Are You Successful at Recruiting but Not at Retention?
by Kyle Kalloo
Note:This article contains 1,875 words and 1 image, with an estimated read time of 8 minutes.
Most savvy business owners and leaders alike understand the importance of finding and retaining top employees especially when it comes to business success. This is specifically true for small businesses with limited budgets competing with larger corporations for top talent. It’s not just enough to recruit top talent, it’s critical and more cost-effective to retain those top performers for years to come.
Companies that replace employees as fast as they recruit them often have to contend with fluctuating productivity levels and that could culminate in reduced revenue. The demand for companies to retain top talent is intensifying and is often one of the most important issues leadership contends with globally. Employee retention is becoming increasingly challenging. According to data from the U.S. Bureau of Labor Statistics; the average worker’s tenure on average is about 4.4 years. Furthermore, the expected tenure of the workforce’s youngest employees is just about half of that figure.
THE COST OF REPLACING EMPLOYEES
The costs associated with getting new hires can be broadly classified into three different categories namely; Productivity costs, Separation costs, and Recruitment costs.
Productivity Costs — This maybe a little difficult to quantify. Costs in this category include the hours the company loses while trying to get a replacement, it also includes the time it takes other employees to cover the bases and finally, the time it takes the new employee to get up to the level of productivity of the former employee which could range from some weeks to months depending on several factors that are specific to the organization’s industry.
Separation costs — These are costs that the employer incurs when an employee leaves including continued benefits, severance pay, insurance claims (depending on the circumstance), unemployment insurance claims etc.
Recruitment costs — These are costs that an employer incurs in getting someone to fill the position left by the previous employee. This includes the time it takes to update the job description, the cost of training the new intake and every other thing in-between (onboarding). The longer this process takes, the higher this cost. This is why I am not a fan of the axiom of “hire slow and fire fast” concept, both from a financial and effective leadership perspective. Every time an employee leaves an organization, they go with all the expertise and experience (equity) they brought to the job as well as any benefits from the training they gained during their employment. Employers often have to devote resources to recruiting and interviewing new candidates and when one is finally chosen to fill the position, they then have to spend time onboarding that individual.
The data from the Center for American Progress put things in proper perspective; for Organizations that pay $30,000 or less in annual salary, it cost about 16.1% — almost $5,000 — to replace an employee. For businesses that pay $50,000 or less in annual salary, it costs them about 19.7% — nearly $10,000 — to replace an employee, and it costs about 20.4% or about $15,000 to replace employee for organizations that pay $75,000 or less in annual salary. The inference from this data is that the more an organization pays, the more it costs to replace them.
On average, a company spends 12% of its pretax revenue on hiring and training new employees. And for companies that are affected by turnover the most, that number increases to an incredible 40%. Regardless of the reason for the separation or who initiated the termination of an employment contract, every time an employee leaves a company it has the potential to impact an organizations productivity negatively. This includes the indirect costs of lost productivity while the search for a replacement is on, lower-quality of work by the new hire as he or she ramps up, lost revenues, clients and reduced employee morale.
This underscores the importance for leadership to find a way to combat employee turnover. An organization that successfully combats this will likely enjoy increased productivity, higher profit margins and will see the rewards of a more engaged workforce. From the foregoing, it’s obvious that reducing employee turnover is a smart management strategy.
Consider the following practical ways to reduce employee turnover and increase retention:
Competitive Salary and Benefits
According to a recent Glassdoor survey of employees, managers and HR personnel found that an estimated 45% of employees who left their job pointed out salary as a major reason. This was followed closely by better benefits and career advancement opportunities. More than 56% employees also pointed out that insurance and health (dental) benefits keeps them in their job. So, the point is that money and benefits matter. While this is something you should consider, this should only be implemented if you’re paying below industry standards in comparison to other businesses in your industry in your region. When money is no longer a concern for the employee the other items become more relevant and require immediate attention.
Hire the Right Person
It’s discouraging to note that hiring managers are hiring new recruits with the expectation that they will quit in the following year. Glassdoor found that 35% of hiring managers foresee more than one-third of their hires quitting. If you hire an individual who’s a bad fit for your organization, don’t be surprised if they quit. Be realistic about your expectation of the new hire and endeavor to make good use of the onboarding process to build a solid foundation.
