Cafe Classic: Keeping Them Is Cheaper than Finding Them

Editor's Note: Given today's labor market dynamics, Derek Irvine's Classic post on compensation and retention is a important as ever.

Retention isn’t a common theme on Compensation Café, but the association between retention and compensation goes far beyond “paying people enough money to get them to stay.” No, true compensation and HR pros know there’s much more to retaining key employees (even in this tough job market), and compensation is one critical piece of that puzzle.

Research released by Towers Watson and WorldatWork reported:

1)      Attracting and retaining key employees is a growing challenge.

• 59% of US companies have problems attracting critical skill employees (up from 52% in 2010 and 28% in 2009)
• 36% reported difficulty retaining critical-skill employees (up from 31% in 2010 and 16% in 2009)

 2)      Employees just can’t take any more

• 66% have significantly changed HR programs (reward and talent management, org structure, job evaluations) because of concerns about employee productivity and willingness to take risks

"Employees generally don't mind doing more with less especially when economic conditions are tough," said Ryan Johnson, CCP, Vice President of Research for WorldatWork. "But when this drags into multiple years, and they start to hear anecdotes of recovery, they become less understanding. At that point, the entire employee value proposition is crucial to retention."

3)      A little recognition would go a long way.

• Only 68% of companies formally identify high-potential employees
• Only 28% of companies actually tell employees they’re considered high-potential.

As The Wall Street Journal reported, Laurie Bienstock, co-author of the report commented: "This is really a missed opportunity. You need to wonder how [organizations] are fostering the development of these high-potentials if they're not informing them." 

Keep in mind, merely knowing your company leadership considers you to be a high-potential employee is a powerful form of recognition in itself. Employees know this designation means the company plans to invest in them and give them more opportunities, which is another critical component of retention. Of course, the company must then follow through.

 What does all this have to do with compensation?

Just think how much more budget you would have available to increase the salary of key employees, invest in additional training opportunities for high potential employees, or simply hire more staff to relieve the burden on over-worked employees if you didn’t have to spend it replacing the ones you should have retained in the first place.

The Winning Workplaces blog recently reported on a new employee turnover calculator provided by the Center for Law and Social Policy (CLASP) and the Center for Economic and Policy Research (CEPR).   

“Let's assume that you pay your full-time, salaried employees, on average, $40 an hour.  And let's assume that you pay your full-time, hourly workers the current federal minimum wage, $7.25 an hour.  You would be paying your salaried workers at a rate 5.7 times greater than your hourly workforce.

“What really stood out to me, though, is that if you plug in these variables and only change one more – setting the number of separated employees in the past year to 1 in question 3 – the calculated turnover cost ratio per salaried vs. hourly employee is actually greater than the pay ratio.  (Each separated, salaried employee costs $23,814.50, compared to $3,460.50 for each separated, hourly employee, for a ratio of 6.9.)”

Are you working to proactively retain your employees?

As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Comments

[Steve Davis]

I am interested in how you calculated the cost ratio and the turnover costs in your example....