Dive Brief:
- The war for talent happens on two fronts — the recruitment side and the retention side. Employee turnover is a huge problem for many companies, but the impact is most felt when 'high potential' employees leave, according to Erik Van Vulpen, founder of Analytics in HR.
- Vulpen shared a well-known fact from the 1979 Augustine study that advises, "the top 20% of people produce about 50% of the output." Using this equation then, he calculates that a business that is earning $80 million annually is losing somewhere between $10 million to $15 million a year in potential earnings when top performing employees leave the company.
- A bad hire costs a company 5 times an annual salary to replace them, according to Vulpen. It can take up to 32 weeks for a new hire to become proficient in their job.
Dive Insight:
Additionally, one must look at the cost of replacing employees and the savings earned by retaining workers. Based on data from LinkedIn, if a company with 10,000 employees reduces it’s turnover by a mere 1%, it would be able to save about $7.5 million each year.
It can be difficult to accurately calculate the true cost of employee turnover, as there are so many factors at play. Consider that there are costs like employee morale that reduces team effectiveness, training and development costs, and the time required for an employee to ramp up to full productivity.
A more recent study published in Personnel Psychology advised that the top 5% of the workforce produces 26% of the firm’s total output — but often this is the sector of the workforce that’s paid the least. There is potential that this is contributing to higher than average turnover rates across the nation’s companies.
