A New Twist on the Cost of Turnover

We featured in a previous entry a very effective model for costing employee turnover, although every model will have holes and omit important considerations. Here’s one great example.
We recently began work with a hospital to cut their turnover and the CEO there was immediately open about why he hired us. He told us he had signed a contract to bring in a noted consulting company to increase efficiencies by shaving times off of waiting periods, surgeries, and the like…and he knew that improving efficiencies included improving individuals’ job performances. So logically he said “Why would I want to spend all of that money to make my people better and then not do everything I can to keep them?”

So let’s take this logic a step further and ask: Should you be concerned about turnover if your people don’t perform well? I guess the answer is no, and also that your problems are far bigger than employee retention. But the logical counter-question is about how important is it to retain employees if you’ve heavily invested in them, as this hospital has. The CEO’s position was that the more he improved efficiencies, the more he increased the cost of new-hire training to ensure new hires fully understood and followed the shiny new processes. Therefore, the cost of turnover had just gone up.

How Much Does Turnover Go Up?

Many employers are concerned that turnover will go up as the economy improves, and PWC Saratoga has provided a benchmark for predicting this. According to their analyses, voluntary turnover increased significantly in the years that immediately followed the end of recessions in 1993 and in 2004. In each case they researched turnover for the two years that followed, and in ’93 the rate increased by 15% and in ’04 the rate increased by 11%.

What factors will drive how much the rate increases after this recession? Here are two considerations. On the one hand, we are told that jobs will be added more slowly, so it is logical to assume that fewer workers will quit if they have nowhere to go. On the other hand, this recession was longer and deeper than the other two and caused organizations to make more drastic changes. So employees might be more bitter and more driven to look and leave.

Most importantly, those with the best opportunities to leave will be the best workers, the ones you need the most. So meet with them and ask them why they stay…then make sure you accommodate their needs as best you can.

Nonprofits and Pay

Most non-profit workers attach themselves to their agency’s mission, leading management to think pay is far down on the priority list. I’ve participated on several non-profit boards and usually cringe when executives report how much money is dedicated to client services and how little to pay, benefits, and other “overhead” expenses. For sure, donors want to know that the majority of their donations go to the agency’s cause but the risk is that non-profit employees are willing to take substantially less pay that they can make on the for-profit side. A study published in the Review of Public Personnel Administration tells us employees are aware of the pay issue and have loyalty limits, that sometimes mission is not enough. The solution includes benchmarking pay against similar jobs in the private sector. If your best employees can make more elsewhere and are critical to your service delivery, why not pay them to keep them?