Caught on the HR Side of Retention

Here’s a rambling from just this afternoon. An HR director told me she had done all she could to reduce turnover among licensed social workers but continued to lose 25% of them each year. She estimated their cost per exit to be $10,000, and losing 50 each year culminated in an annual expense of about half a million dollars. My first thought was “Does the CEO of your company know this? Does your CEO, or CFO, know that reducing turnover by 20% is worth $100,000 to your company each year? Not just once, but each year?”

And if the economy hadn’t helped cut turnover, wasn’t it likely that quits would rise even higher in the new year?

Her real problem became clear. She had interviewed employees on why they stay or why they left, she had asked managers to attend training programs, she had re-thought onboarding and other HR programs…and she was tagged as the sole provider of solutions.

Our discussion led to the Rethinking Retention Model(sm) and ultimately the Certified Employee Retention Professional program (CERP). Candidates in the CERP program are required to implement a shared model whereby the responsibilities of HR and executives are clear. Whereas HR provides new, retention-driven processes for hiring, training, onboarding, and other traditional roles, executives must place a dollar cost on turnover and drive retention goals and consequences from top to bottom.

So a new type of retention discussion is happening in that organization now, and it’s likely the HR director will participate in the CERP program in order to share retention responsibility with her management team rather than struggle with retention on her own.

A Quote to Remember

Years ago I was an HR director of a large company, and our CEO was a gifted thinker and master of rhetoric. One day he said the following:
“HR’s role is to never make a decision for a manager and never let a manager make a bad decision”

I wrote this down as I sat at the foot of the ultimate tribal chief. But sometime later I privately questioned his logic. We all know that our role is to manage by influence versus authority, so how then can we be certain to change a manager’s direction if he is committed to it? And what if his manager is equally committed? And what if we’re completely out of the loop and don’t even know the circumstance?

The solution became clear, especially as it related to retention. By installing retention goals and accountabilities, “bad decisions” became apparent and were ultimately addressed. So sometimes the next best thing to having authority is to ensure that those with authority have the right metrics and apply the right accountabilities, so we can achieve the outcomes we need, and our company needs, without being squeezed in the HR middle.

Strategy for the Day

Controlling absenteeism is a pesky job. We recently brainstormed this idea for a client company: Implement 4-day workweeks for employees who meet certain job-related criteria including minimal absences. Then those who take all the days the policy permits will still be in good standing but won’t be eligible for a shiny new benefit that others will enjoy.

A Turnover Cost Model That Works

Costing employee turnover is a job for finance professionals only, as they count the dollars in your company and speak with credibility. Besides, you’d rather they bought into the cost amounts than not, so let them determine the actual numbers.

For a model that works, go to www.TheRetentionFirm.com and click on “turnover cost calculator”. There you will find a model that separates costs into “direct” and “indirect”. The “indirect” costs are most important because this reports lost productivity which is usually the greater cost and the harder to measure.

The “direct” costs are those that easily come to mind…exit survey time, new hire interview time, drug tests, assessments, uniforms, maybe relocations…all of those good-by and hello activities that turnover produces.

The “indirect” model takes a simple approach to a complex issue. It asks that you divide your company’s annual revenues by your total number of FTEs and then divide that resulting amount by 240 which is the average number of workdays in a year. This tells you how much revenue an average employee contributes in a day and this number is indisputable. Then comes the one judgment part, where you are asked to determine whether the job for which you are calculating a cost is average or above or below average relative to producing revenue. Weight an average job a 1 meaning the daily contribution amount for that job doesn’t change. You might weight a sales job a 1.5 though, or a custodial job 7.

Once you’ve established the weight for the job you are measuring, the remaining steps are easy. Multiply your amount times the number of workdays the job is usually open as a result of turnover and you have the lost productivity while you search for a replacement. Then multiply your amount times the average of workdays the new hire is learning the job so you know the cost of “ramp up”, but cut that amount in half since the new hire is partially productive for each of those days.

Then add “direct” to “indirect” and you have a real turnover cost for each position. No model is perfect, of course, as we can never include the cost of lost team productivity, lost manager’s time, or turnover than leads to turnover. But the mathematical model presented is hard to question, and often produces an amount that causes top executives to take more action on retention.