Employee Attrition – Serious ‘heartburn’

“You can’t afford to lose too many people. It’s not cheap, and that’s where a lot of your profit goes.” – gallup.com

No form of losing is pleasant and especially losing resources / assets in business. It is a known fact that customer and employee attrition causes some serious ‘heartburn’ for any company. Anyone in business has calculated and therefore is completely aware of the cost of even one customer leaving. They also ‘seemingly’ know the cost of employee attrition, but closer investigation would reveal that ‘actual costs’ (which includes hidden ones) are still a blur. High employee attrition not only is a huge monetary cost for the company, it also severely damages the work environment, has an adverse effect on the morale of the remaining staff members and reduces work output thereby giving rise to customer complaints. When employees leave, they take with them valuable resources of talent, skill, knowledge and the training imparted while in the company and worse still would use all these resources to serve competition. If the company operates in an industry where finding good talent is a challenge, employee attrition becomes an even more serious problem since replacing them becomes a huge project involving high costs, time and effort and in the interim drastically increases the workload of the existing staff.

As the number of companies rise and are more global in nature, they are able to attract fresh talent who are not risk averse, willing to try new things and can be moulded as the company desires, making it even tougher to prevent employee attrition. Employee exits will always be a reality, however businesses that invest in visible and good workplace processes and policies, will find it easier to retain their staff and reduce the back-breaking costs of employee attrition. Implementing such robust policies that help employees feel valued is not a choice anymore – it has become a business necessity. To enhance customer service levels, continue creating innovative products and maintain a good reputation in the market, it is essential that businesses maintain continuity and harmony in the workplace. Have you calculated the cost of employee attrition in your company?

  • Studies reveal, for example, losing a highly paid employee, it would cost the company twice the annual salary to recruit someone in their place – this includes the new hire’s recruiting costs (which would include the time of several persons in the human resources and hiring a professional head-hunter), training, time elapsed before the person becomes a 100% productive and of course the salary for the person. In addition, the person, if leading a team, would need time before the team gets accustomed to the style of working of the new ‘boss’ and that could lower productivity.
  • When an employee leaves, especially if it is sudden, the tasks being handled by this person would be left unattended, meaning a drop in productivity. Someone else in the team would need to shoulder those responsibilities increasing the workload, without additional payment, leading to dissatisfaction, absenteeism and even force the remaining staff members to seek opportunities outside the company. This becomes a vicious unbreakable cycle of trouble. Some important tasks might get done, but seemingly inconsequential tasks could fall between the cracks that could amount to serious problems over time.
  • While skills and knowledge may be similar in the same industry, using those skills and knowledge to serve the company is a result of consistent training and coaching. When a highly skilled employee leaves, she or he takes this vast cache of knowledge along leaving a dent and affecting the smooth working of the team and company. Also, it is not just knowledge and skills that the person takes along, it is also a large number of small things like understanding the company, the working style of the boss, the dynamics in the team and many such invaluable things that only happen when the person has stayed with the company for long. The person could also have some other talents like being a good singer, or dancer, a good cricket player and other such talents that add value to a company.
  • Companies prefer multi-skilled employees and therefore do take time and invest costs in training for their employees. Particular skill based training and or training for a particular process or system usually is quite expensive and normally imparted to a select few. If there is employee attrition from this select few then the investment made on training is a huge waste. A new hire would need to be re-trained which translates to time being taken off from the ‘trainers’ normal schedule to ensure that the new person is adequately trained and even post training, close supervision would be required to ensure the new person is completely confident to manage. For this training period then, two persons are doing the job of one – this cannot be beneficial to a company even for a short period of time.

We are not suggesting that employee attrition will not happen or that your company will not need to let some employees go – these factors are a given especially if the person is not being productive or is damaging the workplace environment in any manner. However, what is being suggested that before conditions for an exit happen, companies must take a serious look at their employee policies and working environment. They must also seek to coach and monitor before firing or getting to a point where employees decide to leave. Ensure that the salaries, incentives, benefits and career progression provided in your company, is, if not higher, at least at par with market standards. You would save some serious ‘heartburn’ for your company in the form of costs, time and reputation. Disgruntled employees are potential carriers of bad word of mouth and could influence others not to join your company and also depart your company as customers.

Apart from not being good with retaining their employees, some companies do not even have a proper exit policy in place. An exit interview is a sure-shot method of finding out from the ‘departing employee’ as to what went wrong (ideally such feedback should happen bi-annually for each employee while they are employed) and what would be the reasons that would have made them stay with the company. Without knowing what your company is doing wrong, it would be impossible to contain employee attrition and as news of your company’s instability spreads, you would soon find it hard to contain customer churn either. It is one of the prime duties of the Human Resources department to put in place processes around all the factors relating to their employees.

It would prove highly beneficial for a company to use some proven employee attracting and retaining strategies in place to ensure that the profits and bottom-line don’t get reduced due to managing the high costs of employee attrition. Historic data on employee retention and attrition proves highly beneficial to understand the reasons employees will stay or why they would get disgruntled and leave. However, this is an on-going process and must be continually updated since a company’s operating procedures, market conditions, technology used, skills and knowledge required are all conditions that continually change. With these changes, the reasons for employees to stay or leave will change too.

Being able to contain employee attrition is not about luck or making random guesses as to the reasons that an employee would leave. It is crucial to use proven retention methods and also take continuous feedback from employees with a focus on ‘staying’ reasons. It is important for companies to not assume they know how their employees feel. Just like they would take time and make efforts to understand what their external customers need, companies must first focus on the needs and wants of their employees. It stands to reason that no one likes to uproot and work towards creating a niche for themselves in another company without compelling reason – the sooner companies understand this the sooner they would be able to reduce the cost of employee attrition. As an example, a friend’s husband was with this large company for over 4 years and with time was managing a number of small and big issues and jobs so efficiently that even the boss never had to bother with them. However, despite his efficiency and knowledge and repeated reminders for a better position and salary, it fell on deaf ears. The result – he began to apply in other establishments and it wasn’t long before he got a better deal and left. What remained was a large gaping hole in the entire department, a team in disarray and a very flustered boss, unable to manage all that was now left unattended. It’s been six months – they still have not found someone as good to replace him and the efficiency of the team has dropped causing some huge losses and disruptions.

Employee attrition is an expensive and cumbersome thing to deal with – why not keep it at bay by investing a little more and hiring the best people and then doing what you can to keep them with you for a very long time.

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