Identifying the Real Cost of Turnover Guest Presenter: Theresa M. Worman Executive VP, Strategy and Development Compdata Surveys & Consulting Talent Takeaways webinar & podcast series
AGENDA The Series Talent Takeaways webinar & podcast series Talent Takeaways Series
AGENDA AGENDA The Sponsor Talent Management Made for Managers ✓ Resource Library ✓ Product Information ✓ Product Tour & Demo Talent Takeaways Series
AGENDA Webinar Info ✓ We are informal (and fun) ✓ Ask Questions! ✓ Q&A Session at end ✓ HRCI & SHRM Credits ✓ Slides will be available after Talent Takeaways Series
AGENDA About the Presenter THERESA M. WORMAN Theresa is a recognized compensation expert with more than twenty years in the industry. She oversees business development and works to bring Compdata’s consulting and survey solutions to the organizations needing them. Throughout her career, Theresa has been instrumental in the creation and evolution of Compdata’s product offerings and consulting services. Theresa often lends her expertise to audiences at seminars and webinars for ASHHRA, WorldatWork and state hospital associations. Theresa shares her knowledge with journalists from media outlets across the country, and has been quoted by The Wall Street Journal , Inc. and Money magazines, and numerous newspapers. She has been published in WorldatWork’s W orkspan magazine on multiple occasions. Talent Takeaways Series
Over 80% of employers say improving retention is a critical priority for their organization. -Future Workplace and Kronos
Unemployment Hits Record Lows National Unemployment Rate: 4.1% 4.6% 4.1% 2.9% 2.6% 4.5% 3.3% 3.6% 4.8% 3.8% 3.9% 2.1%
Current unemployment rate for college educated workers is 2.1% . -Bureau of Labor Statistics
Turnover: Facts and Trends Voluntary Turnover: All Industries 15.0% 13.5% 12.8% 13.0% 11.6% 11.0% 11.0% 10.4% 9.8% 9.8% 9.1% 9.0% 7.0% 5.0% 2010 2011 2012 2013 2014 2015 2016 2017
Cultural Impact of High Turnover Rising Turnover Declining Low Performance Morale
Cultural Impact of High Turnover
Cultural Impact of High Turnover
Financial Impact of High Turnover
Financial Impact of High Turnover
Why Should You Track Turnover? • T urnover impacts all aspects of the business • Provides a metric to a problem • Organizations have a competitive edge when they retain seasoned and well-trained employees • Helps prioritize areas for improvement • Better able to validate your proposed solution to leadership
Hard and Soft Costs Soft costs include • Decreased employee engagement • Lower quality of customer service and higher occurrence of errors • Negative cultural impact Hard costs include • Recruiting or agency fees • Training • Length of vacancy • Overtime costs
Goals for Turnover Costing Model Include data points that are: • Measurable • Indisputable • Relevant to operations It is more important to have leadership agreement than for it to be all encompassing.
Factors to Consider for Costing Turnover Gather a cross-functional team Determine the data points Select a job to validate Calculate the cost of turnover
Gather a Cross-Functional Team Your team needs representatives from: • Human Resources − Talent Acquisition, Compensation, HR Business Partners • CFO/Finance Also consider: • Affected department heads • Executives • Operations employees
Possible Data Points • Separation cost: Exit interviews, administrative costs, separation pay • Acquisition cost: Advertising, travel, interviews, assessments, background checks, sign-on bonuses, employee referral bonuses and relocation • Placement costs: Agency fees, on-boarding, training
Gather Position & Company Data • Position’s annual average total cash compensation and benefits • All positions’ annual average total cash compensation and benefits • Projected number of exits this year in the position • Annual revenue • Number of FTEs
Lost Productivity Data • Number of days the position is vacant • Anticipated days new employee needs to become productive
Limitations to Costing Models • Every costing model has limitations • Developing a model that accounts for 100% of costs may not be achievable − Trying to account for every dollar reaches a point of diminishing returns • Goal is to have executive agreement about measuring turnover costs to the organization
Not everything that counts can be counted, and not everything that can be counted counts.
