I have yet to deal with a client or company that didn’t consider recruitment, retention and employee turnover the number one problem they have to deal with today and into the future. Not only is it difficult to find the right person to fit into a new job opening but it is equally difficult to determine if that person will fit into the culture of the organization. Added to that is the fact that employee turnover is extremely costly averaging over 1 ½ times the annual salary of the individual that must be replaced. To put this into perspective, let’s assume the average salary of employees in a given company is $50,000 per year. Taking the cost of turnover at 150% of salary, the cost of turnover is then $75,000 per employee who leaves the company. If your turnover rate is 20% and you have 100 employees — that means your cost of turnover equals $1.5 million dollars.
Realistically turnover will never be zero. In fact we don’t want it to be zero. However, in the above example if the turnover rate were cut in half, $750,000 could be added to the bottom line. This isn’t spin. Do the math for your company. Turnover is an incredibly hungry profit eater.
Recruitment and retention issues are the symptoms of the biggest challenge faced in business today —– employee turnover. Many companies only measure “unplanned” turnover. This is a measurement of only those employees that decide to quit and leave their current company for “supposed greener pastures”. The logic is that a decision to terminate an employee is company controlled and is not a result of an employer issue (i.e. culture, leadership etc) but rather an employee issue of incompetence, lack of skill or a cultural mismatch. Whatever the reason, consider this fact. From a cost standpoint – turnover is turnover. It cost just as much to replace an employee that is terminated as it does an employee that quits on his own.
The time to Fire is before you Hire
That is quite a statement. One easily made but what are the real implications and what does it really mean? Wouldn’t it be wonderful if every time you had an opening in your business all you had to do was clone your best employee to fill the position? Well, in spite of the experiments with the sheep named “Dolly” that just isn’t possible. However, there is a way to determine what makes your best employees successful. Once you are able to determine exactly what creates that success your odds of selecting the right person to fill an open position increase exponentially.
” But Rick” it’s not just about hiring new people, we need to find out if the people we have are in the right position to maximize their effectiveness. Additionally, we need to be able to determine if people we intend to promote internally can really be effective in the higher position. It all just seems like a “crap shoot” and we lose as often as we win.”
The high cost of turnover
Absolutely, the cost of turnover isn’t just about hiring and firing. It is just as costly promoting a current employee beyond his capabilities or promoting a person that can do the job but will never excel in it.
It really doesn’t have to be that difficult to make the right decisions. Don’t shake your head in disbelief. It is possible to figure all this out. Well, at the very least it is possible to increase your odds of selecting the right person for a new position or promoting the right person internally by a hefty margin. In fact you can actually match employees to a career that will maximize their effectiveness by putting them in positions that correspond to their specific strengths. This includes determining what kind of training is necessary and how compatible they are to your company’s existing culture.
Reducing turnover and retaining good employees is probably the biggest issue faced in the majority of companies. Adding to that challenge is today’s generational diversity and the fact that it isn’t enough to just provide a fair wage and good benefits. Employees today want – no employees today expect to work in an environment that stimulates both their personal and professional growth.
There is an Answer
Do you remember the 1980 US Olympic Hockey Team; the team that beat the Russians in Lake Placid? I still remember that game. It was like college kids playing against professional athletes. Boy was it exciting. How in the world did a young team of upstarts defeat the likes of the Russian Professional? How did the coach of the US team create the kind of chemistry needed to pull that off?
So How Does That Relate to the #1 Challenge facing Companies Today?
The answer to winning the Gold Medal in reality is quite complex, but part of the formula the US coach used was getting the right skills, the right personalities and the right chemistry together functioning as a team on a single objective —- winning the “Gold Medal” at the Olympics.
To accomplish this, part of the equation was to measure the personality, behavior and attitudes of every prospective team member. He used an instrument called the Winslow Assessment System which is the most comprehensive assessment available measuring the 24 personality traits directly relevant to success.
Isn’t getting the right personality, the right chemistry and the right skills sets –functioning well together critical to developing your team and reducing turnover within the organization?
I can imagine what you are thinking; “Right Rick, we use personality instruments and recruitment, retention and hiring is still like looking into a crystal ball. It can almost be a coin flip.”
I used to feel the same way. There are about 2,500 companies in the “assessment’ business but I personally believe this Winslow System is the best available. Major League Baseball is the Number 1 user of the system and the National Football League uses it as well. These employers sign multi million dollar employment contracts. They can’t afford too many mistakes.
Not a Commercial
I’m going to stop there because I don’t want this to come across as a commercial. If you want to learn more about this system, you can e-mail firstname.lastname@example.org and I will forward you more information or just click on the information link on the bottom of this article. More importantly, I want to focus on the need to improve recruitment and retention efforts. As I mentioned, Zero percent turnover is not desirable nor is it possible. “We must weed the garden occasionally for the flowers to grow.” Equally important is the fact that new employees bring new ideas, new approaches, innovation, and attitudes that prevent company stagnation.
I am confident that every reader out there agrees that high turnover is costly and recruitment and retention are two of the biggest challenges facing the industry today. However, I am equally confident that the majority of managers out there today are unable to really quantify the total cost of turnover. I realize that these costs can vary dramatically based on individual companies and industries for that matter. But what doesn’t vary is the fact that profits can improve if you manage this challenge more effectively.
Paying Above Market is NOT the Magic Answer
Of course you have to be competitive and I would be the first to recommend that you understand the competitive positioning of your specific employment market. I would even suggest that you pay at or above the market for the specific skill sets you require. Employees want to feel they are being paid comparably to what other companies pay for similar work in the industry. But pay alone isn’t enough. Employees seek interesting and meaningful work. They want to belong to a culture that embraces best practices, empowerment, delegation, and a sincere concern for the development of employees backed up by definitive programs and initiatives.
Employee satisfaction is determined to a great extent by the competency of management. This means that all supervisors and managers must develop leadership models that recognize the employee as the company’s most valuable asset. The majority of employees leave companies because of their relationship with their immediate supervisor and how they perceive they are valued and being treated.
Here’s the Commercial
Companies that have the ability to wrap their arms around this major challenge are companies that are committed to treating their employees as their most valuable asset. They invest in the development of their employees and do not skimp when it comes to the education and training of their employees. This commitment must start with the CEO and permeate the entire organization. My latest book, “Profit is NOT a Dirty Word” emphasizes the fact that “People are not Profits but without People there can be No Profits.” It contains 56 ideas on how to release the Power of Profitability in your employees. http://www.ceostrategist.com/resources-store/profit_not_dirty.html
Check out the competency level in your organization. Start with a skills assessment inventory. Determine (as Collins says in Good to Great) if you have the right people in the right seats on your bus. Weed the garden. Don’t let compassion become a weakness instead of strength. Remember, “Old Joe” who has been there fifteen years but still needs directions to find the bathroom may be lowering the standards of all employees. And that my friends can become a cancerous growth that is difficult to cure.
So…………….. Let me leave you with these words. Once you clean up your competency act within the organization itself ——————— Learn to Fire Before You Hire.