Every manager dreads hearing “Do you have a minute?” as an employee nervously approaches their door. Losing employees is never easy, but it can be especially painful if turnover has been a persistent problem for your organization. In a competitive hiring landscape, people are often a company’s primary strategic advantage, and low unemployment rates make finding new people to fill vacancies particularly costly.
It’s often more cost effective for organizations to invest in an employee retention strategy to keep existing employees than it is to hire new ones. Looking for some quick wins when it comes to employee retention? Check out our Employee Success Playbook to learn about how to nurture employee success within your organization.
Beyond standard offboarding time and hiring costs, companies will incur costs of declining morale, decreased productivity, and extra time spent on recruiting campaigns to fill vacant seats. Employers can no longer post a job and expect to see a flurry of outstanding resumes to flood their inbox, especially if they’re not viewed favorably by potential candidates online. Neglecting your employee retention strategy is a costly risk, and organizations should pay close attention to the hidden costs of employee turnover, including:
1) Poor employee retention decreases morale.
Employee turnover all but guarantees a hit to your team’s morale. A hole in your team is disruptive and hurts employees’ ability to focus on their own work, especially when they're left picking up the slack for their newly departed co-worker. If the former employee moved on to a competitor, it may raise questions for your remaining team about whether they’re missing out on more attractive opportunities. Even when you’ve found a replacement for employees you’ve lost, team dynamics and morale may not recover, especially if your team shared strong bonds with past teammates. If you have an ineffective employee retention strategy, it will lead to decreased morale may lead to decreased engagement, and even increased turnover.
2) Low employee retention leads to decreased productivity.
The moment employees start to seriously consider their options for alternative employment, they are likely becoming actively disengaged from their work. Gallup estimates that actively disengaged employees cost the U.S. between $450 billion to $550 billion each year in lost productivity. Actively disengaged employees are “more likely to steal from their companies, negatively influence their co-workers, miss work days, and drive customers away.”
Without an employee retention strategy in place, your employees are more likely to consider other job opportunities and become disengaged. Even when roles are filled, employees will take time to acclimate and ramp up to their peak productivity, with most skilled workers taking 1-2 years to become fully productive within an organization.
3) An ineffective employee retention strategy leads to expensive recruitment campaigns.
Recruiting new employees is an unavoidably expensive process. When creating a recruitment budget, employers have to first consider their top of funnel recruitment costs, like digital advertising, hiring staffing firms, and subscribing to recruitment software. Once a few candidates have been identified to fill a vacancy, the costs to screen, interview, and thoroughly vet candidates must also be taken into account. Finally, costs associated with closing a candidate, especially one with multiple offers, may include relocation expenses, hiring bonuses, stock options, and other up-front costs.
With increased turnover, these expenses only multiply, forcing employers to choose between seeing their team shrink, decreasing the quality of candidates they hire, or paying the high price of recruiting top talent. Having an employee retention strategy in place will help avoid costly recruitment campaigns.
4) Your training and onboarding process impacts employee retention.
Most employees won’t join your organization and immediately jump into productive work. New employees get less work done because they’re still figuring out how to get work done, navigate company workflows and processes, and establish relationships with their co-workers.
Onboarding processes, training, and necessary certifications could mean that some new hire programs last months. Some employees may not start adding value to your organization for 6 months to a year, making an investment in onboarding critical for their success.
Organizations may also have to consider the cost of hiring training managers, creating onboarding content, pairing employees with mentors, and paying for employees to travel to other locations for internal networking and collaboration. In summary, your training and onboarding process lays the foundation for a successful employee retention strategy for the long run.
5) Online reviews can make or break employee retention.
Social media now plays a more prominent role in both the recruitment and retention of employees. Sites like Glassdoor, Vault, and CareerLeak give interview candidates and employees a new opportunity to share interview experiences, salary information, and get an unfiltered look into what it’s like to work at an organization. A recent study estimates that about 50% of job seekers are checking employer review scores before accepting a role at a company.
If turnover is a problem at your organization, potential candidates likely already know about it and will avoid taking a risk by joining your team. Negative employee reviews can compound the damage of employee turnover, making investing in offboarding processes, premium subscriptions to employee review software, and internal advocacy programs more necessary for competitive employers. An effective employee retention strategy will help maintain employee satisfaction such that they are less likely to post negative reviews and deterring potential new hire candidates.
Losing talented employees is costly and inefficient for organizations. Employee turnover can cost organizations up to 3x the employee’s annual salary, depending on the type of position being filled. Managers and HR leaders in high-turnover organizations should be especially conscious of their team’s morale, and work to create strategies for checking the pulse of employees’ engagement on a regular basis. If your turnover prevention strategy could use a second look, we’ve included 10 strategies to nurture employee success and foster engagement in our Employee Success Playbook.