Improving Employee Retention Through Development and Performance Management

In our last article, we shared 14 human capital risks, but you probably already know that most of your human capital risks stem from just a few sources.  The strategy that works best in business is to focus on the critical few. Because employee retention is the largest area of human capital risk, it’s the first place you should look for savings and improvement.

The Costs of Poorly Managed Employee Retention

How much does poor employee retention cost? The answer is, it depends. There are many factors that come into play as you calculate the expense, from easily quantifiable costs like unemployment to ones that are more difficult to quantify, such as morale and culture. Obviously, it’s higher than the cost to hire the employee which could be 10% – 100% of an employee’s salary.

The Cost of Disengagement

Poorly managed employee retention starts damaging your organization long before the employee leaves. Disengaged employees cost the U.S. $450-$550b in productivity alone, and they are 20% more likely to leave your organization than other team members. How many of your staff are working for your business but longing to be elsewhere?

Turnover Costs

When a key employee leaves, your organization can spend anywhere from 30% – 400% of the employee’s salary to rehire that position. The more senior the employee, the more the replacement costs.

Let’s say that over the course of a year, you lost five employees. Three were entry level and made $30,000 a year. One was mid-level and made $80,000 annually. And one was a senior executive making $120,000 per year.

  • It may cost you 40% of salary to replace the entry level staff or a total of $36,000
  • It could cost you 150% of salary to replace the mid-level employee, a total of $120,000
  • Replacing the senior executive could be 400% of salary, or $480,000

Replacing just five people in one year could cost your organization $636,000.

Unemployment Costs

Did you know that a former employee can receive unemployment payments even if they were terminated for a good reason? Or that they can gain unemployment even if they quit voluntarily?

Unemployment costs catch many employers completely off guard. For Tribal organizations, these costs run between 0.5% – 6.2% of the total wages you pay. Most importantly, 25% – 50% of these liabilities are entirely avoidable. This means you pay between $10,000 – $3M or more per year but could be paying half that if you took the right steps to protect your organization.

Employee Development is Cheaper Than Retention Risks

Many employee retention problems can be avoided by an organization who is committed to investing in its staff. When you put forth the effort and money to build your team members and help them grow in their careers, you can dramatically reduce disengagement, turnover, and unemployment.

On average, training and development costs in the U.S. were $1,208 per employee in 2014, which accounted for 31.5 hours of learning. Different industries have differing levels of investment, of course. On the high end, healthcare companies spent $1,392 per employee for 24 hours of training. On the lower end, manufacturing only spent $535 per employee for 27 hours of training.

How much does your organization spend? Would increasing that amount save your organization money by decreasing absenteeism, disengagement, turnover, and unemployment claims?

There are many ways to improve employee retention. Having excellent communication, a great company culture, and competitive benefits all help. But development and performance management is often the root of employee related issues. No amount of pay or benefits alone will motivate a disengaged team member over the long term.

Are you ready to take action and reduce the #1 cause of human capital risk in your organization? If so, we are here to help. To learn more about how we can help you improve employee retention through development and performance management, contact us today.