We are finding that many organizations in our region are becoming proactive in their efforts to compete in a labor market that is shrinking exponentially. It isn’t just the fact that the unemployment rates are shrinking due to an economy that is growing, but due to the fact that “Baby Boomers’ are now exiting the work force in record numbers because of a revitalized 401K accounts.

Add this to an inadequate succession planning in most organizations, and the unplanned turnover costs can prove to be lethal to many unprepared companies.

The hidden cost of turnover can be the difference in companies being competitive or staying in business.   My years of experience in Human Resources have exposed me to numerous companies throughout the United States that do not have a clue as to what their cost of turnover really is.  In fact, turnover cost comes directly off a company’s bottom line, and can be minimized by using human resource metrics, and holding management accountable through the use of metrics on their performance appraisals.

 In the book “First Break All the Rules” by Marcus Buckingham and Curt Coffman, the Gallup Organization conducted an enormous study of 24 companies with 2,500 business units. Four business outcomes were measured to show their correlation to the effect managers and supervisors have on them.  These outcomes were productivity, profit, retention, and customer service.  This study included over 105,000 employees.

The results showed that there is a direct correlation to all four business outcomes and how employees were treated by their manager or supervisor.

This means those companies that have strong managers that represent the members of their work teams have the highest productivity, best profit margins, best customer service ratings, and the best retention and lowest turnover rates.

After research through these studies they arrived at formula to be used to quantify the Cost of Turnover.

 It is 1 1/2 times an employee’s annual salary. 

This was inclusive of the annual cost of wages, benefits, and the cost of recruiting, loss of productivity and hiring replacements.

All companies should:

• First, measure their turnover and convert this cost to dollars, by Division, Department, Manager and Supervisor.

• Second, hold managers and supervisors accountable for turnover through their own performance appraisals. Attach this cost to their reviews.

• Third, find out through exit interviews why people are quitting.

• Fourth, conduct an outside confidential employee engagement or attitude survey and use the results to make positive changes in your organization.

High turnover cuts your productivity, profits, and customer service, while increasing your operating costs because of low retention rates. If you do not address this, some other organization is going recruit your Best Employees. CEOs and SR. human resource professionals in world class organizations have been using this Formula for Cost of Turnover for years. Where is your organization today in this process? Do you really know what turnover is costing your company’s BOTTOM LINE?