Cost of employee turnover

Submitted by mikehansen on Wednesday July 30th, 2008 10:47 am
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RNTT gave me some good advice on my resume, suggesting that I quantify the value of achieving a low turnover rate. Below is the before and after accomplishment bullet followed by some research and thought process for how I came up with it:

Old:
Achieved less than 2 % employee turnover rate over 7 years.

New:
Saved over $1,000,000 in recruiting expenses and lost efficiencies by maintaining a 2 % employee turnover rate over 7 years.

Cost Metric:
First off there is nothing solid out there about determining the cost of turnover. It is estimated at anywhere from a few thousand dollars to upwards of 400% of the annual salary for highly specialized employees. If you google “the cost of employee turnover” you get a lot of articles. I would recommend the following:

http://www.webpronews.com/expertarticles/2006/07/24/employee-retention-w...

Since I led technical people with deep knowledge of our systems, I decided to use 1.5 x salaries as the basis for my metric, which is probably conservative.

Comparison Turnover Rate:
I had trouble finding clean information about a national turnover rate. Some sites I found indicated it was 20% or higher. I found another site that listed it by industry and showed IT at 10% (linked below).

http://compforce.typepad.com/compensation_force/2008/02/2007-turnover-r....

I ended up using 10% as my basis just to be conservative.

The rest is simple math. 10%-2% = 8% of employees not lost/year. This number of employees times avg salary x 1.5. times # of employees totaled across 7 years.

Hope that is helpful info.
-Mike

Submitted by lazerus on Wednesday July 30th, 2008 12:48 pm

Cost of employee turnover

That's awesome... turnover cost, or phrased positively, the value of retention is something that I have wanted to put on my own res as an accomplishment. It is really difficult to calculate, especially in an org that does not have HR who keeps track of things like that.

:twisted: Can you say specifically what you did to accomplish such an excellent retention rate? That is, can you as the manager take total credit for this accomplishment? Did the company have more turnover before you got there? I'm not trying to diminish this accomplishment at all. I'm challenging you (and myself!) as a manger to point out what YOU did to accomplish this. For instance, I would probably say that regardless of the T.O. rate before you got there, 2% vs the industry average of 10% is really good, and you were able to sustain that over seven years by practicing better management techniques like O3s, feedback and coaching. If you have anecdotes from your directs, I think that would also help when you tell the story about the accomplishment in your interviews. There is also a "soft" benefit with retention, in my mind, which is better relationships with other departments, more productivity (i hope) through better team communication, etc. As a manager, I knew intuitively that this was important. Retention was always HIGH on my list of things to do.

Submitted by mikehansen on Wednesday July 30th, 2008 10:48 pm

Cost of employee turnover

Great thoughts and questions. I completely agree on the softer benefits as well. As to the “what did I do to accomplish it” question, I will try and answer them in the direction of the MT advice on how to answer a significant accomplishment question in an interview (big plug for the Interview series here!!!). Here ya go…

[color=darkred]Let me give you some background. Over the past 7 years I have had the luxury of managing some of the brightest people I have ever met. In addition, the bosses I have reported to empowered me to champion new technologies and drive innovation as long as it met the business goals at the time. My teams had a series of challenging projects over the years, including migrating DOS applications to Windows, moving client applications to web applications, adopting a Service Oriented Architecture, and rolling out a true business intelligence solution. All of this laid the foundation for a dynamic and challenging work environment, which is critical for retaining technical talent.

My approach to management was focused more on the successful delivery of projects rather than keeping turnover low. Since I did not start off with formal management training at Company A, I relied on some core leadership beliefs I got from my Dad as I was growing up. He was a huge Zig Ziglar and Tom Peters fan. For one, I believe that if you help enough other people get what they want out of life, you will get what you want. Secondly, I did not have any fear of making myself obsolete by growing my people to the point where they could do my job. If I wanted to move up, they needed to also. And if there was no where to go up, I would go elsewhere and let them step up in my place. These beliefs became the foundation to my management approach, which allowed me keep such strong people for so long.

Specifically, there were three things I did that minimized my turnover. I ensured that my direct reports and their teams had plenty of rope to achieve their goals, I spread the “cool” assignments across all of the teams, and I championed the evolution of our systems to stay current with new technologies and architectures. All of these directly contributed to my folk’s growth over the years, which I believe was key to their job satisfaction. I will break each one down in a little more detail.

Giving my direct reports plenty of rope was straightforward. I would talk to them about the deliverables and have them come back with a plan to achieve them. Since I have a strong development background, I was able to challenge their approach from several angles to ensure they have thought it through and had a workable plan. One core perspective I stressed was to focus on the 80% win first, while ensuring that the remainder of the scope could be added on the initial effort. This helped them focus on what the business really needs as opposed to the “bells and whistles”. Most importantly, I let them make decisions and even mistakes as long as they did not put the project at risk. By empowering them to use their own approach to achieve their goals, they were committed to hitting their milestones and they received great satisfaction when they succeeded.

Spreading the cool assignments around was a strategy designed to ensure that everyone could build up their skills while establishing good bench strength in new technologies. When we started to migrate our legacy applications to .net web applications, I ensured that all of the members of my team were trained and given deliverables in the new technology. This was harder in the short term, but it paid off over time by building a team of people who could all contribute to the new projects. The stronger developers liked this approach because it allowed them to focus on more advanced web solutions such as web services. The folks who were slower to adopt the new code also loved it because it gave them the time to get their skill relevant.

Finally I worked with the business stakeholders to ensure that we could continue to improve our systems and adopt new technologies needed. Since my teams were empowered to run without me looking over the shoulder, I was able to spend time with customers and other departments to really understand what their needs were. Then, I was in a position to suggest appropriate solutions to meet their needs that they did not realize was even possible. All of this flowed into my direct reports who could take the ideas to the next level and turn them into delivered solutions.

The end result of the culture I created was the loss of only 2 employees in 7 years for a annual turnover rate of 2%. One of the folks moved back to Wisconsin to be with his family, and the other left for his dream job of coding video games for a major company. Using industry guidelines for the cost of an employee leaving combined with an industry average of 10% annual turnover, the total savings realized is over $1,000,000.[/color]

Sorry for the long post. Hope this is helpful.
-Mike