Attrition - the cost to an organisation of replacing a staff member who moves on - can have a serious and unplanned-for impact on budgets. This has got to stop, says Steve Crabb
Back in the 1980s, a colleague of mine, Bernard Gottleib, who was an absolutely brilliant statistician, worked out a mathematical formula for calculating the cost of attrition to organisations - in other words, the amount of money needed to replace staff who leave.
There was definitely a burning need for it. Time and again I would speak to employers who had budgeted for annual pay increases of, say, 3% but had seen their annual pay bill go up by 5% or more and were left scratching their heads, wondering how this could have happened.
Part of the answer lay in one-off, discretionary bonuses, incentive schemes that paid out more than expected due to outstanding performance, and unplanned promotions - all good stuff.
But the big uncosted element was attrition. Particularly in tight labour market conditions, employers frequently find they have to pay higher salaries to new recruits than they were paying to the workers who are being replaced.
And the higher your level of turnover, the worse it gets. And then of course there are all the associated costs, in terms of lost productivity as new starters get up to speed, management downtime when you are recruiting, inducting and training, the cost of advertising or paying commission to an agency, and so on.
According to the Chartered Institute of Personnel and Development’s annual survey of recruitment, retention and turnover, it costs around £5,000 to replace a single manager or professional employee.
One leading UK employer estimates it takes just under a year from the time a new starter joins for the organisation to recoup its costs.
So when Gottleib’s equation was published, we thought it would be embraced by grateful employers and a new era of measurement would dawn. Fifteen years later, we are still waiting for such an approach to take hold.
According to the CIPD survey, only 8% of employers believe that they know the true cost of attrition in their organisations.
In an effort to fill that gap, Reed Consulting - part of the high street employment chain - is launching a new, free online service called RADar, which aims to help employers measure their turnover levels and the cost to the business, and benchmark these against those faced by other employers.
The database is only launched this week, so its data sets are just beginning to build, but it will be fascinating to see what patterns emerge in the long run.
As well as knowing how many of your people are leaving, and what it’s costing you, it is of course vital to understand precisely why they are leaving, so you can do something about it in terms of your company’s culture.
According to a report published by Reed Consulting to mark the launch of RADar, 49% of leavers say that they left their previous job because of a lack of opportunities to develop themselves or their careers - but only 21% of employers thought that was the main reason why employees were moving on. Ironically, employers put far more stress on pay and benefits as a driver for employee turnover.
As the war for talent rages on, measurement is going to be a vital weapon for any employer who is serious about winning.
n Steve Crabb is editor of People Management
Back in the 1980s, a colleague of mine, Bernard Gottleib, who was an absolutely brilliant statistician, worked out a mathematical formula for calculating the cost of attrition to organisations - in other words, the amount of money needed to replace staff who leave.
There was definitely a burning need for it. Time and again I would speak to employers who had budgeted for annual pay increases of, say, 3% but had seen their annual pay bill go up by 5% or more and were left scratching their heads, wondering how this could have happened.
Part of the answer lay in one-off, discretionary bonuses, incentive schemes that paid out more than expected due to outstanding performance, and unplanned promotions - all good stuff.
But the big uncosted element was attrition. Particularly in tight labour market conditions, employers frequently find they have to pay higher salaries to new recruits than they were paying to the workers who are being replaced.
And the higher your level of turnover, the worse it gets. And then of course there are all the associated costs, in terms of lost productivity as new starters get up to speed, management downtime when you are recruiting, inducting and training, the cost of advertising or paying commission to an agency, and so on.
According to the Chartered Institute of Personnel and Development’s annual survey of recruitment, retention and turnover, it costs around £5,000 to replace a single manager or professional employee.
One leading UK employer estimates it takes just under a year from the time a new starter joins for the organisation to recoup its costs.
So when Gottleib’s equation was published, we thought it would be embraced by grateful employers and a new era of measurement would dawn. Fifteen years later, we are still waiting for such an approach to take hold.
According to the CIPD survey, only 8% of employers believe that they know the true cost of attrition in their organisations.
In an effort to fill that gap, Reed Consulting - part of the high street employment chain - is launching a new, free online service called RADar, which aims to help employers measure their turnover levels and the cost to the business, and benchmark these against those faced by other employers.
The database is only launched this week, so its data sets are just beginning to build, but it will be fascinating to see what patterns emerge in the long run.
As well as knowing how many of your people are leaving, and what it’s costing you, it is of course vital to understand precisely why they are leaving, so you can do something about it in terms of your company’s culture.
According to a report published by Reed Consulting to mark the launch of RADar, 49% of leavers say that they left their previous job because of a lack of opportunities to develop themselves or their careers - but only 21% of employers thought that was the main reason why employees were moving on. Ironically, employers put far more stress on pay and benefits as a driver for employee turnover.
As the war for talent rages on, measurement is going to be a vital weapon for any employer who is serious about winning.
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