Select Position(s) to Validate Select a benchmark job to validate internal and external metrics Position should be: • Visible across the organization • Agreed upon by leadership • A hindrance to success should significant turnover occur
Cost Factors to Consider Accountant 1 All Accountant 1’s annual average total cash compensation and benefits $74,000 All positions’ annual average total cash compensation and benefits $81,000 Projected exits for Accountant 1’s this year 5 Annual revenue/Number of FTEs $400,000 Separation cost $1,000 Acquisition cost for one new employee $3,000 Placement costs $4,000 Average number of days the position is open 25 Number of days for employee to become productive in job 30 Number FTE workdays per year 240
Calculate Gross Lost Productivity Step Calculations $400,000 EE revenue/240 workdays = Determine daily revenue attributed to each employee $1,667 per day Compare the average annual total cash compensation and benefits of the Accountant 1 ($74,000) to that of $74,000/$81,000 = .91 all positions ($81,000) Determine daily revenue attributed to an $1,667 employee daily revenue x 0.91 = Accountant 1 $1,517 Calculate total gross lost productive by multiplying number of days for Accountant 1 to become $1,517 daily revenue x 30 days = $45,510 productive to the daily revenue attributed to an Accountant 1 TOTAL GROSS LOST PRODUCTIVITY $45,510
Calculate Net Lost Productivity Step Calculations Determine total cash compensation & benefits saved $74,000/240 days =$308.33/day per day during vacancy Multiply daily amount saved by number of days vacant $308.33/day x 25 days = $7,708 Subtract total cash compensation and benefits saved $45,510 - $7,708 = $37,802 from total gross lost productivity TOTAL NET LOST PRODUCTIVITY $37,802
Cost of Losing One Employee Type of Cost Cost Separation $1,000 Acquisition $3,000 Placement $4,000 Net lost productivity $37,802 TOTAL COST OF TURNOVER $45,802 FOR AN ACCOUNTANT 1
Total Position Turnover Cost With 5 projected Accountant 1 exits during the year: • TOTAL ACCOUNTANT 1 COST OF TURNOVER = $229,010 • SAVINGS FOR REDUCING ACCOUNTANT TURNOVER BY 20% = $45,802 • SAVINGS FOR REDUCING ACCOUNTANT TURNOVER BY 50% = $114,505
Communicating to Leadership • Effective communication of Human Resource leaders track a number of metrics and must be able to communicate their importance to leadership − Turnover is one of the most important
Communicating to Leadership Clearly communicating these metrics to leadership provides relevance for the company as a whole Relay the information in a way they will understand • Graphs, charts, financial calculations, etc.
Communicating to Leadership Turnover Total Number of Total Cost Function Rate Exits of Turnover Production 32% 10 $262,560 Research & Development 12% 5 $260,000 Purchasing 13% 3 $130,660 Marketing & Sales 10% 5 $221,150 Human Resources 8% 1 $54,820 IT 16% 2 $120,800 Accounting & Finance 20% 4 $190,810 TOTAL 18% 30 $1,240,800
Communicating to Leadership $300,000 $262,560 $260,000 $250,000 $221,150 $190,810 $200,000 $150,000 $130,660 $120,800 $100,000 $54,820 $50,000 $0 Production Research & Marketing & Accounting & Purchasing IT Human Development Sales Finance Resources
How to Use the Cost of Turnover Metric Investing in employees helps employers manage turnover • Use the projected cost savings to justify some of these programs More competitive compensation • Employees have websites to gauge competitive wages • Pay is openly shared with peers or friends Promote career advancement opportunities • Offer more career mobility options • Provide employees with new challenges and assignments
How to Use the Cost of Turnover Metric Provide employees with flexibility and options • Telecommuting, benefit options, work schedule, etc. Enrich employees with educational tools • Help employees understand how they can thrive in your organization • Employers are planning on investing more into direct learning expenditures for employees • 74% of employees feel that they aren’t achieving their full potential at work due to lack of development opportunities (Middlesex University’s Institute for Work Based Learning)
Retaining Millennials Study by Intelligence Group on millennials: • 64% Priority to make the world better place • 72% Want to be own boss • 74% Want flexible work schedules • 79% Prefer coach or mentor to a boss • 88% Prefer collaborative culture • 88% Desire “work/life integration” • 100% Love answering opinion surveys
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