The Cost of Employee Turnover

June 2012

Dear clients,

During the past month I have been involved in the

design and implementation of an engagement survey

at one of our clients. There is a renewed focus on

employee engagement as research is still confirming

that companies with positive employee engagement

out-perform their competitors. For example the

economist and author, Lauri Bassi, developed a

formula based on employee engagement and company

spend on development, to predict which shares will

show the best growth. Websites like glassdoor.com

makes employee engagement data available to all

and companies are doing their best to create

positive engagement.

In this edition of the LeMaSa Chronicle we will

investigate some of the hidden costs of employee

turnover and give you a case study of an intervention

that we implemented at one of our clients.

We trust that you are having fun and that you are

all engaged and committed!

Warm regards

Sandra Schlebusch

The Cost of Employee Turnover
The Cost of Employee Turnover

Finding data on the cost of employee turnover is easy – many researchers have been able to quantify the monetary value of losing valued employees. However, many costs occur that can’t be assigned a Rand value. These “costs’ can far outweigh the traditional, monetary calculations – and organisations are incurring huge, unseen losses in productivity, customer satisfaction, reputation among job-seekers and, signif icantly, in the morale of the departing employee’s co-workers. Examples of this are:

· Replacement costs for a departing employee are estimated at one-third of his or her salary. (To determine an organisation’s annual turnover costs, simply multiply turnover cost by the number of annual new hires)

· The damage to an organisation’s reputation when customer service falters due to low staffing levels. When customers are unhappy, research shows they’ll tell their stories to more people than they’ll share a tale of good service

· Employees’ emotional reaction when an admired, valued co-worker chooses to leave the organisation. People naturally begin to consider their own options

· Estimates have determined that lost knowledge that leaves with the departing employee can be as high as 50% of the exiting employee’s salary for one year of service; and, this figure grows by 10% for each year of employment

· The blow to morale and increased job stress when remaining employees are burdened with the distribution of the departed employee’s workload. Also, we can’t always dete rmine th e negative impact on customer service

· On average, 30% of a financial advisor’s clients will move with their advisor if he or she changes firms

· Customer loyalty often is people loyalty: Customers trust and build relationship s with t heir contacts, often more so than to the organisation. Out the door go not only the confidence in this employee, but future referrals from the employee’s loyal customers

Sources:

1. THE CORPORATE LEADERSHIP COUNCIL. 2005. Retention of Key Talent during Business Uncertainties. www.clc.executiveboard.com

2. THE CORPORATE LEADERSHP COUNCIL. 2006. Attracting and retaining critical talent. www.clc.executiveboard.com

3. THE CORPORATE LEADERSHIP COUNCIL. 2009. Rebuilding the Employment Value Proposition: Four Strategies to Improve Employee Effort and Retention. www.clc.exe cutivebo ard.com

Case Study: Training Professionals Collaborative Development Centre (This is an abbreviated article based on a case study that Sandra wrote for a new HR web-site called HR Pulse)
The client company is a multi-national company in the manufacturing industry, with a few thousand employees in South Africa. With the international economic environment still in “crisis” mode, it is important that the company achieve high productivity levels. To achieve this, the per person delivery of product is very important. Shifts influenced by work-stoppages have a significant negative impact on productivity. Although many factors influence work-stoppages, injuries and other human mistakes are some of them. These are impacted by the levels of competence that the employees have. Although competence levels are the primary accountability of line managers, the Training Department creates the infrastructure needed for employees to improve and maintain their competence levels (productivity). The Training Department, in conjunction with line managers, identifies the various functional skills every manning point in the plant needs. Every plant employee’s skills are compared with the skills required in the manning point that the employee finds him/herself in, and an Individual Development Plan is drawn-up and agreed upon with each employee and his/her line manager. The Training Department is accountable for relevant training material to be available and to be presented on-time, and for formative and summative assessments to take place timeously. The employee’s records must be up-dated on SAP with the assessment results, acquired unit standards and certificates/licenses to accurately indicate every employee’s skill level. The employee’s recorded skill level influences the manning points he/she will be used in, as well as the annual pay increase he/she will receive. The Problem The Training Department consists of 163 employees (approximately 40 in senior positions), but not all chose to be in the Training Department. Some of the employees were transferred from other departments after restructuring and other organisational interventions. Differing levels of competence existed amongst the people in the Training Department. Some employees were highly competent, and some not. A situation existed where some training employees put in extra effort to ensure things get done as they should be, while other employees were not even aware of certain tasks that were needed. This resulted in various symptoms, e.g. Plant employee licenses to operate certain machinery expired; Inaccurate employee records; Assessments were not performed timeously; Available training material was not necessarily in-line with what was required on the plant; Employee Individual Development Plans were not accurately drawn-up and agreed; Training schedules were not always sent out in advance, negatively impacting line managers’ ability to plan for training. Line managers lost trust in the Training Department and started to blame the Training Department for almost everything that went wrong on the plant. The training employees became re-active administrative clerks and felt like helpless victims getting blamed for everything. The Solution The challenge was to not only up-skill the training employees, but also to enable every training employee to understand their current strengths and their current areas needing development relating to what was expected of them in their current positions. Every training employee should also understand the impact they have on the plant’s overall productivity. It was also required that every training employee took ownership of their own development instead of waiting for the company to force development to take place. It was decided that a Collaborative Development Centre (CDC) would be designed and implemented for the Training Department. The reason for deciding on a CDC was that the training employees should experience what is required of them in real life, as well as the consequences if they do not deliver. This should take place in a “safe” environment where mistakes are allowed and used as learning opportunities. CDCs are based on principles of adult learning (experiential learning – delegates do not get lectured to, they perform tasks and learn from that) and continuous feedback. A prerequisite for the particular Centre was that all the simulations should be very life-like – they should resemble what is expected of the Training Department’s employees (high fidelity) in the client organisation. LeMaSa partnered with the client organisation’s Subject Matter Experts to identify the training competencies, as well as the simulations needed to elicit behaviour linked to the competencies. LeMaSa also fully partnered with the Subject Matter Experts to design the content of the simulations. In some instances the policies and procedures were taken directly from the client organisation and minor changes made to fit in with the fictitious company created for the Centre simulations. Seven Centres were conducted during January to April 2012, each attended by six delegates (from the client organisation), three facilitators and one administrator (from LeMaSa). All delegates’ Development Plans were finalised during the Feedback Discussions and are currently being implemented. The Results Delegates’ immediate reactions differed. Below are some of the comments directly after the Centre: “Eye opener on situations you think you cannot handle and some you think you can.” “Stressful, but very informative. I learnt a lot about myself and would recommend this to everyone.” “Gave good insight to what to expect in the working world and how to handle the situation.” “Very, very informative. I have learnt a lot and will definitely apply it in the workplace. Now I know how much I did not know, which I thought I knew.” “I actually feel that I can play an important role in my organisation. I’m not just another number…” “An eye opener. Made me aware of myself and whether I still want to be in the Training Department. The attitude, skill knowledge I have and what I need to develop.” During the Feedback Discussions anecdotes shared were that on-the-job changed behaviour was already implemented and have had positive consequences. The managers in the Training Department also started to report improved job performance from most of the training employees. Apart from the training and development interventions agreed upon in the Development Plans of each delegate, other initiatives will still follow as a result of the Centres. As example, it became evident that the training managers’ span of control in some instances was too wide; that the Training Induction Programme should be up-dated and that all training employees know their line-client’s plant processes. A selection process for appointment into the Training Department should also be drawn-up.