Ironically, the hot topic of employee layoffs in today’s news can overshadow the importance and significance of employee retention. As a senior human resource (HR) professional specializing in strategic planning, I believe that the costs of employee turnover are underestimated since they are not always directly reflected on the balance sheets.
Some people view employee turnover as inevitable, and I caution against buying into this viewpoint. Instead, employers should prioritize employee retention as a business strategy because employers will, in turn, enjoy measurable monetary returns by reducing expensive tangible and intangible turnover costs.
Why would an employer want to retain current employees rather than recruit and hire replacements?
For starters, there are hidden costs associated with hiring just one employee. For every lost employee, a business will have advertising and administrative expenses to replace that employee such as the following:
- time spent reviewing and/or revising the job description;
- time spent drafting the ad;
- costs for running the ad;
- time and resources required for reviewing the resumes;
- time and resources required for interviewing the applicants;
- expenses related to background checks; and
- on-boarding, orientation and training, etc.
The bottom line is that businesses are looking to increase revenues. As mentioned above, the recruiting and hiring expenses to replace just one employee are substantial, which end up cutting into revenues. In addition to that, an organization’s experienced employees are more likely to have higher productivity levels, which help bring in increased revenues. On the other hand, I’ve seen how an organization’s profit and loss statements can be negatively impacted by high employee turnover.
In fact, American businesses cough up millions of dollars for turnover and recruiting costs. The Society for Human Resource Management (SHRM) says that it can cost up to one and half times an employee’s starting annual salary to replace that employee. So employers need to strategically and tactically utilize their current talent to compete in this “war for talent.”
Employee retention — is it always about the money?
HR professionals are adept at guiding employers to deal with today’s complex and diversified work environment. Everyone talks about compensation, and of course, it is important. But based on my experiences, I believe it is a myth to think of benefits and compensation in terms of money only. It is a myth to think that the more money you pay employees, the longer they will stay with an organization. Simply paying more money to a person certainly does not guarantee that this person will commit to staying with an employer until retirement.
Consider the indirect factors that lead to employee retention.
In today’s business climate, I am really quite comfortable in saying that it is best to focus more on indirect factors such as the following:
- Developing and instilling a positive workplace culture; one that is attractive to employees and will be embraced.
- Developing a workplace with a work/life balance.
- Building a trusting culture, which includes one where executives are trusted to make effective decisions.
- Engaging the employees by providing meaningful work and opportunities.
- Inspiring a level of cooperation among co-workers.
- Providing opportunities for growth and advancement.
- Creating a challenging work environment, particularly for overachievers who are looking for more challenges and responsibilities.
Understandably, employers—especially those in small- to medium-sized businesses—can become completely engrossed in their day-to-day operations. Taking time to focus on this “war for talent” may seem untimely or completely out of the question. However, by investing a focus on employee retention, your organization can be well rewarded by employees who want to stay and contribute in ways that will increase your profitability and customer satisfaction ratings. Who doesn’t need employees like these today?