Turnover costs have deep and complex aspects that should be strategically taken into consideration by the HR when developing the company’s policies and procedures.
According to Costello (2012) the cost of employee turnover can vary from 40-400% of an employee’s annual salary. Time, money and hidden or “soft” costs when combined might result in a much more impacting situation than the expected by the company’s executives.
The author classifies the costs as “hard” and “soft” costs. As examples of hard costs she cites administration costs such as exit interviews and payroll changes; overtime and temporary employees’ costs during the vacancy period; recruiting and selection costs; new hires training costs and last but not least, severance pay.
The “soft” costs highlighted by the author are loss of expertise; workflow disruption; potential absenteeism increase due to stress in the work place; productivity or quality service decrease; lack of stability in the workplace which may contribute to cause the resignation of remaining employees. Although all those costs are real, many companies still undermine their effect due to the lack of a system that calculate turnover costs properly. In addition to that, many companies still adhere to the erroneous concept that turnover costs are generally considered an unavoidable cost of doing business.
While it is acceptable that some degree of turnover is unavoidable and to some extent advantageous since it promotes the entry of new knowledgeable individuals in the company; it is extremely important that HR specialists work towards the retention of top talents and replacement of low performers.
According to Ruyle, (2010) vital Human Resources activities such as recruitment and selection, benefits packages, induction plan, rewarding systems, career development and performance appraisal should incorporate turnover costs through quality practices.
Poor recruitment and selection processes for instance, will inevitably lead to hiring the wrong people increasing turnover rates. A Harvard University research showed that 80% of employee turnover comes from a deficient hiring process. Costello (2012)
Implementing an efficient rewarding system and benefit package will contribute to employee retention and motivation. Individuals need to feel useful not only to the organization but also to their community.It is of fundamental importance that companies align a higher purpose other than profits to their employees’ life purpose.
After all, when the basic needs are satisfied humans tend to seek higher goals that have to do with intellectual, emotional and spiritual development. It is also important that a strong induction plan is implemented since it will promote the alignment of the new hire and the company’s goals. Besides, it’ll establish the initial relationship leaving a long lasting impression on both sides. Pilbeam & Corbridge (2010, pp.105)
It is easier for recruiters and trainers to detect and correct discrepancies between employees and the company at this stage of the process.
To conclude, it is substantial that executives consider turnover costs since they affect the overall company performance. Moreover, Ryle (2010) advises that in order to mitigate turnover costs it is important to create an efficient employee value plan; optimize performance management; promote employee engagement and do the correct distinction between talent development and deployment.
Ryle, K. (2012) ‘Measuring and mitigating the cost of employee turnover’ SHRM Webcast [Online] Available: http://www.shrm.org/multimedia/webcasts/Documents/12ruyle_2.pdf (Accessed: February 8 2014)
Costello, A. (2012) ‘The true cost of employee turnover’ HR.com [Online] Available: www.hr.com/en/app/blog/2012/03/the-true-cost-of-employee-turnover_h0drvdzp.html (Accessed: February 8 2014)
Pilbeam, S. and Corbridge, M. (2010) People Resourcing and Talent Planning: HRM in Practice. 4th ed. Harlow: Pearson Education Limited.