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FEATURE STORY

Reducing the High Cost of Turnover

Every day some 8,000 members of the baby boomer generation are turning 60. That means business in the U.S. for the first time are facing a rapidly increasing attrition rate and higher than normal employee turnover. While businesses cannot stop the rush of boomers running for the retirement finish line, they can affect how and why employees are leaving. The solution rests with how businesses put new plans into place to retain their good employees longer.

“The level of urgency has increased,” says Manny Avamidis, senior vice president of global human resources for the American Marketing Association during a recent Podcast on BusinessWeek.com. “With unemployment under five percent there are more jobs available than people…leaving the business world with a serious drought in qualified workers.” That translates to companies having to think outside the norm in order to find and keep good workers.

A costly exit

What are the hard costs of an employee leaving? According to Avamidis there are two; direct and indirect costs. Direct costs include recruitment fees such as headhunter fees, signing bonuses, advertising, relocation pay, interview time, travel expenses, and pre-employment assessments. Indirect costs are harder to quantify but can have a more dramatic business impact. Intangibles such as lost clients (especially for those in sales oriented positions who may try to take clients with them to a new company), lost customer service, and weakened employee morale. If there are always help wanted ads for the company in the paper the public perception is that the business is unstable and not a good place to work. All of these factors can add up to one very tarnished brand.

Small businesses face even greater challenges because they often lack the resources necessary to properly hire staff. With smaller or non existent human resource departments and an unclear strategy for retention, small business owners can struggle to keep good employees on their payroll. What many entrepreneurs don’t realize is that they also have some powerful weapons in their management arsenal to keep valued employees. Small companies can provide a more intimate setting and relationship with each employee, lending themselves to help the employee feel more integral to the overall success of the organization. Smaller, leaner operations can be more flexible on work schedules and provide more diverse responsibilities. Employees often wear multiple hats and can try their hand at many roles to find a position that truly suits their skill set.

Why Do Employees Leave?

If we reviewed the top 50 companies to work for in the U.S. , a common trend would surface. Each of these companies spends a great deal of time valuing their employees and creating an environment that is welcoming, provides competitive compensation, and has a solid strategy for keeping those employees. Companies who are facing high turnover often have:

• Non competitive compensation packages

• High stress

• Poor working conditions

• Monotony

• Poor supervision

• Poor fit between the employee and the job

• Inadequate training

• Poor communications

• Bad organizational practices

The good news is that most, if not all of these issues can be rectified.

Measure turnover

To formulate the best and most accurate picture of your turnover, consider using the following formula recommended by PricewaterhouseCoopers. Step one: take the number of annual terminations and divide it by the average number of employees. To calculate total turnover add the cost of hiring a new employee plus the cost of training new employees. Now that you’ve got some hard and fast numbers you can see what the cost is to your business and determine the ‘value’ of each employee. Remember that employees also have intrinsic values to your organization through customer contact, employee morale, image and public relations, so your number will need to be buffered to cover those intangible costs.

Build a retention strategy

Like any other area of a business, human resources needs to have a clearly defined focus and long range strategy for success. You wouldn’t go out and market a product you hadn’t tested, priced to market value, and projected for growth, so why would you bring on an employee whom you haven’t properly vetted, tested and checked to ensure that their goals aligned with yours?

Management training is a must

“Most employees join companies but leave managers,” said Avamidis. Bearing that concept in mind, spend some time working on managerial techniques and implementing training programs for improved communication. The more managers can work with employees and provide positive affirmation and feedback, flexibility, and new opportunities, the more connected and valued the employee will feel.

Have some fun

Believe it or not, adding fun to a workplace can make employees just as happy as a salary increase (OK, almost as happy). If you’re not able to provide the highest salaries in the area you’ll need to leverage other areas of your retention program. Fun is intangible, but if done well, can make the difference between trudging to a job and a going to place where employees enjoy five days a week. Laughter truly is the best medicine and what better way to relieve stress than to have a good belly laugh? Celebrate silly events and even create your own ‘holidays’. Adding a community ‘give back’ day is another great way to extend good will and positive feelings. For example, at the start of baseball season this year, the Boston Red Sox held a corporate fundraising challenge that asked employers to allow a ‘Red Sox Friday’ in their businesses. Employees could wear Red Sox attire to work in lieu of business dress and pay $5 for the benefit. All the money collected would be donated to the Red Sox official charity, The Jimmy Fund to assist children affected by cancer. The company raising the most money at the end of the campaign would be rewarded with a luncheon with first baseman Kevin Youklis and other Red Sox treats.

Other incentives can include reduced pricing on area attractions, package trips and tours, company outings (such as sporting events and picnics) and even in-house athletics like aerobic classes and a fitness center. Many health insurers also offer reduced rates or percentage reimbursements for participation in local health programs to encourage physical fitness and stress reduction. Remember that a physically fit workforce also translates to less time off the job for illness and stress related maladies.

An educated workforce is a happy workforce

Employees need to feel that they are acquiring skills that will help them in the future. By providing job-training and even tuition assistance programs, employees will be better trained to perform their job and have a stronger degree of loyalty to the company. Employees are also looking for their employer to be an industry leader on technology and better ways of working, so stay abreast of new trends and consider implementing a team that will spearhead innovation for the company.

Lastly, be cautious when hiring contract and temporary workers. While seasonal demands may require additional staffing, you don’t want to send the wrong message to your loyal full time employees that you’re willing to pay twice their salary to a temp. Reward those who work with you year round in other ways so that they feel they are a valued and necessary part of the team regardless of who is brought in to work the busy season.

Managing the human factor in your business is an integral component to sustaining and growing a successful organization. To learn more about how to develop your own long term ‘people strategy’, talk with a Fiducial Advisor by calling 866-FIDUCIAL or visit the web site at www.Fiducial.com.