Employee turnover can come with a lot of emotional stress. As Culture Amp CEO Didier Elzinga says, “As a manager, it’s hard to hear that someone wants to leave your company,” However, he adds, “The good news is that this doesn’t always have to be a bad conversation. Perhaps they’ve found a great opportunity and you’re happy to have been a stepping stone on a great journey.”
Even when you’re able to look on the bright side of an employee exit, on top of the emotional stress, there are real operational costs to the business. The impact varies based on the different type of employee leaving, for example, the exit of a tenured executive might be more costly compared with an individual contributor who’s been with the company less than a year.
We’ll explore how Culture Amp can help you calculate the cost of employee turnover, and what commonly drives employees to leave a company.
Finding your employee turnover cost
The number of variables that factor into how to calculate the cost of employee turnover is what makes nailing down that cost so difficult. This is why it can be helpful to choose the most appropriate percentages for different employee types (based on things like tenure or role) or find the median for all employees.
To make understanding turnover cost a bit easier, Culture Amp’s platform uses predictive analytics to show you a 6-month turnover forecast that you can use in your calculations.
The turnover cost estimate uses your company’s unique turnover forecast, your industry’s average salary and the average cost of turnover backed by in-house research to give you a personalized turnover cost estimate.
While estimates of the cost of turnover vary considerably, our research has found that they range from 30% to 200% of a person’s salary. Our estimator starts at a conservative 30%, but you can change that figure based on costs associated with:
- Advertising on job boards
- Recruitment and agency fees
- Candidate testing
- Impact on the engagement of other employees
- Impact on other employees’ intention to leave
- Lost productivity
- Impact on your organization’s ability to reach current goals and resource future goals
- Increase in the potential for errors
- New equipment
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Using predictive analytics to forecast employee turnover
Why do employees leave?
We know that employees leaving an organization is costly, and exactly what that cost is depends on the variables we’ve discussed above. Popular wisdom says that the causes of employees turnover include people leaving bad managers or seeking better salaries elsewhere.
We’ve debunked that first myth (managers matter, but not as much as overall leadership) and Didier has some guidance on how to handle those employees leaving for purely monetary reasons. “It’s never useful to try and engage a person to stay if all they ask for is more money. If this is the case you’ve already lost the battle because they’ve reduced their decision down to a purely monetary transaction. If you do match their salary they’ll be gone within six months when someone else increases that number,” he says.
So what are the things that will tip the scales on an employee’s decision to stay or leave?
Despite the common myth that people leave managers not companies, we continue to find in our data that although some people will leave because of a manager, they are much more likely to leave because they don’t have confidence in the overall leadership of the company.
A sense of belonging is crucial for people when they join a company. People who felt early on that they didn’t belong were three times more likely to leave within the first six months.
The effect of tenure
More and more we are seeing people make decisions about leaving companies early in their tenure. In recent Culture Amp research, we found that around 10% of people were leaving within six months of starting a new job. Many people have decided if they’re going to leave a job in their first six weeks.
In addition to these common reasons for turnover, within the Culture Amp platform, you can see what groups specifically are at higher than company average risk of turnover in the near future and uncover the reasons why. This allows you to take targeted action to prevent regrettable employee turnover.
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