We all know that employee turnover is a problem, but just how of a big of a problem is it? How much does turnover cost companies? And what are the main causes? Prepare to be shocked:
The High Cost of Turnover
A Gallup report found that 21% of Millennial workers say they’ve changed jobs within the past year—a percentage that’s three times higher than non-Millennials. In addition, 60% of Millennials report that they’re open to new job opportunities. And only half of Millennials anticipate that they will still be working at their current company one year from now. Due to this propensity for job-hopping, Millennial turnover costs the U.S. economy $30.5 billion annually, according to Gallup estimates.Millennial turnover costs the U.S. economy $30.5 billion annually. Click To Tweet
However, turnover is an issue across all generations in the labor force. Nearly half (45%) of non-Millennials say they’re open to a different job opportunity. Older employees, from the Baby Boomer and Gen X generations, also bring more experience than Millennials, who currently range in age from 22 to 37 years old. Due to their seniority, Baby Boomers and Gen Xers tend to be the employees holding management and executive-level positions, which are the most expensive to fill when an employee leaves.
A number of studies report different estimates for the cost of employee turnover, but none of the numbers look good for the employer.
A report from the Center for American Progress, which studied 11 research papers published over the course of 15 years, found that turnover can cost organizations anywhere from 16% to 213% of the lost employee’s salary. 16% is the typical cost of turnover for positions earning less than $30,000 annually, while “very highly paid jobs and those at the senior or executive levels tend to have disproportionately high turnover costs” ranging up to 213%. For example, if a highly-trained employee was making $150,000 annually, the cost for the organization to replace that employee could be as high as $319,500.Turnover can cost organizations anywhere from 16% to 213% of the lost employee’s salary. Click To Tweet
Another study, from the Society for Human Resource Management, found that companies typically spend 6-9 months of an employee’s salary to hire and train their replacement.
Josh Bersin, a leading researcher on human resources and talent management, says that the cost of replacing an employee ranges from tens of thousands of dollars up to 1.5-2 times their annual salary. Also, it can take up to two full years for the new hire to be as productive as their predecessor.
Why is employee turnover so costly? Bersin explains that employees are “appreciating assets. The longer we stay with an organization, the more productive we get – we learn the systems, we learn the products, and we learn how to work together.”Employees are appreciating assets. Click To Tweet
And it’s not just the outgoing employee’s lost experience and productivity, it’s the costs of recruiting, hiring, onboarding, and training the new employee. Turnover can also impact engagement, morale, and company culture. People begin to question why employees are leaving, and this can have a domino effect where other employees head for the door as well.
The Engagement Problem
Gallup research reveals that only 29% of Millennials are engaged professionally, displaying high morale and an emotional and behavioral connection to their job, which means that nearly 7 in 10 Millennial workers are not engaged.
And it’s not just Millennials that have an engagement problem. Globally, 18% of workers are actively disengaged and an additional 67% are not engaged—meaning that 85% of employees worldwide show some level of disengagement.Only 29% of Millennials are engaged professionally. Click To Tweet
Burnout is a major factor in this engagement epidemic. Another recent Gallup study of full-time employees shows that 23% report feeling burned out at work “very often or always”, and an additional 44% say they feel burned out “sometimes”. So, 2 out of 3 U.S. workers experience professional burn out at least part of the time.
This leads to absenteeism—burned-out employees are 63% more likely to take sick days—and turnover—those same employees are nearly three times as likely to find a new job.
A major part of the engagement-burnout-turnover equation is the relationship between managers and employees. One survey found that nearly half of workers would leave their position if they felt unappreciated by their manager. And only 17% of Millennials say that they receive routine feedback from their manager, which is a major problem considering that when a manager is willing to listen to their work-related problems, employees are 62% less likely to be burned out.
Mentorship programs can help to strengthen employee-manager relationships, but only 44% of companies report offering these types of programs. And management participates in onboarding—a key part of the employee development process—at only 35% of companies.
Investing in training programs can also provide a strong ROI for companies experiencing high turnover. HR Magazine reports that when companies spend $1,500+ per employee, per year on training, they average 24% higher profit margins than companies with training expenditures below that threshold.
Bad Hires & Good Candidates
Sometimes turnover is simply the result of bringing in the wrong talent. In fact, the Harvard Business Review indicates that up to 80% of employee turnover is due to bad hiring decisions. HBR also pointed to a survey where 41% of respondents estimated that a bad hire could cost $25,000, while another 25% of respondents estimates that cost to be $50,000 or more.
In a survey of 1,400 executives, conducted by Robert Half, 36% of respondents believe that a poor skills match is the top factor in a failed hire, while 30% blame unclear performance objectives as the reason for a hiring gone wrong.
On the flip side, the right hire can help curb turnover rates and build a healthy culture. According to Gallup’s analysis, when companies hire from the top 20% of their candidate pool, they see 41% less absenteeism, 17% higher productivity, 21% higher profitability, and 59% less turnover. However, this also requires that a company has a strong reputation and enough positive word-of-mouth that they can land talent from the top 20% of their pool, especially considering that 71% of workers use referrals from current employees to learn about an organization.
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Ultimately, building strong employee-manager relationships, providing regular feedback, and investing in training and culture-building are all necessary steps toward reducing turnover and boosting retention.