Employee turnover is inevitable for any organization, but excessive turnover that causes skills and knowledge to frequently walk out the door can significantly impact a company's bottom line. Excessive employee turnover can significantly erode institutional knowledge and morale.
The Financial Impact of Losing Valuable Employees
In this post, we'll explore some eye-opening statistics on the financial toll turnover takes on businesses. We'll look at the main reasons employees choose to leave jobs, particularly in regards to career development and poor management. And we'll briefly touch on some best practices that can enhance retention, which we'll cover in more depth in our post.
The Hard Cost of Turnover
Replacing an employee is expensive. From recruitment to training, turnover necessitates a significant outlay of resources. The Center for American Progress estimates that turnover costs for those making under $50,000 per year amount to 20% of the departing employee's salary. For an employee making $45,000 a year, that's $9,000 in replacement costs. In smaller firms, the costs are even higher. (Midlands Tech)
According to the definitive research by Deloitte: “Estimates of the cost of losing an employee ranges from roughly 1.5 – 2.0x that employee’s annual salary.” (Josh Bersin)
Further, the higher the pay rate or the higher the skill, the more it costs (G&A Partners):
30-50% of employee’s annual salary
40-70% of employee’s annual salary
50-80% of employee’s annual salary
75-100% of employee’s annual salary
75-125% of employee’s annual salary
100-150% of employee’s annual salary
100-150% of employee’s annual salary
For higher salaried managerial and executive positions, turnover can cost up to 213% of the employee's gross annual salary according to The Center for American Progress. That means for an executive earning $100,000, turnover could cost well over $200,000 when you factor in temporary coverage, recruiting and interviewing, onboarding, and productivity loss.
Across industries, businesses are shelling out billions in response to turnover:
- Lost productivity costs U.S. businesses $1.8 trillion every year. (Matthew S. O'Connel)
- Turnover costs U.S. businesses an estimated $1 trillion annually. (Matthew S. O'Connel)
- Employee turnover has cost US industries more than $630 billion. (Work Institute, 2020)
- The healthcare industry loses $38 billion annually from turnover (National Healthcare Retention & RN Staffing Report)
- Companies as a whole lose over $1 trillion yearly due to voluntary turnover (Work Institute)
At the organization level, turnover related expenses are significant:
- It can take 1-2 years for a new employee to reach the same productivity level as a high-performing employee who leaves. (Josh Bersin)
- Even after hiring a replacement, it takes months for them to become productive.
- If the team member who left could bring in $100,000 in revenue, your company will experience $25,000 less in income and profits for those months. (Forbes)
- A 100-person organization that provides an average salary of $50,000 could have turnover and replacement costs of approximately $660,000 to $2.6 million per year. (Gallup)
- The cost of talent shortages is projected to reach $435.7 billion for the US (Catalyst)
With numbers like these, it's clear that reducing voluntary exits needs to be a priority for employers.
- Employers need to spend the equivalent of six to nine months of an employee’s salary to find and train their replacement. (SHRM)
- For companies who experienced extended job vacancies, 81% reported it had a negative impact on their company.
- Among these are not getting work done (28%), disengaged or unmotivated workers (27%), low employee morale (25%), revenue loss (25%), and delivery time delays (22%). (Express Employment Professionals, 2020)
- “Keeping one salesperson for three years instead of two, plus ensuring better management and onboarding, produced “a difference of $1.3 million in net value to the company over a three year period.” (Maia Josebachvili)
While some degree of turnover is inevitable and brings in fresh ideas, excessive churn saps company resources.
Why Do Employees Resign? Lack of Growth and Poor Management
To reduce voluntary turnover, organizations need to first understand why people are motivated to quit in the first place. One of the main factors driving resignations is lack of career development.
- In a Gallup survey, a shocking 93% of millennials said opportunities for professional growth are very important to them at work.
- Yet according to the Work Institute's retention report,
- 25% of employees leave due to lack of career development,
- while 29% resign due to lack of learning opportunities.
This data indicates that today's workers, especially younger generations, are willing to jump ship if they don't feel their current job is helping them gain skills for the future or move toward their long-term career goals. They expect managers to take interest in their aspirations and provide developmental assignments, training, and promotions that align with their professional objectives.
Bad Managers Ruin Companies
However, one of the most significant yet overlooked drivers of turnover is poor management.
- More than half of employees (60%) say a less-than-ideal work environment, unsupportive managers, and dull work duties can speed up their resignation. (Zippia, 2020)
- More than a third of parting employees said they were motivated more by their unhappiness than by the attraction or availability of an outside opportunity. (Monster.com)
- One in four left a job because they feel their company leaders did not treat them with dignity. On the other hand,
- One in five resigned because their company was unable to support their well-being. (Limeade, 2020)
As Joe Campagna, owner of My Virtual HR Director notes, "A bad manager often was an excellent individual contributor who was promoted because of their job-specific skills or knowledge. Without proper management training, an excellent employee can become a terrible manager.
