Cost of Turnover Guest Presenter: Theresa M. Worman Executive VP, - - PowerPoint PPT Presentation

Identifying the Real Cost of Turnover

Guest Presenter: Theresa M. Worman

Executive VP, Strategy and Development Compdata Surveys & Consulting

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About the Presenter

Talent Takeaways Series THERESA M. WORMAN Theresa is a recognized compensation expert with more than twenty years in the industry. She oversees business development and works to bring Compdata’s consulting and survey solutions to the

• rganizations needing them.

Throughout her career, Theresa has been instrumental in the creation and evolution of Compdata’s product

• fferings and consulting services. Theresa often lends

her expertise to audiences at seminars and webinars for ASHHRA, WorldatWork and state hospital associations. Theresa shares her knowledge with journalists from media outlets across the country, and has been quoted by The Wall Street Journal, Inc. and Money magazines, and numerous newspapers. She has been published in WorldatWork’s Workspan magazine on multiple occasions.

• Future Workplace and Kronos

Over80% of employers say improving retention is a critical priority for their

• rganization.

Unemployment Hits Record Lows

4.6% 4.1% 2.9% 4.5% 2.6% 3.9% 3.6% 3.3% 4.8% 3.8% 2.1%

National Unemployment Rate: 4.1%

Current unemployment rate for college educated workers is 2.1%.

• Bureau of Labor Statistics

9.1% 9.8% 9.8% 10.4% 11.0% 11.6% 12.8% 13.5%

5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 2010 2011 2012 2013 2014 2015 2016 2017

Voluntary Turnover: All Industries

Turnover: Facts and Trends

Cultural Impact of High Turnover

Rising Turnover Low Morale Declining Performance

Cultural Impact of High Turnover

Cultural Impact of High Turnover

Financial Impact of High Turnover

Financial Impact of High Turnover

Why Should You Track Turnover?

• T

urnover impacts all aspects of the business

• Provides a metric to a problem
• Organizations have a competitive edge when they retain

seasoned and well-trained employees

• Helps prioritize areas for improvement
• Better able to validate your proposed solution to

leadership

Hard and Soft Costs

Soft costs include

• Decreased employee engagement
• Lower quality of customer service and higher occurrence of errors
• Negative cultural impact

Hard costs include

• Recruiting or agency fees
• Training
• Length of vacancy
• Overtime costs

Goals for Turnover Costing Model

Include data points that are:

• Measurable
• Indisputable
• Relevant to operations

It is more important to have leadership agreement than for it to be all encompassing.

Factors to Consider for Costing Turnover

Gather a cross-functional team Determine the data points Select a job to validate Calculate the cost of turnover

Gather a Cross-Functional Team

Your team needs representatives from:

• Human Resources

− Talent Acquisition, Compensation, HR Business Partners

• CFO/Finance

Also consider:

• Affected department heads
• Executives
• Operations employees

Possible Data Points

• Separation cost: Exit interviews, administrative costs,

separation pay

• Acquisition cost: Advertising, travel, interviews,

assessments, background checks, sign-on bonuses, employee referral bonuses and relocation

• Placement costs: Agency fees, on-boarding, training

Gather Position & Company Data

• Position’s annual average total cash compensation and

benefits

• All positions’ annual average total cash compensation and

benefits

• Projected number of exits this year in the position
• Annual revenue
• Number of FTEs

Lost Productivity Data

• Number of days the position is

vacant

• Anticipated days new

employee needs to become productive

Limitations to Costing Models

• Every costing model has limitations
• Developing a model that accounts for 100% of costs may not

be achievable

− Trying to account for every dollar reaches a point of diminishing returns

• Goal is to have executive agreement about measuring

turnover costs to the organization

Not everything that counts can be counted, and not everything that can be counted counts.

Select Position(s) to Validate

Select a benchmark job to validate internal and external metrics Position should be:

• Visible across the organization
• Agreed upon by leadership
• A hindrance to success should significant turnover occur

Cost Factors to Consider

Accountant 1

All Accountant 1’s annual average total cash compensation and benefits $74,000 All positions’ annual average total cash compensation and benefits $81,000 Projected exits for Accountant 1’s this year 5 Annual revenue/Number of FTEs $400,000 Separation cost $1,000 Acquisition cost for one new employee $3,000 Placement costs $4,000 Average number of days the position is open 25 Number of days for employee to become productive in job 30 Number FTE workdays per year 240

