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How to retain employees: a high turnover rate is costly in both direct and indirect costs.

Many owners of businesses with high employee turnover find themselves running in place instead of growing their companies. As the economy improves, more employers are facing this issue because employees are shopping around their resumes in hopes of landing better positions. In fact, 83 percent of employees surveyed by the Society for Human Resource Management said they are dissatisfied with their current positions and are seeking new employment.

High turnover affects companies in several ways. First, when long-time employees leave, they often take valuable institutional knowledge or intellectual assets with them. Seasoned staff members serve as morale boosters for work teams and help new employees progress more quickly. Having to replace these assets costs employers a lot in both time and money.

Second, high employee turnover often forces business owners to focus their own efforts on staffing. Whether the employees being replaced are senior-level executives, middle managers or entry-level staffers, business owners often bear the responsibility of recruiting, interviewing and training new hires. And this is at a great cost--typically the equivalent of 30 percent to 150 percent of the salary for the position.

Furthermore, many business owners mistakenly believe that the cost of replacing employees is merely the price of newspaper or Website advertisements. However, both direct and indirect costs must be taken into consideration.

For example, employers may need to hire a search firm or a headhunter to find the right candidates for hard-to-fill positions. An often-overlooked indirect cost of turnover is its effect on other staff members. While a position remains vacant, other employees usually take on additional responsibilities. Without proper implementation and management, this can result in low morale and lost productivity.

Why employees choose to leave

Understanding why staff members look elsewhere is a key to employee retention. According to a Society for Human Resource Management survey, the top-three reasons why employees search for new positions are because they:

* Want better compensation and benefits (53 percent).

* Are dissatisfied with their potential career development (35 percent).

* Are ready for new experiences (32 percent).

While salaries and career advancement are important, many employees choose to leave because they don't believe their work is appreciated. Surveys reveal that more than 40 percent of people who leave their jobs do so because they don't believe their companies value their contributions.

A lack of appreciation, a lack of teamwork and the perception that business owners don't care about their employees are consistently the highest-rated reasons for low job satisfaction. This often stems from poor communication on the part of either employees, their managers or both.

Ways to avoid high turnover

Business owners can avoid high employee turnover by addressing compensation and benefits, implementing training programs with clear paths for advancement and providing comprehensive employee relations programs.

To make sure they are offering competitive compensation and benefits, many business owners regularly check benchmarks for their industries and geographic locations. One way small and mid-size businesses can offer Fortune 500 type benefits is by working with a Professional Employer Organization, or PEO. Through economies of scale, PEOs provide businesses with better benefits than they could obtain on their own.

Another key to employee satisfaction is implementing formal training programs that provide employees with clear paths for advancement. Employees are more likely to remain loyal to businesses committed to staff development and promoting from within.

Likewise, staff members can benefit from formal employee relations programs that include the use of employee handbooks and resources to resolve issues as well as personal problems that workers encounter.

Finally, hiring the right people from the start reduces turnover. Managers should have a clear idea of the types of people they want to hire for each position, write detailed job descriptions and commit to hiring the best candidates rather than the first candidates who meet minimum requirements.

Tom Shehan is Detroit area president for ADP TotalSource in Troy, a Bronze-level member of the Detroit Regional Chamber.

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Title Annotation:Workforce CENTRAL
Author:Shehan, Tom
Publication:Detroiter
Geographic Code:1USA
Date:Jan 1, 2005
Words:651
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