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What are the real costs of the wrong people leaving your organisation?



Referring to an article that was published some time ago in 'Het Financieel Dagblad' in The Netherlands, it appears that people have different reasons to change their employer. Some reasons of which are really surprising. People surveyed were allowed to mark more then one answer. Therefore their total is higher then 100%.

Undesired employee turnover can be disastrous for the profits and revenue of a company. Several surveys have shown that each employee leaving an organization, will cost the company between 150% and 400% of his/her annual salary, depending on his/her level and responsibility. In other words: if an executive easily earns an annual salary between € 100.000 and € 150.000, the total replacement costs will easily amount to € 200.000 or even € 600.000. And when senior executives are concerned, the total costs for the organization can even amount to one million Euros or more. This money is thus directly deducted from the company’s result.

The following will be included in the calculation of the total replacement costs: all costs for the interim replacement, all recruitment costs, often representing 20 - 35% of an annual salary alone, possible severance packages, the training period required before the replacement will be effective, the expertise lost, unsatisfied customers and sometimes less or smaller assignments.

An example
Let's suppose that the total replacement costs for a so-called regretted loss at executive level amount to € 250.000, on average. In this example, I assume that a company not always has a new challenge for an employee. Especially when the economy is hardly growing, as it is the case nowadays, and companies have difficulties to grow, there are fewer opportunities at the top, simply because the pyramid is smaller when you near the top.

Let us suppose that this company is employing 5.000 people and is being confronted each year to a regretted loss of 20 executives. If we suppose that the average replacement costs per person amount to € 250.000, the total annual replacement costs for the company would amount to 5 millions of Euros a year. Due to the fact that the company is not really growing, we suppose that it is unavoidable that some people are leaving because of new opportunities they get: half of them are concerned here (49%): € 2.500.000. You can’t avoid that some people leave because of their salary either. However, the people who participated in the survey organized by the ‘Financieele Dagblad’, were allowed to mark several answers. So, let us suppose that among the regretted loss of 20 executives, the company could have really influenced 5-8 executives willing to leave. For the company, this means an annual loss of profits of 1,25 - 2 millions Euros.

The management could retain these 5-8 executives by adopting a more effective behavior. Just take a simple and rational look at the reasons why they leave:
  1. They believe they have a bad manager,
  2. They believe that they do not get enough appreciation,
  3. They experience poor communication. All of these reasons can be influenced through the behavior of their direct bosses, which means that it can be improved without hardly any investments.
Executives can really improve their effectiveness by doing three things.
  1. By stopping certain types of behavior.
  2. By doing more of the behavior they are already showing.
  3. And lastly by adopting new types of behavior as a new habit. But they have to look in the mirror deep enough. Really learning new behavior requests between 12 - 15 months.
As a consequence, they will better know how to motivate their own employees and be able to avoid unnecessary staff turnover. This way, they will considerably and directly contribute to the profit, value creation and continuity for the company.

Through paying attention not only on the 'WHAT' of an organization but also looking at the 'HOW' of an organization, managers can directly contribute.

Focus on behavior is soft and 'touchy feely'? I don't see it.

As always, we'd love to hear your experiences. Please share them hereunder.

Enjoy your weekend,

Paul

By Paul Donkers

"my purpose is to help improve strategy execution, to create high performing teams and coach for effective business leaders"

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