Calculate Gross Lost Productivity

Step Calculations

Determine daily revenue attributed to each employee $400,000 EE revenue/240 workdays = $1,667 per day Compare the average annual total cash compensation and benefits of the Accountant 1 ($74,000) to that of all positions ($81,000) $74,000/$81,000 = .91 Determine daily revenue attributed to an Accountant 1 $1,667 employee daily revenue x 0.91 = $1,517 Calculate total gross lost productive by multiplying number of days for Accountant 1 to become productive to the daily revenue attributed to an Accountant 1 $1,517 daily revenue x 30 days = $45,510

TOTAL GROSS LOST PRODUCTIVITY $45,510

Calculate Net Lost Productivity

Step Calculations

Determine total cash compensation & benefits saved per day during vacancy $74,000/240 days =$308.33/day Multiply daily amount saved by number of days vacant $308.33/day x 25 days = $7,708 Subtract total cash compensation and benefits saved from total gross lost productivity $45,510 - $7,708 = $37,802

TOTAL NET LOST PRODUCTIVITY $37,802

Cost of Losing One Employee

Type of Cost Cost

Separation $1,000 Acquisition $3,000 Placement $4,000 Net lost productivity $37,802

TOTAL COST OF TURNOVER FOR AN ACCOUNTANT 1 $45,802

Total Position Turnover Cost

With 5 projected Accountant 1 exits during the year:

• TOTAL ACCOUNTANT 1 COST OF TURNOVER = $229,010
• SAVINGS FOR REDUCING ACCOUNTANT TURNOVER BY 20% = $45,802
• SAVINGS FOR REDUCING ACCOUNTANT TURNOVER BY 50% = $114,505

Communicating to Leadership

• Effective communication of Human Resource leaders track a

number of metrics and must be able to communicate their importance to leadership

− Turnover is one of the most important

Communicating to Leadership

Clearly communicating these metrics to leadership provides relevance for the company as a whole Relay the information in a way they will understand

• Graphs, charts, financial

calculations, etc.

Communicating to Leadership

Function Turnover Rate Total Number of Exits Total Cost

• f Turnover

Production 32% 10 $262,560 Research & Development 12% 5 $260,000 Purchasing 13% 3 $130,660 Marketing & Sales 10% 5 $221,150 Human Resources 8% 1 $54,820 IT 16% 2 $120,800 Accounting & Finance 20% 4 $190,810 TOTAL 18% 30 $1,240,800

Communicating to Leadership

$262,560 $260,000 $130,660 $221,150 $54,820 $120,800 $190,810 Production Research & Development Marketing & Sales Accounting & Finance Purchasing IT Human Resources

$0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000

How to Use the Cost of Turnover Metric

Investing in employees helps employers manage turnover

• Use the projected cost savings to justify some of these programs

More competitive compensation

• Employees have websites to gauge competitive wages
• Pay is openly shared with peers or friends

Promote career advancement opportunities

• Offer more career mobility options
• Provide employees with new challenges and assignments

How to Use the Cost of Turnover Metric

Provide employees with flexibility and options

• Telecommuting, benefit options, work schedule, etc.

Enrich employees with educational tools

• Help employees understand how they can thrive in your organization
• Employers are planning on investing more into direct learning

expenditures for employees

• 74% of employees feel that they aren’t achieving their full potential at

work due to lack of development opportunities (Middlesex University’s

Institute for Work Based Learning)

Retaining Millennials

Study by Intelligence Group on millennials:

• 64% Priority to make the world better place
• 72% Want to be own boss
• 74% Want flexible work schedules
• 79% Prefer coach or mentor to a boss
• 88% Prefer collaborative culture
• 88% Desire “work/life integration”
• 100% Love answering opinion surveys

Retaining Millennials

• Employer-sponsored volunteer opportunities
• Company teams for local charity runs or walks
• Team competitions for giving/volunteering
• Open forums for employees to share input
• Self and peer evaluations
• Transparency where possible

Run HR Like a Profit & Loss Center

Executives are starting to see the strategic importance of HR

• View it more as a P&L leader rather than a cost center

HR is the Chief People Officer

• If not you, then who? If HR doesn’t address this, who does?

Still responsible for leading how the

• rganization thinks about people and

supports the desired culture

Begin a Different Dialogue

• Build the process and gain executive ownership around the

cost of turnover.

• Clearly and logically communicate the financial implications.
• Position these HR initiatives in P&L terms.
• Ultimately, make HR a strategic partner.

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Questions?

Contact us anytime with questions about our data

• r our consulting services:

Theresa M. Worman Compdata Surveys & Consulting 800.300.9570 TWorman@CompdataConsulting.com