Turnover Is Expensive

It’s been awhile since CIOs have had to worry about staff turnover. But as the economy picks up, it stands to reason that companies will ramp up hiring efforts and try to lure away your best performers. According to Forrester Research, it can be much cheaper to start doling out pay raises and other rewards now rather than wait until staffers leave. The cost of turnover, says Craig Symons, a principal analyst at Forrester, has two major components: hiring costs and vacancy costs. Hiring costs are the hard costs associated with recruiting a new employee (advertising fees, and costs for screening, interviewing and processing candidates). Vacancy costs include the less obvious (but very real) costs of replacing the former employee (compensation for interim replacement or overtime for work assumed by current staff, productivity losses, and loss of knowledge of unfinished projects and institutional business knowledge). According to a Forrester estimate, the average cost to hire ranges from 25 percent to 100 percent of a worker’s annual salary (this estimate does not include vacancy costs). In other words, if a midlevel IT manager who earns $75,000 in annual salary decides to leave, it could cost anywhere from $18,750 to $75,000 to hire a replacement. Those figures will vary, says Symons, based on the type of job and the skills required for it, the tenure of the former employee and corporate HR policies on hiring. However, the message is clear: Turnover is expensive.

Best Practices

Have a good training and development program in place. "The best retention vehicle is investing in your people," says Craig Symons, a principal analyst at Forrester Research.

Identify your key people and spend time and attention on them. They will create the biggest problems if they leave.

Don’t underestimate the value of noncash rewards. At the end of the day, says Symons, people would rather have a dollar in their pocket. However, publicly recognizing employees for hard work has value. And it’s cheap too.

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Copyright © 2004 IDG Communications, Inc.

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