The Hidden Costs of High Turnover and How to Avoid Them

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Imagine that you are the captain of a ship sailing through the ocean. You spot an iceberg ahead, but you have confidence in your vessel’s ability to either avoid it or break through it.

The tip of the iceberg is only a small part of its mass. Beneath the surface, there is a massive chunk of ice that can sink your ship in minutes.

High employee turnover is a major problem for businesses. It may seem like an easy fix, but the reality is that it can be devastating to your organization if it isn’t handled properly.

High turnover can be costly in terms of money and morale. Here are some tips for how to avoid the hidden costs of high turnover.

Setting the Stage for Employee Turnover

I’ve worked at a company where the employees were constantly coming and going. I was once a manager there, and every month I had to deal with the departure of some of my best employees.

My employees left for various reasons: they found better opportunities, they earned more money, they got more flexibility in their work schedules, they experienced less stress, etc. I tried to replace them as fast as I could, but it was not easy. Finding qualified candidates was hard and hiring them was expensive and time-consuming.

As the workload increased, I started to feel overwhelmed. My deadlines loomed and my quality began to drop. I felt frustrated, exhausted and demoralized.

Many industries face the problem of employee turnover. When people quit their jobs, it’s called voluntary turnover. When they are fired, it’s called involuntary turnover.

According to the Mercer report, the average global turnover rate was 15% in 2020 and is expected to rise further in 2021 due to disruption and uncertainty caused by the pandemic.

But why do some employees quit? There are many factors that can influence an employee’s decision to leave, such as personal reasons and career aspirations.

Some of the factors that impact engagement and retention are within the employer’s control, while others are beyond the employer’s control.

Part One: The Overt Burden – Visible Costs of High Turnover

The most obvious cost of high turnover is the salary and benefits you must pay to replace an employee.

Three main categories make up this list:

The costs incurred when hiring a new employee include advertising for the position, screening and interviewing candidates, conducting background checks and assessments.

New hires require training and onboarding to help them get up to speed. SHRM reported that the average cost of training per employee in the US was $1,252 in 2022.

Productivity losses stem from the fact that it takes new hires an average of 12 months to reach full productivity and existing employees have to cover for the vacant positions or train newcomers.

To illustrate this point, we can look at a real-world example of Walmart’s efforts to reduce turnover by investing in its employees. In 2019, Walmart announced that it would invest $2.7 billion in higher wages and better training for its associates.

To save money and reduce turnover, Walmart decided to keep employees working more hours. The company estimated that retaining more employees would save $300 million yearly in turnover costs.

Part Two: The Hidden Costs of High Turnover

However, the visible costs are only a small part of the problem. There are also many hidden costs that can be just as damaging to a business.

These include:

Hidden Cost One: The Morale Downturn

When employees leave an organization frequently, it can lead to negative consequences such as lower morale, higher stress, lower engagement, and lower commitment.

Hidden Cost Two: The Knowledge Gap

When employees leave a company, they take their valuable knowledge and skills with them. This can create a gap in the organization’s knowledge base, especially if the departing employees were experts or innovators.

Poor quality products, bad customer service, and lack of innovation can bring a business down.

Hidden Cost Three: The Reputation Damage

When employees leave an organization, they may share negative opinions with others.

When a company’s reputation is damaged, it can be hard to attract and retain customers, partners and investors.

Hidden Cost Four: Customer Loyalty Erosion

When employees leave an organization, they take with them the relationships they have built with customers. Those customers may feel disappointed or betrayed when their trusted contacts, advisors and service providers leave.

Turnover in a company can affect the way customers perceive the quality of products or services. This can lead to lower customer satisfaction, loyalty, retention, and referrals.

The Proactive Approach: Strategies to Mitigate High Turnover in the Workplace

Reducing employee turnover is possible. Businesses can implement strategies including:

 Boosting employee engagement:

Employee engagement is a measure of how much employees are willing to go above and beyond for their organization. Engaged employees tend to be more productive and loyal than those who are not engaged with their work or the company.

Businesses can use feedback applications to provide meaningful work and opportunities for employees to learn and grow.

Competitive compensation and benefits:

Compensation and benefits are the monetary and non-monetary rewards that employees receive for their work. They include salary, bonuses, incentives, health insurance, retirement plans, paid time off and other perks.

Businesses can use a variety of strategies to attract and retain employees. They can offer competitive compensation and benefits, align pay with performance and skills, offer flexible and personalized options, communicate the value proposition clearly, etc.

 Nurturing career advancement:

Career advancement is the process of an employee moving up the ranks within an organization. It includes promotions, transfers, rotations, mentoring, coaching and other activities designed to help an employee grow professionally and personally. Career advancement is a key driver of employee motivation and retention.

To help employees advance in their careers, businesses can provide opportunities for employees to learn new skills and gain experience in other departments, offer training courses and workshops, support employees’ professional development, etc.

Creating a positive work culture:

Work culture is the set of values, norms, beliefs, and behaviors that shape how people work together in an organization. These values can affect employee satisfaction, retention and productivity.

To build a positive work culture, businesses should focus on fostering social connections and fun.

 Recognizing and rewarding employees:

Recognition and reward are the ways businesses show their employees that they care about their contributions, achievements and ideas. Recognition can take many forms, including verbal praise, written feedback, awards, gifts and many other things. These rewards help motivate employees to do their best and stay with the company for a long time.

Businesses can recognize and reward employees in a way that is timely, appropriate and specific to each individual’s performance and values, by customizing the rewards to meet each employee’s preferences.

Companies have found that implementing these strategies can help reduce their turnover rates.

For instance:

  1. Google is a fun place to work, with generous compensation and benefits and lots of learning and development opportunities.
  2. Costco is famous for its loyal and engaged workforce, which it rewards with above-average pay and comprehensive health care.
  3. Netflix’s high-performance culture encourages freedom and responsibility, provides feedback and transparency, and ensures alignment with its corporate vision.

The Iceberg Thaw: Turning High Turnover Around

In conclusion, high employee turnover can be a serious challenge for a business. It can incur both visible and hidden costs such as hiring, training, and productivity expenses.

Proactive strategies can be implemented to reduce turnover, including those that enhance employee engagement, compensation and benefits, career advancement, work culture and recognition/reward.

By retaining and developing their employees, businesses can improve their performance, innovation and competitiveness.

If you wait too long to address high turnover, it can sink your ship. Take action now to turn things around, or you risk losing your best employees. - Article author