The Role of Compensation in Employee Turnover

Companies lose money when employees leave. There is no doubt that high employee turnover is extremely pricey. However, the cost of losing an employee varies depending on your organization’s data points.

No one likes to lose a great team member, yet employee turnover is an unavoidable reality of doing business. The cost of turnover can be hard to identify but it is essential for organizations to do so. Taking the time to measure the real cost of employee turnover helps organizations have smarter hiring and retentions decisions that greatly impacts your bottom line.

Here are some steps you can take towards identifying the real cost of employee turnover in your organization:

It helps to have all the facts before drawing conclusions. So, assembling a data-gathering team is a good starting point to calculate employee turnover cost. The finance team, HR department, operational coordinators, and team leaders who are most concerned about profitability are often focused on metrics and key indicators. Their insights are invaluable when gathering this data. 

Questions to pose to this group include: 

•  How much does it typically cost to separate with a current employee?
  Factors to consider when answering this question: 
• Rate of departing employee’s salary plus benefits 
• Number of days departing employee’s position typically remains open 
• How much does the company need to spend with temporary, part-time or consulting employees, or outside agencies to maintain the workflow in the departing employee’s absence?

Factors to consider: 

• Estimated overtime costs associating with covering departing employee’s work while position remains open 
• How much does it typically cost to acquire a new employee?

Factors to consider: 

• Rate of hiring manager’s salary who is responsible for recruiting and screening applicants 
• Estimated hours spent parsing through resumes 
• Estimated hours spent interviewing 
• Estimated cost of conducting a background check 
• Estimated amount of time spent by a hiring manager or trainer with a new employee 
• Rate of hiring manager or trainer’s salary 
• Number of working days in a new employee’s onboarding period

2. Analyze Your Findings About Employee Turnover

Now that you have your data, the next step is to interpret it. Select a benchmark position to use for verifying the results.

Calculate: 

• Overall cost when a single employee leaves your organization 
• Net and gross lost productivity 
• Total turnover cost of a role based on how many people are expected to leave that position per year

3. Communicate Your Findings on Employee Attrition

When dealing with busy executives and those outside of the HR arena, rely on visual analytics to tell your story quickly. This can help HR be involved in decision making for budgeting, employee engagement, and programs to enhance employee engagement and retention.

Helpful visualizations include: 

• Graphs and interactive charts 
• Dashboards and widgets
• Customized reports
• Dials and gauges that benchmark performance

Keep in Mind the Soft Costs of Employee Turnover, Too

Remember, besides hard costs which are more tangible, soft costs from attrition and transition are also significant. If open roles are not filled in a reasonable timeframe, it can lead to more attrition across the department. In a market with less than 4% unemployment, it’s best to invest in proactive solutions to analyze data and alert managers of flight risk, salary discrepancies, and alignment issues.

Conclusion

The real cost of employee turnover can be complex to identify, but it’s an essential part of managing your organization’s long-term success. Use the steps in this article to assess employee turnover’s true impact and develop a plan to reduce it. Taking steps to reduce employee turnover is a wise business decision and can result in increased productivity, morale, and financial savings for your organization.