A booming economy makes it more challenging for small and mid-sized businesses to retain their most valuable employees. Enticed by job offers and higher paychecks, even your most loyal employees could be tempted to jump ship and move to your competitor.
Certainly, a business can’t keep all of its key staff — some amount of attrition should be expected. But the costs of replacing employees, particularly top managers, heads of sales and other sensitive positions, can be substantial. And they can add up quickly. “It’s certainly less expensive to retain an employee than to replace them,” says Nicole Belyna, president of the Washington, DC chapter of the Society for Human Resource Management.
“It’s especially hard to fill highly-technical positions, ones where there’s a good chance it will take a long time to fill them properly. You might have to use an outside agency to fill the position,” she adds. “Then you have to factor in the amount of work that’s not being done (during the hiring process) or that’s being handed to staff who maybe aren’t as qualified to do it.”
According to 2017 SHRM benchmarking reports, the median annual overall turnover rate was 14%. The median cost-per-hire was $1,633 and the mean was $4,425. Costs can range from third-party agency fees, advertising fees, job fairs and online job board fees to employee referrals, travel costs for both applicants and staff, relocation costs, recruiter pay and benefits, and talent acquisition system costs.
“Given these metrics, organizations who overlook the importance of talent management may face costly repercussions,” said SHRM researcher Christine Lee.
The more responsibility and seniority an employee has, the more it could cost to replace them. For example, a Center for American Progress study from earlier this decade found that average employee replacement costs were 16% of annual salary for high-turnover, low-paying jobs. But they shot up to 213% of annual salary for top executive positions. If a company’s CFO is earning $100,000, for example, it could cost a company over $200,000 to fill that position.
Companies should try to avoid being in the position where an employee with a job offer in hand asks if they want to make a counter-offer. For one thing, this often means the company hasn’t been proactive in managing their employee, especially if they’re taken by surprise by the threatened resignation.
Worse, such “my way or the highway” negotiations can be expensive. A panicked company may jump to top a competitor’s offer just to avoid having to find a replacement during a critical period. That could be an even greater expense than replacement costs. It could also set a precedent, should word get out that ownership is willing to top competitor offers.
It’s a wiser course to increase employee retention rates before things come to a head.
“One way that organizations are looking to address top talent retention is through the strategic approach of their benefit offerings,” Lee said. “Using benefits strategically can enhance overall company performance and employee satisfaction as well.”
“It’s essential for HR professionals to identify critical information such as employees’ values and preferred communication methods,” she added. “Asking for direct feedback and evaluating information delivery formats will encourage clarity and knowledge. A one-fits-all approach won’t work for an organization looking to thrive.”
Some things to ask when assessing employees include:
How engaged is the employee? In performance reviews, does the employee say they lack regular contact with their direct reports? Are they unclear as to who does what in upper management? An employee who feels like a cog in the machine, and who has little idea as to what the company’s strategic direction is, won’t have trouble leaving for a more engaging job.
One way to combat this is having more in-depth review sessions, with multiple sets of managers. For example, an annual performance review could entail an employee meeting with their direct report, but also in the room is their direct report’s own supervisor. That way the employee gets a direct link to upper management and a sounding board to voice concerns they feel their immediate manager hasn’t been responsive about.
“It creates more transparency as to what’s going on in your company,” Belyna said of such review sessions. “Creating relationships that intertwine proactively is very important.”
How stable are their job parameters? Do employees feel they have an understandable and achievable set of goals, both short-term and long-term? Employees who can list succinctly what’s expected of them are usually happier at their jobs than those whose responsibilities are constantly shifting and expanding to cover new areas.
Further, if strategic goalposts keep getting moved for arbitrary reason, an employee may feel overwhelmed and frustrated. When there’s no easy way to map their progress, employees may simply give up on trying to make progress. Once again, if there’s an enticing job offer, it’s easy to see why they’d take it.
How much room is there for advancement? How often and how quickly can employees rise through the ranks in your company? One source of frustration for employees is feeling that they’re being passed up for opportunities to advance. Keep track of how often a valuable employee has advanced, whether in position or salary, to be sure it’s commensurate to their skill-sets.
It’s also important to create a culture of fairness. If a newly-hired sales employee gets assigned more lucrative prospects with strong promise of commissions, that could rankle more senior sales employees who could feel the new hire is “cutting in line” and not paying their dues.
What mentoring does your company offer? This is particularly important for younger employees. A company that wants to retain its most promising talent should have programs to link these employees with experienced mentor figures in your organization.
“There’s an emphasis on managers being more than just managers,” Belyna said. “Is there a mentorship aspect to their role? Internal mentor programs serve so many purposes. It’s a way to have more contact, and to give lower-level employees a different perspective.” Sometimes, just getting a different perspective can be a critical factor in whether an employee stays at your company or looks for a new job.