The Cost of Employee Turnover

Published: November 1, 2021

Suffice it to say, the audiovisual integration industry has been, and continues to be, an interesting place to work in, study, and write about. What commands our attention is the never-ending evolution of technologies and the fact that every project is different in one or more ways and has its own personality. Never a dull moment!

What keeps us on our toes is the fact that just as you think you know something or in some cases everything, you find out you need to know more. As regular readers know, I advocate the concept of not being impressed with what you know, but rather what you don’t know. It is the discovery of things that are new or unknown at the time that is the fuel that motivates many of us.

The proverbial “glue” that holds our industry together are the seekers of knowledge. As the technologies are the tools of our trade, it is the people that take those tools and do something productive with them.

Most of us start our professional lives in audiovisual without a great deal of knowledge in the category. We may know a bit here and there, but not the scale and scope of the industry. As sentient human beings we start with basic intelligence and learn as we go.  The knowledge and experience people gain along the way amalgamates into the tangible value employees provide for the companies they work for. In short, the more knowledge and the more experience employees have coupled with personal work ethic or “want to” is the holy grail for businesses whose future depends on good employees.

We clearly understand and can ascribe a value to the hardware and software that we sell. We can also place a value on the business overall. What is not readily understood is the tangible value of those good employees I just spoke about. Think about all the time spent in developing employees. Think of what they knew when they started and how much they have learned. Their value has increased. For the CFO types out there good employees can be thought of as an appreciating asset..

Read Next: Three Recruiting Tips For Small AV Businesses

The nurturing and development of the workforce is not free, but don’t think about it as a cost. Think about it as an investment in your company’s future as well as the future of that individual employee. A company needs to invest in employee development and manage for employee retention, thus avoiding the high costs of replacing employees.

Some will ignore this and simply say that employee turnover is an assumed part of business, and they would be right as far as that goes, but turnover is growing. As we know, employee turnover can be voluntary or involuntary. Either outcome is largely self-explanatory, but both are incredibly expensive for the company.

The most common reason for voluntary turnover is when an employee is approached by another employer and is offered a better job. The second most common reason is that the employee no longer wants to work for their current company (for several possible reasons) and has been actively searching for a new opportunity, even for a lateral move.

On the involuntary side, the most common cause is poor performance by the employee, and in second place is a necessary (for one reason or another) reduction in overall workforce. One subject matter expert notes, “When an employee leaves involuntarily, other employees might speculate that they’re next on the chopping block, which can heighten anxiety and motivate job searches. They might fear that new hires might outperform them, which can also lead to tension and new challenges among coworkers. Employees still working for you won’t want to do extra work without being compensated. Employees who see their peers voluntarily leaving may wonder if there are better opportunities out there for them, too. These are all concerns you should be aware of regarding high turnover.”

Turnover by the Numbers

As we said, turnover is growing. According to a study from the Work Institute, a shocking 42 million US employees left their jobs voluntarily in 2019 (prior to the pandemic effect) —that is 27% of the workforce. This was an increase of over 2 million from 2018, which saw 40 million voluntary departures and an increase of over 88% since 2010.

Gallup reports that millennials in particular are prone to frequent job-hopping, as 6 out of 10 millennials report being always open to new job opportunities, and the millennial generation is the most likely to switch jobs. Their research shows a lack of employee engagement is hurting people’s loyalty to their companies. Gallup reports only 15% of employees worldwide are engaged at work, and 51% of employees are actively looking for new jobs. Gallup claims that 52% of voluntarily exiting employees say their manager or organization could have done something to prevent them from leaving their job. Talk about food for thought!

Research by Fortune Magazine showed that 30% of employees leaving a company did so for reasons based on compensation. LinkedIn claims in their research on their site that 87% of all workers are open to new job opportunities. Another LinkedIn report revealed how important benefits are: 44% of employees say benefits like paid time off, healthcare, and parental leave make up some of the top factors keeping professionals at a job for more than 5 years. Benefits are more important to workers than other potential perks.

While the exact costs of employee turnover vary, there’s no question it’s something employers need to manage. Turnover seems to vary by wage and role of employee. Some studies predict that every time a business replaces a salaried employee, it costs between 6 and 9 months of that position’s salary on average.

According to Employee Benefit News, employers spend around 33% of a worker’s annual salary during the replacement process. Basic math then tells us that it will cost $20,000 to replace a manager making $60,000 a year and cost $50,000 to replace an executive making $150,000 a year.

According to Psychometrics, whenever you lose a highly trained and skilled employee (like service techs for example), that could cost you 213% of their salary. So, for example, losing a senior technician you pay $90,000 a year can actually cost your business nearly $192,000! Your company would have to sell a significant increase in services to make up for that kind of loss. Stop and let these costs sink in.

In a Center for American Progress study, they tell us that “Implementing workplace policies that benefit workers and help boost employee retention is not simply a nice thing for businesses to do for their employees. Maintaining a stable workforce by reducing employee turnover through better benefits and flexible workplace policies also makes good business sense, as it can result in significant cost savings to employers.” They make the case perfectly. “Indeed, it is costly to replace workers because of the productivity losses when someone leaves a job, the costs of hiring and training a new employee, and the slower productivity until the new employee gets up to speed in their new job.”

The Bureau of Labor Statistics data shows that “the frequent voluntary turnover of employees has a negative impact on employee morale, productivity, and company revenue.” In an article on employee retention by the iconic accounting firm Deloitte, they found the following factors need to be considered:

  • The cost of hiring a new employee including the advertising, interviewing, screening, and hiring.
  • The cost of onboarding a new person, including training and management time.
  • Lost productivity—it may take a new employee one to two years to reach the productivity of an existing person.
  • Lost engagement—other employees who see high turnover tend to disengage and lose productivity.
  • Customer service and errors—for example, new employees take longer and are often less adept at solving problems.
  • Training cost—for example, over two to three years, a business likely invests 10 to 20 percent of an employee’s salary or more in training.
  • Cultural impact—whenever someone leaves, others take time to ask why.

Deloitte points out that “One of the reasons the real cost of employee turnover is an unknown is that most companies don’t have systems in place to track exit costs, including recruiting, interviewing, hiring, orientation and training, lost productivity, potential customer dissatisfaction, reduced or lost business, administrative costs, and lost expertise. This takes collaboration among departments (HR, Finance, Operations), tools to measure these costs, and reporting mechanisms.”

Now more than ever before we live in an era of low unemployment. This means employees in all sectors can be more selective as they compare companies, whether they are looking at their existing employer or seeking opportunities elsewhere. In our commercial AV industry, every week we get requests by friends and colleagues for recommendations for qualified individuals to fill openings at a manufacturer, distributor, or AV integration company. As you know, good people are not a dime a dozen, but they do exist, and they are a sought-after commodity.

If companies do not address the motivations and concerns of employees, they will seek employment elsewhere, that to them better meets their needs. As we have seen the cost of employee turnover is extreme. Some turnover will always be there for a variety of reasons, some of which is out of our control, but our goal should be to reduce turnover as much as possible. The data is clear. Developing and retaining qualified employees should be top of mind as it affects the bottom line.

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