12/11/2015
Can You Afford Your Staff Leaving?
I was recently doing some work for an organisation that was struggling with their financial position; same old story, donations down, expenses up!
One of my key messages over the years is like in all business; charities and economics, there are cycles. Cycles of donors for instance. One of the ways to offset the impact on your bottom-line is to effectively control costs whilst not compromising future development.
Anyway, back to my story.
As I was doing my analysis on the organisation and talking to various staff, I quickly realised that most people I talked to had only just started with the organisation. My spidey-sense started to tingle!
When I approached the CEO about this, she seemed quite oblivious, only acknowledging that “a few people had moved on lately”. I insisted we delve further into this and we discovered that over the previous two years they had a staff turnover ratio of over 50% per annum. I told the friendly CEO that this is a large reason that her bottom line is under so much pressure.
You'll hear people talk about the high cost of turnover, but when you try to press for the actual costs they don't really know. It seems like a mysterious thing that people talk about.
And, of course, it's true--the costs are mainly hidden. It isn’t a separate line in your profit and loss statement. You don’t budget for it.
There are some obvious costs/expenses that stick out, like the cost to advertise a position on a site, or for specialized positions, the cost of a recruiter. But, even if you recruit strictly through word of mouth and employee referrals, there are costs to losing an employee. While the costs of hiring employees such as recruiting, on boarding and orientation are visible (or at least you can find them), it is often the hidden costs that most companies never take into consideration.
Here are the things you're paying for;
Lowered productivity
The person who left was doing something, right? Of course they were (unless you have some serious issues). And who is doing that job now that the position is vacant? No one?
That's lost productivity right there. What if you just farm out the tasks to other people? Chances are, the most important tasks will get done, but other things will fall by the wayside.
Overworked remaining staff
Can this be measured against your bottom line?
Think about this. As these tasks are farmed out, you are either paying overtime to other staff, or they are getting stretched thin. Their quality of work goes down as does their satisfaction and engagement. Which means that they are more and more likely to start looking for a new job and leave. And the longer they stay in their overworked roles, the harder it will be for you to regain their goodwill even after you've filled the vacancy.
Culture costs
In my experience, every time a staff member moves on, regardless of the reason, there is a hit to your team culture.
It could be that it reminds others that there are other jobs/careers out there. It could be that the perception is that their team mate was ‘forced out’ even if they weren’t.
It could be that someone was forced out or terminated, leaving a huge negative impact on remaining staff.
Sun Tzu in his famous work “Art of War” says “Kill one, terrify a thousand”. I think that the days of following this advice in management circles is well gone. In today’s society, staff won’t be scared, they’ll get another job.
Lost knowledge
A ton of people can do what your former employee did, but they don't have the specific knowledge she had. It's not just about putting numbers in a spreadsheet, presenting, or selling a product. It's about knowing the people, the traditions, the location of relevant information, what the boss likes and a million other things that come from working for an organisation for a period of time. All that goes away when someone quits.
And sometimes it's more than just general company knowledge. How many of your employees have their jobs documented well enough that someone could figure it out with their documentation? I have yet to find anyone in 20 years of management!
Do you have people cross trained? Does one person have control of the passwords? All things to consider.
Training costs
Paid training costs are obvious. You sign the cheque of authorise the invoice, so it should be obvious. If you have to pay $2,000 for a seminar to teach your new employee your complex internal computer systems, that's a cost noted on a spreadsheet. But, when there are no training classes to attend, there are still costs.
Someone has to sit there and show them what to do. Someone has to double check work until the employee has proven themselves. And that all takes the "trainer" away from their regular job. Which means you're paying two people to do one job – and not so very quickly. Costly.
Interviewing costs
We have all done the wading through the numerous resumes, taken the calls from candidates who want to get “in your face”. It’s all time costly.
Then there are the interviews, setting up the interviews, confirming interviews. You may not do it but someone is that you are paying for.
This is all takes an inordinate amount of time. You then need to discuss candidates with colleagues, conduct reference checks and figure out who is the best employee.
Recruiters
Either you go through a professional recruiter who takes on SOME of this work and pay them a fee usually based on a percentage of the salary (I will let you negotiate your own percentage here), or you have a staff member or yourself who has to find the candidates.
In some organisations, you have dedicated HR or recruiting staff that takes care of this. They all get paid. And for smaller teams, this task usually falls directly on the shoulders of the hiring manager--you know the one who is extra busy because he's down one person? That costs too.
What do all these costs add up to? There is a full spectrum of estimates of cost that management experts around the world have come up with. Obviously things like seniority will come into the mix as does the sector and the type of job.
Most experts say that the costs are somewhere between 30% and 100% of annual salary (some say as high as 150%, but we won’t go there.)
This is significant to make retention a high priority for your business. This doesn't mean you shouldn't dismiss people. You should, because some staff are toxic, they aren't being productive and they encourage your good employees to quit. But, get your mentoring and coaching hat on first – everyone deserves the chance to get the best out of them (especially with the cost of replacing them). Remember, by moving these toxic people on you are cutting your losses, not alleviating them.
So, back to my original story. I did the calculations for the CEO.
Eight staff had moved on in the previous (financially disastrous) year.
The average salary was $48000.
To be conservative, I used the lowest turnover estimate of 30%.
This equated to $115200 for the year – amazingly the same amount that the bottom line was down from the previous year!
And then, almost exactly the same thing is happening in the current year creating a perfect storm of higher costs and dwindling donations.
Turnover is expensive. Sometimes it cannot be avoided, but when it can, you should avoid it by doing the right things for your employees.
And a last thing to make this a bit more personal. Norman Drummond said, "Over 70% of people leave their jobs because of the way they are led."
