Lost engagement (other employees who see high turnover disengage and lose productivity)
o Customer service and errors (new employees take longer and are often less adept at solving problems). In healthcare this may result in much higher error rates, illness, and other very expensive costs (which are not seen by HR)
o Training cost (over 2-3 years you likely invest 10-20% of an employee’s salary or more in training, that is gone)
o Cultural impact (whenever someone leaves others take time to ask “why?”).

And most importantly of all, we have to remember that people are what we call an “appreciating asset.” The longer we stay with an organization the more productive we get – we learn the systems, we learn the products, and we learn how to work together.

[Estimates of the total cost of a mishire or loss of an especially valuable employee vary widely among experts. For example, Brad Smart’s estimate is 18-20 times the total annual compensation. That seems high to me. However, let’s say it’s “only” 5-8 or even 3-5 times the total annual compensation. That’s still a substantial amount.]

Consider the following simple chart. It simply shows that initially most employees are a “cost” to the organization, and that over time, with the right talent practices, they become more and more valuable. Our job in HR is to attract the “right people” and move them up this curve as rapidly and effectively as possible.

Economic Value of an Employee to the Organization over Time

Obviously for us as employees, we see this same effect. Early in our days in a new job we feel somewhat unproductive and often search for ways to add more value. But in the right environment (onboarding, coaching, training, teamwork) we rapidly “find our place” and start to add more and more value.

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To read the complete article, please click here.

Josh Bersin writes and researches corporate talent, learning, leadership, and HR best-practices around the world He is Principal, Deloitte Consulting LLP and founder of Bersin by Deloitte. You can follow Josh here or on Twitter. To check out all his articles, please click here.