The employer is extremely hesitant to reprimand or fire the terrible manager because the employer remembers how great the manager was as an individual contributor. So there is exponential bias due to the investment in that manager's tenure and past performance."
This dynamic makes it very difficult for organizations to recognize they have a poor manager on their hands. The bad manager usually even has great technical expertise. But the lack of essential people skills like communication, accountability, and emotional intelligence is crippling.
So why does this manager get promoted in the first place? Often because management sees their standout individual performance and assumes they'll excel in a leadership role. But without equipping them with management training and evaluating their fit, it's a recipe for dysfunction. The team suffers from the manager's unsupportive style and lack of guidance. Morale and engagement plummet. And eventually, the manager's reports come to resent the work and culture.
Turnover rises as employees seek open positions with managers who value their development and provide effective coaching. According to the Work Institute survey, 18% of employees leave due to unsatisfying job responsibilities, while 23% resign due to poor management. Clearly, leadership capability has a massive impact on retention.
Managers Are More Influential Than Most Companies Realize.
- According to Gallup, Fifty-two percent of voluntarily exiting employees say their manager or organization could have done something to prevent them from leaving their job.
- Over half of exiting employees (51%) say that in the three months before they left, neither their manager nor any other leader spoke with them about their job satisfaction or future with the organization.
- According to 60% of employees in the US, the most important contributor to job satisfaction is the people at work. (The Conference Board, 2019)
What Can Managers Do To Make Them Stay?
- The leading reasons why an employee would stay at their current job include recognition (21%) and
- a good working relationship with their manager (19%). (Achievers Workforce Institute, 2021)
The bottom line is that neglecting to properly train managers, hold them accountable, address dysfunction, and plan for succession planning sets organizations up for turnover. It's essential to track reasons for attrition and proactively build the culture and leadership capabilities that will enhance retention.
Stay tuned for more insights on crafting an effective employee retention strategy!
Cited Resources & References:
Gallup. (2017). The Fixable Problem That Costs U.S. Businesses $1 Trillion. Retrieved from https://www.gallup.com/workplace/247391/fixable-problem-costs-businesses-trillion.aspx
Finances Online. (2022). Employee Turnover Statistics: 2022 Retention Data & Rates. Retrieved from https://financesonline.com/employee-turnover-statistics/
O'Connell, M., Kung, M. (2007). The Cost of Employee Turnover. Industrial Management, 49(1), 14-19. Retrieved from https://www.researchgate.net/publication/211392097_The_Cost_of_Employee_Turnover
Bersin, J. (2020). Employee Retention Now a Big Issue: Why the Tide has Turned. Retrieved from https://joshbersin.com/tag/retention/
Employee Turnover Definition (n.d.). In Investopedia online. Retrieved from https://www.investopedia.com/terms/e/employeeturnover.asp
Catalyst. (2020). Turnover and Retention: Quick Take. Retrieved from Catalyst website: https://www.catalyst.org/research/turnover-and-retention/
Emplify. (2020). Employee Engagement Trends: 2020 Report. Retrieved from Emplify website: https://emplify.com/blog/employee-engagement-trends-2020-report/
Deloitte. (2020). Talent 2020: Surveying the Talent Paradox from the Employee Perspective. Retrieved from https://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-cons-hc-trends-2020-talent.pdf
Limeade. (2020). Limeade Employee Care Report 2020: The Hidden Causes of Turnover. Retrieved from https://www.limeade.com/resources/white-papers/limeade-employee-care-report-2020/
SHRM. (n.d.). SHRM Customized Human Capital Benchmarking Report. Retrieved from https://www.shrm.org/ResourcesAndTools/business-solutions/Pages/human-capital-benchmarking-report.aspx
Work Institute. (2020). 2020 Retention Report: Trends, Reasons, & Recommendations. Retrieved from https://info.workinstitute.com/retentionreport2020
Cain, A. (2019). Alarming Employee Turnover Statistics You Need To Know in 2022. Retrieved from https://www.forbes.com/sites/alancain/2019/07/19/alarming-employee-turnover-statistics-you-need-to-know-in-2020/?sh=19c1cc7e76b1
Center for American Progress. (2012). There Are Significant Business Costs to Replacing Employees. Retrieved from https://www.americanprogress.org/issues/economy/reports/2012/11/16/44464/there-are-significant-business-costs-to-replacing-employees/
Gallup. (2016). Millennials: The Job-Hopping Generation. Retrieved from https://www.gallup.com/workplace/238073/millennials-job-hopping-generation.aspx