Ask questions to understand if the candidate aligns with the job description. Make sure they understand the tasks associated with the job they’re being recruited for. Sometimes the candidate might be more attracted to the job title instead of the tasks of the job or the level of responsibility and accountability. Time and time again I’ve witnessed hiring managers and the department manager interviewing based off perceived passion, something we know to be fleeting.
Passion is VERY important but it can deceive you. Passion is like the icing on the cake. But if there is no cake the icing runs in all sorts of different directions and you can only eat so much of it before you get sick (disengaged). Passion is like a drug… we become addicted to feeling it but it has no staying power over the long-haul for some, when the real or difficult work or tasks begins. But purpose has staying power. Purpose is the cake itself, it gives your passion a place to land, and some focus. Purpose is a reason to wake upin the morning even if you don’t feel like it. It’s a reason to show up and do the work even if the passion is gone that day. Passion is important, it feels good. It just needs focus and direction. That’s why purpose is more important. Christopher Lawrence’s book Go Beyond Passion is a great read to further understand how Passion is fleeting and what to do instead.
Reduce Employee Pain
Endeavour to create a work-life flow. Employees are not robots and you can’t expect them to function as such. If your employee feels like he or she spends most of their life working instead of living, the job becomes the bad guy and performance will be greatly affected. You can find out the point of frustration for your employees through direct feedback, monthly or quarterly one-on-one meetings, surveys etc. Once you’ve done that, the next step is to take practical steps to alleviate the pain. It’s critical to create work schedules early enough so employees can plan their personal lives. Treat all employees and situations fairly. Employee incentives should be purpose-based instead of financial rewards. Removing obstacles out of their way so they can contribute to meaningful work is more effective than using the carrot and the stick method.
Focus on your Managers
We’ve heard it before, people don’t leave companies but instead they leave their managers. This is the number one reason why employees leave. People often leave a company most times not because of the customers, products or colleagues but mostly because of the managers. A bad manager creates a negative energy that will impact employees negatively. So, while training managers to deal with the technicality of their positions, it’s equally important to focus on their soft skills as well. This means focusing on conflict management, crisis management, stress management etc.
Managers often don’t set out to be a horrible manager, they often forget what’s at stake. They often miss the focus of being of service to the three main stakeholders; leading self, leading others, and leading the organization. Are they spending 80% of their time with the 20% of the unproductive employees? And if so, who’s leading the 80% employee group that’s doing it right…? It’s the 80% employee group that will most likely leave because of perceived indifference. From a risk perspective; you have more to lose if the employees from the 80% group leave rather than the 20% group. Continuous learning and development will help the manager, and holding them accountable will ensure consistency and effectiveness over the long-haul.
Keep Employees Engaged
A Gallup poll estimated that about 73% of actively disengaged employees are actively looking for a different job. A key motivating factor for employees to stick around is when they are offered valuable learning and development opportunities. You should be helping your employees expand and grow, not simply getting better at what they do already (technical training). Your training should not be focused on just improving an employee performance in their current role. Consider cross-training programs so that your employees can have a broad skillset not just a skillset limited to their specific job. And make advancement possible, be it promotion, or some form of professional development. Giving employees opportunities for concrete success will keep them motivated and thereby stick with the company for a much longer time.
The Bottom Line
Don’t be so quick to fire an employee. Ensure you and your managers understand that the employee is a valuable asset worth investing in over the long-haul. When you focus on alignment with their purpose and the organization’s purpose this will lead to sustainable growth and productivity. The 80% employee group should remain the top priority. Ongoing communication with this group will yield innovative solutions leading to effective progress. Learning and development initiatives are the strategy for sustainable results for both the employee and organization. In fact, it’s the one thing that is transferable from the work environment to their personal life environment. Even on our worst day we still try to learn something from it, so why not make it a part of the organization’s best day (blueprint)?
Implementing these tips will help retain top talents in your organization and contribute immensely to your company’s productivity and your employees work-life flow.
