THE COST OF CHURN

We recently conducted an employee intentions survey, canvassing more than 3800 candidates for IT positions, and the results showed that 2010 could be a year of change for many. The survey revealed that 67% were looking to change jobs in the new year, with 94% of those candidates in permanent or full-time roles. Of that group, 38% are looking, but will wait for the right role to come up, whilst another 32% are actively seeking roles in the IT marketplace and applying for positions. The reasons for moving varied by demographic, from it "being time to move on" to lack of career progression, and a desire for more flexibility in work hours. Out of all those surveyed, 28% said that a salary increase would stop them leaving their current role. The real costs of employee turnover The significant movement in the IT landscape poses the question: are the costs of employee turnover unavoidable? In short the answer is ‘no’; however, by developing a better understanding of what costs are associated with employee turnover, you could change the way you, as a manager, consider that next request for a pay rise from an employee. Although the true costs of an employee leaving vary, a shared viewed is that the more valuable they are to the business, the more the cost; a cost that could be anywhere from one to two times an annual salary for a junior to mid-level employee. For a more experienced staff member, one could calculate this upward to 2.5 to three times, perhaps more, depending on the type of role they held. For example, people leaving account or relationship management roles carry the risk of having their customers follow them. When you think of the multiples involved, the realisation that it’s not simply a case of finding a replacement becomes somewhat sobering. Below is a scenario worth considering: The average turnover rate within NZ IT employers is around 10%, and on average they employ 25 staff, who on average earn $75,000.* Based on the above, the cost of turning over 3.75 of these employees in each business will be at the very least $225,000, on a multiple of one. This is on top of the salary you pay. If we applied a multiple of 2.5 per employee, that number becomes $187,500 per staff member who leaves. In this scenario, that’s $562,500. Some of the more obvious and measurable costs when replacing an employee could include advertising, recruitment, testing and perhaps an increase in salary package for the new employee. Less measurable, but very time-intensive, is the time it takes should you embark on this process yourself: time spent writing and posting a job ad, reviewing multiple CVs (in this market that could number in the 20-30s per job), setting up interview times, conducting multiple interviews and short-listing the preferred candidates, conducting a second round of interviews and then reference checking. Once you have a preferred candidate, you make the offer in the hope the candidate will take the job. Failing that, you’re back to square one. All this can take some weeks, sometimes months, and will have an impact on your business and productivity. There can be further costs and a loss of efficiencies to a business; some of these are more easily measurable than others, but can include the cost of a temp and staff taking on extra workload, which can result in substandard results and a loss of productivity with their own job. There could also be internal staff training the new employee and the associated time this takes, or the cost of external training courses. What to do? Making a job offer based on a CV, an interview and gut feel has a very low chance of ongoing future success. You can improve those odds significantly by assembling an interview panel, each with prepared questions and an agreed scoring method. The questions should include behavioural- and competency-type scenarios. Complete a very thorough reference check; this is not a five-minute chat. A thorough reference check should not be less than a 15-minute discussion with prepared questions. Probity checks are also an option. Taking it one step further, you could use personality profiling; we’re a big fans of this tool and have used it extensively over the years with each and every one of our employees. The positive results speak for themselves, and the costs are minute compared to making a bad recruiting decision. So, next time an employee requests a pay rise, you might like to think twice before you say no, especially if they’re a top performer. Alternatively, if you suspect an employee is considering leaving or is being headhunted and you really don’t want to lose them, work out a plan to keep them by considering the costs of losing them. * Source www.itsalaries.co.nz