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Cost of the Improved Economy

Well another study has come out with the dire prediction that 60% of people surveyed plan to look for a job in 2010.  I have blogged about the sky is falling enough so this will be my last one on the topic this year. 

I was thinking about the 60% number and the impact it could have on a company.  So let’s say a company has 300 employees.  I doubt 60% will actually leave their job in 2010, so let’s just say half of that will leave in 2010, or 30%.  So this 300 employee company could be losing 90 people in 2010.  This is just voluntary turnover, I am sure involuntary turnover will add a few more but for the sake of the argument, let’s just focus on voluntary turnover.  The average cost to replace a worker is 1.5 times their salary.  Let’s assume these 90 employees are making $30,000 a year, which is probably low but if the forecasts are accurate about the number of people leaving, the labor pool might be somewhat deep so the cost of replacing an employee might not be as high as usual, so we will stick with the salary of $30,000.  The cost of replacing each employee is roughly $45,000 per employee.  In 2010, this small company could easily feel a financial impact of $4,050,000 from replacing these 90 people. 

Let me drive this home with one another point.  Almost every study I have read, indicates the high performers are the ones most at risk for leaving.  So back to the example, of those 90 employees that will leave, a majority of those will be top talent.  They are upset because companies aren’t giving raises and bonuses so they are going to find a company that is willing to give them a little extra financially. 

So let me ask a question, if it is costing this company over four million dollars in soft and hard costs to replace these employees, does not giving a raise or a bonus (especially to top performers) really make financial sense?  Now, I know previously, employees rarely left solely for money, it was usually because of an opportunity to advance their career, work-life balance, etc.   I recognize not all companies can afford bonuses and raises, but most companies could do a better job with training, career development, work-life balance, etc.  Improving these areas might offset the lack of raises or bonuses. 

I realize you can argue with my math and say the company may not need to replace all 90 employees, and the cost of replacing might be high, blah, blah, blah.  That is not the point.  The point is companies need to start focusing more long term with their employees and assessing now, what will increase loyalty in employees be it financial or environmental (training and development, career advancement, work-life balance, etc.) changes that will keep these high performers so companies can take advantage of the opportunities that will arise as the economy turns around. 

About the Author

Chris Woolard

Chris Woolard

Chris is responsible for the sale, design, implementation, account management, and consulting for his clients’ employee and customer assessment programs. He focuses on employee loyalty consulting and is considered Walker’s employee loyalty expert. He has worked with many companies on customer due diligence solutions.

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