The Cost of Employee Turnover

Sometime during the first 3-4 months of the pandemic, after offices all over the world closed, I thought that a lot of businesses would try to hold on to existing employees and minimize turnover. I also thought many employees would be nervous about changing jobs amid all the uncertainty.

That wasn’t the case everywhere, and I was surprised at how much employee turnover occurred in many companies during 2020 and 2021. We had the Great Resignation, where talented employees (and some not-so-talented) found new employment with lots of remove flexibility. We typically have low turnover at Redgate, but more surprising to me was the number of people we’ve hired in the last two years.

Our gains come from losses elsewhere. It seems a lot of companies have had a bit of turnover, more than they liked.  The costs of replacing a staffer has climbed to an average of USD$57k, according to a recent poll of hiring managers. I’m sure this is a combination of the time and money spent on recruiters and interviews as well the lost productivity of having less people around.

For many of us working in technology, we realize that losing good people is a problem. Often we lose undocumented knowledge about our systems,  those shortcuts, checks, small tasks, not-so-obvious fixes, and more that make life easier. We can feel more stressed about additional work, or even the anticipated unknown challenges we might face. Moral, productivity, and motivation decrease, which creates a snowball effect. Everyone gets less done, which costs the organization more. Either lower revenue, more costs, or perhaps fewer services for those government or non-profit concerns.

With large tech companies letting lots of talented people go, I wonder if we’ll see more competition in the employment market. For quite a few years there have been fewer workers than there are jobs. Perhaps that changes a bit in the future, though I still think there are not nearly enough talented workers for the positions open. Good for talented workers as they may have more choices, but also good for less talented workers when companies feel pressure to hire anyone.

Except, what I’ve seen in a lot of companies is that they don’t want to hire anyone. Having a degree or cert isn’t enough. Companies aren’t going to hire you because you are Azure/AWS/etc. certified. They want tech skills and at least a few soft ones. That creates an even higher cost to fill positions, so maybe that USD$57k isn’t a bad number.

To me, what this really means is that organizations ought to look at poor management, both middle and upper, and replace those people. That’s the problem in many places, one that isn’t easily fixed. Poor culture, micromanagement, lack of support, little-to-no psychological safety, and more contribute to poor retention.

Culture is important and building it is hard. While not everyone will have a great culture, many organizations can avoid a poor one by treating people fairly and ensuring management understands how to do that. If for no other reason than to avoid the high costs of replacing staff.

Steve Jones

About way0utwest

Editor, SQLServerCentral
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5 Responses to The Cost of Employee Turnover

  1. Russ Loski says:

    It always amazes me that companies make it difficult to increase compensation for their people, even knowing that the cost of replacing those people is so high. I would estimate that for many technical positions, the $57K estimate is low. Just the cost of bringing the new hire up to speed with all of the knowledge that the old person took out the door.

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  2. Most employers have done this to themselves by neglecting their employees which the business relies on. Until recent there has for decades been a surplus of labor (high unemployment) which benefits the employer because he has more labor to pick from. This labor surplus allowed those same people, the decision makers in a business, to ignore their duty of taking care of their employees. A perfect example is never giving a raise beyond maybe a cost of living adjustment. The cost of living numbers the government publishes is always much lower than reality so any business that does do annual cost of living raises isn’t really raising the employee’s salary equal to the cost of living increase. This in turn means that after many years the salary being paid is very much underpaid but the employer doesn’t care because if the employee leaves there’s many out there he can replace the employee with. These decision makers must never factor in the cost of turnover, they only look at the employees salary.

    EXAMPLE: MYBIZ Employee john doe who is paid $X annually plus cost of living adjustment leaves MYBIZ after 10 years to get paid more at another company doing the same job. The CEO of MYBIZ is going to end up paying around $50K for the turnover and the new employee he hires will have to be paid more than Job Doe was. If John Doe was satisfactorily doing his job which one would assume he has since he’s been there 10 years, why would the CE of MYBIZ choose the more expensive option of letting John Doe leave versus raising his salary to what it should be at? This logic, how most companies have dealt with turnover, makes one wonder how these same executives can successfully run the company when they make foolish/costly decision like letting John Doe instead of raising his salary to at least what MYBIZ would have to offer to a new employee who is replacing John Doe. In My experiences the small business owner is the one who takes care of their employees.

    Frankly, the business world deserves this problem for the decades of salary abuse they’ve engaged in while unemployment was high and they had a lot of labor to pick from.

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  3. way0utwest says:

    I think many businesses can. It’s amazing to me how much money is out there and how much revenue->exceeds expenses. If they did a better job of management, I expect lots of orgs would have much larger profit margins.

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