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Target the turnover: retaining employees has far-reaching effects.

CAN YOU LET YOUR profits walk out the door? Whenever an employee terms, your investment in him/her goes out the door at the same time. And, the backlash is that your customers must suffer, too. New hires always start out low on a quality/productivity curve, so that means longer response times, incorrect or incomplete data and even higher costs, since customers share in these low they make a purchase or use your service. The same is true for recruiting and other replacement costs.


Chances are, you Probably know how much recruiting can cost. However, the true impact of turnover is hidden in many other related costs, and there are several turnover costing models available. You will be shocked by the results! The U.S. Department of Labor rule of thumb is replacement costs equal 33 percent of the annual salary--which at $6 an hour is $4,160. Most experts feel that the DOL standard is very conservative, and suggest from 50 percent to 200 percent of annual pay. So, replacing a manager or highly technical employee could easily cost you more than $100,000.

Direct costs include advertising, recruiter fees, job fairs, employee referral fees, credit/reference/background checks, test fees, sign-on bonuses, relocation costs, training, communication, etc. Indirect costs include lower productivity, morale impact, overtime, business disruption, etc.

A positive effort to reduce turnover has more far-reaching effects than replacement costs. Consider that a large retail chain reports that its low-turnover stores had 22 percent higher sales per employee. Or that a trucking company achieved a 50 percent increase in profits after cutting turnover in half. Turnover in the fast-food industry is legendary--but one chain found that stores with 100 percent turnover had profit margins 50 percent higher than stores with turnover of 150 percent.


Most of us would top the list with money. Certainly we all remember good employees who left for a big pay increase. Some of us have even "bought" good employees to attract them from a competitor. But money is never the root cause for leaving All of the large consulting firms have done employee surveys to target reasons why employees quit and money is never in the top 10 reasons. The most common reasons for leaving include:

* Didn't feel that their contribution was valued

* Supervisor relationship was bad

* Lack of training and ongoing support

* Offered more responsibility and growth

* Wanted to grow technologically

* Lack of recognition and/or communication


When you hire someone, the opportunity for success can often elude you. How to improve this process, you ask? One big step is to standardize the selection process, so that yon know that all candidates get the same complete and positive in formation and introduction to you. This is also a wise step for legal reasons and should include standardizing the interview questions (to one set of legal questions you ask every candidate for each position). One national firm even found that a computerized interview process resulted in 10 percent lower turnover.

Most important, do you really know who these new hires are? Have you verified degrees, licenses and past employment? Have you run a criminal check? The last place you want your profit to be used is to defend a negligent-hiring suit. Background checking is a bargain!

Jeff George, human resources director of WorkSmart Systems, contributed to this article.
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Title Annotation:Human Resources
Author:George, Jeff
Publication:Indiana Business Magazine
Geographic Code:1USA
Date:Oct 1, 2003
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