How employee retention impacts the bottom line

Employee retention is a much tossed-around term in HR circles, as well it should be. It’s essential for businesses to strategise for keeping their most valuable staff, as losing creative and rententiondevoted members of the team means decreased productivity and can potentially hamper a company’s ability to execute the service or products its customers expect.

But the problem with any commonly used piece of professional terminology is that it’s easy to lose the context and perspective that make the idea so important – and employee retention is no exception to this phenomenon. Most HR teams surely have a strategy for retaining staff or are at least working toward one, but a timely reminder of the impacts that employee turnover can have on a business might introduce some added urgency to those retention efforts.

What it costs when people quit

Increasing employee engagement with the goal of keeping key talent on board is not just a matter of making employees feel good. It’s about challenging them, asking them to reach their peak productivity and providing them meaningful work in which they can take pride. After all, a poor retention rate means that the business is losing money it could otherwise save.

In a post for the HayGroup blog, Satya Radjasa, a reward practice lead with the company, outlined just how costly it can be when essential employees fly the coop. He noted that there is a series of four different expenses that come up when a valued staff member leaves. The first is the financial cost, which can be particularly high for people tasked with bringing in and keeping revenue streams, such as salespeople and account managers. The second layer of monetary impact, the cost of finding someone to fill the vacated role, can be even more dramatic.

“Replacing an employee can cost from 30 to 200 percent of annual salary, depending on their level. So if 15 percent of your ‘critical’ people are leaving, what would the cost be?”

Radjasa asked.

The two other types of costs that Radjasa associated with turnover are softer but still very real: the loss in knowledge when a long-standing employee leaves and the blow to morale throughout the work environment.

The human element of business success

In his piece, Radjasa pointed to a highly insightful quote from Maurits Lalisang, the president director of Unilever Indonesia, as a basis for any sensible thinking about the relationship between HR teams and staff.

“There are two most important elements in my company: people and brand. If I have to choose just one, it’s people, because with great people, I can create excellent brands,”

Lalisang said, according to Radjasa.

Companies are already quite aware of the truth of Lalisang’s words. A study by the Conference Board found that human capital and operational excellence were the top two HR challenges in 2013. And the top strategy for improving operations was employee-centric: boosting engagement and productivity.

Prioritising retention isn’t optional for companies, and this highlights the vital role of HR. When the department is performing to its highest level, it is a vital contributor to a company’s financial success.

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This post was written by David Bator of TemboStatus. Read more from David Bator on his blog: Beyond the Employee Survey

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