Work Institute. (2018). 2018 Retention Report. Retrieved from https://workinstitute.com/retention-report
National Healthcare Retention & RN Staffing Report. (2019). 2019 NSI National Health Care Retention & RN Staffing Report. Retrieved from https://www.nsinursingsolutions.com/Documents/Library/NSI_National_Health_Care_Retention_Report.pdf
BusyBusy. (2021). How To Reduce Employee Turnover Cost? Retrieved from https://busybusy.com/blog/reduce-employee-turnover-cost/
Monster. (2022). Why People Leave Their Jobs. Retrieved from https://hiring.monster.ca/resources/workforce-management/employee-retention-strategies/why-people-leave-their-jobs-ca/
G&A Partners. (2019). How Much Does Employee Turnover Really Cost Your Business? Retrieved from https://www.gnapartners.com/resources/articles/how-much-does-employee-turnover-really-cost-your-business
Gomada. (2022). The Real Cost of Employee Turnover in 2022. Retrieved from https://www.gomada.co/blog/cost-of-employee-turnover-statistics
The Conference Board. (2019). Poll: Job Satisfaction Climbs to Highest Level in Over Two Decades. Retrieved from Statista website: https://www.statista.com/chart/17824/job-satisfaction-in-the-united-states/
MetLife. (2020). MetLife’s 18th Annual US Employee Benefit Trends Study 2020. Retrieved from https://www.metlife.com/content/dam/metlifecom/us/ebts/2020/Resources/Reports/2020-EBTS-Main-Report.pdf
Express Employment Professionals. (2020). Even in a Pandemic, Companies Still Struggle with Employee Turnover. Retrieved from https://www.globenewswire.com/news-release/2020/12/17/2146923/0/en/Even-in-a-Pandemic-Companies-Still-Struggle-with-Employee-Turnover.html
Achievers Workforce Institute. (2021). Achievers Engagement and Retention Report 2021. Retrieved from https://discover.achievers.com/engagement-retention-2021
Lahey, Z. (2018). The Cost Of Turnover Can Kill Your Business. Retrieved from https://www.forbes.com/sites/forbescoachescouncil/2018/02/13/the-cost-of-turnover-can-kill-your-business/?sh=2ba9dbc14618
Midlands Technical College. (n.d.). Measuring the Real Cost of Employee Turnover. Retrieved from https://www.midlandstech.edu/sites/default/files/MtC%20Files/hrc-measuringemployeeturnovercosts_cc.pdf
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Joseph Campagna, SPHR, SHRM-SCP is president and owner of My Virtual HR Director, a human resources outsourcing company serving small and medium sized businesses nationwide. My Virtual HR Director provides an executive level HR advisor to companies that can’t afford or can’t justify hiring a fulltime HR professional on staff.
With twenty years of experience dedicated to the HR profession, Mr. Campagna has honed his skills as an expert in compliance, talent management and employee relations. Bringing human capital management experience from start-ups, IT and biotechnology companies, employee leasing, and fortune 100 behemoths Mr. Campagna has filled his tool belt through generalist work, executive positions, and consulting opportunities with companies such as ADP, Merrill Lynch, and Johnson & Johnson. As Vice President of HR for biotech company Hemo Concepts, as well as the head of HR for the global IT solutions company, the Galaxy Group, Mr. Campagna created rich and successful organizational development and employee engagement programs.
Having worked with a diverse group of companies and clients in a broad spectrum of industries and environments, he brings a unique HR philosophy to every organization he works with. “HR is not the picnic department,” he says “but instead bears the full responsibility and the unlimited potential for a highly productive and efficient workforce. If HR systems are successful, the organization’s revenue should be increased.” From mergers and acquisitions, to IPO’s, to new product development, to divestiture Mr. Campagna has a true business background to support his HR Architecture.
Mr. Campagna is certified as a senior professional through both the Human Resources Certification Institute (HRCI) and the Society for Human Resource Management (SHRM). The HRCI designation of Senior Professional in Human Resources (SPHR) is an experienced-based examination certification. The SHRM certification is a competency based examination certification. Each is a premier designation in the world of HR and recognized by the Society for Human Resource Management of which Joe is a national member and former chapter president.
Mr. Campagna brings decades of helping small and medium sized businesses create HR structures such as employee handbooks, performance systems, talent management, training programs, and employee engagement. He knows how to deliver business results through HR aligned objectives.
Nearly 30 years of expertise and HR executive authority combined with a group health insurance license and certifications from the Society for Human Resource management and the Human Resources Certification Institute have given Joseph Campagna the guru status that has earned him leadership roles, board of director roles, and speaking engagements related to human resources.