The Cost of People Lost

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Although I’m not an accountant, my fascination for data has prompted me to monitor talent trends – whether proven through case studies carried out at my research center or statistical analysis published by others in the university and business sectors. A common consensus is that most companies don’t know what it costs to lose someone from their ranks.

Credit: insight.equifax.com
Credit: insight.equifax.com

Yet most of them will continue acting in blissful ignorance. Einstein’s definition of insanity – doing the same thing over and over and expecting different results – is rearing its ugly head once again. In the words of Robert Hohman, cofounder and CEO if Glassdoor, “It’s like burning money.” This brings me to a resounding question: Why in a competitive world, where businesses are fighting tooth and nail for every drop of revenue, are organizations blatantly ignoring the opportunity to save some serious cash by building a good talent brand?

As leaders, we’ve all experienced the shock and awe of what disengagement costs the US economy every year. According to Gallup, it’s roughly $450 – $550 million per year. Not to mention, the incredible turnover costs, which include paying for lowered productivity, overworked remaining staff, lost knowledge, training, interviewing, and recruiting. Taking the cost of turnover at 150 percent of salary with an average salary of $50,000 per year, the cost of turnover is $75,000 per employee who leaves the company, according to William Bliss. For the mid-sized company of 1,000 employees who has a 10 percent annual rate of turnover, the annual cost of turnover is $7.5 million!

Yet to most companies, not only are the financial ramifications of losing an employee a total mystery, but also it doesn’t even occur to them to ask the question. It’s too abstract and too far away for many companies to attempt to fathom so they continue to turn a blind eye and absorb the losses.

I wondered if this issue expanded beyond a national epidemic trend. So I googled it and was bummed to discover that the EU market is light years ahead of America in terms of projecting the financial ramifications associated with human capital planning. For example, many businesses abroad practice management accounting so that leaders can make sound business decisions for their company’s future.

American businesses, on the other hand, rely mostly on financial accounting and GAAP reporting, which are prepared by accountants and sent directly to entities outside of the company (stockholders, tax professionals and lenders). These reports focus on objective past mistakes and achievements and avoid projections. Therefore, they aren’t providing their leaders with the necessary data to change the course of their ineffective talent strategies.

I work with companies that boast 70+ percent turnover rates, but when I ask, “What if we cut your turnover rate in half – what kind of financial gain can you expect see?” I’m consistently met with awkward silences and bewildered looks. They know their turnover is bad, but aren’t willing to figure out how bad. Sure they’re profitable businesses, so why wouldn’t they want to be more profitable?

 

Avoid racking up termination costs by asking these questions:

  • Does your strategic business plan match your talent plan?
  • Do you have a plan for identification, retention, and development?
  • Do you know what an impact performer (taking into account both hard and soft skills) looks like for your company today and into the future?
  • Does your recruiting strategy reflect that (or have you simply replaced newspaper ads with online job board postings)?
  • Has your “people plan” changed based on the 4 different generations represented in today’s workforce or have you still maintained your forefather’s outdated philosophies?

And the toughest sick-to-your-stomach questions of all…

  • What do our recruiting efforts cost?
  • What is our turnover costing you?
  • How about absenteeism and disengagement costs?

Looking for some great talent management content in visually-compelling formats?

Check out our Infographics!

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