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The real cost of employee turnover: How to stop the revolving door

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One of your employees has decided to give notice. And you’re struggling to fill their post – again. The position has seen a lot of turnover but you have no time to figure out why. Until you fill the job, your most effective manager will have to cover the vacant post’s responsibilities, pulling her focus away from a new initiative. She’s not thrilled with the extra work and the late nights. And you’ve heard some rumblings among the team; morale seems to have taken a hit. But you can’t address that now either. Filling the position – and fast - is priority.

Sound familiar? Many hiring managers don’t have the time or a full understanding of why turnover happens at their organizations and what they could actually learn from it. But they may change their tune if they knew that employee turnover comes with a pretty steep price tag.

The numbers

Experts vary in how they calculate the costs of turnover but all reveal results that should be concerning to nonprofit organizations. According to a 2014 report by the Conference Board of Canada, the average voluntary turnover rate (people choosing to leave jobs of their own volition) is about 7.2%. And a study by the Center for American Progress found that the direct costs associated with turnover is 20% of the annual salary for the average employee (earning $30,000 to $50,000 a year). For example, the cost to replace a $40k manager would be $8,000. For executive-level employees, the costs can exceed 200%. (E.g. the cost to replace a $100k CEO is $213,000).

And that doesn’t take into account the indirect costs – off-boarding, onboarding, costs of hiring (recruitment agencies, job ads, interviewing), lost productivity – to name just a few ways an organization can be impacted by turnover.

Melanie Laflamme, senior VP of human resources and organizational development at YMCA of Greater Toronto, says she doubles the employee’s annual salary to find the cost of turnover. Among other things, the number reflects the loss of time to train someone and the time it takes for the new employee to become fully effective in their role, which, in her estimation, is a year. If you lose someone who was responsible for multiple roles in a smaller organization, that can represent an even bigger gap, she adds.

Sarah Hisey is principal and shareholder of the Osborne Group, which she joined after a 25-plus career in HR. After many years of research, she found that organizations lose between 50% and 300% of the former employee’s salary with each turnover in the position.

Every organization incurs the same basic costs, say the experts. Training for complicated positions can prove incredibly disruptive, says Hisey, especially if that job keeps revolving. Keep in mind someone is now spending time doing another employee’s work instead of their own or taking two hours of their day to train someone new every six months. “Some of these (costs) are the big numbers,” she says, especially when dealing with high-level salaried employees.

Non-financial costs

Bill Harper, VP of finance and operations at Imagine Canada, would agree. The costs that concern him most are non-financial, he says, admitting that may sound odd coming from a ‘finance guy’. They also happen to be the ones most overlooked. He echoes Hisey’s focus on the extra work and time spent on rehiring, training etc. “It could go on for years to be back up to the level of expertise of one’s predecessor.”

Sure, you could hire more staff but the one resource that is truly finite and limited is the time of senior employees. “Where they spend their time is a huge opportunity cost,” he says.

That’s especially true in a smaller organization where the ED is involved in the hiring process and filling the gaps, taking them away from fundraising and other vital responsibilities.

The impact on team morale as they’re scrambling to fill shoes can be huge too, says Harper. “That defeating feeling could lead to more turnover; it’s viral.” Of course, the other real risk is making a bad hire, he adds. “It really can poison the environment.”

And let’s not forget about the effect on an organization’s brand and reputation, says Laflamme, herself with 38 years of HR expertise in the nonprofit sector. High turnover could mean disgruntled ex-employees. And, with the ubiquity of social media, that can prove dangerous. Not to mention the impact of disengagement. Engaged employees are willing to go the extra mile. High turnover at your organization can have the opposite effect on much of your staff.

Better screening leads to better hires

The good news is there are proactive things organizations can do to reduce the probability of turnover. For one thing, they need to take their time when filling a job opening. “Sometimes people get into this cycle where they’re so anxious to fill the job that they put anyone in there instead of saying ‘I need to wait and get the right person who will stay and do a good job’,” says Hisey. “If someone hates it, they won’t do it well.”

For another, it’s probably a good time to take a step back and examine your hiring process and organizational procedures to figure out what’s not working properly. “You can’t look at turnover in isolation,” says Laflamme. “It’s about your entire human capital strategy, from start to finish.”

Ask yourself some important questions. Are the interviewers digging deep enough? Are they really looking for a great fit? Did they screen enough to ensure the prospect has the required skillset and competency? That’s also where CharityVillage’s Talent Predictor can help. The job posting service pre-screens candidates and uses each organization’s unique requirements as well as science to predict how well the applicant will do in the job.

If hiring an entry level job, it may be worth having a senior manager join the interview, Hisey suggests. Though not a common practice, it demonstrates to the employee that senior leaders are invested in the process and allows for yet another set of eyes and ears to catch potential red flags. And always make sure new hires fit into the work culture, that their values are aligned and they appreciate what it means to work in the nonprofit sector, says Laflamme.

Ensure you’re effectively communicating the job and its responsibilities so candidates can self-select too. They need to understand the compensation and evaluation process and they need to get a sense of the organization’s commitment to developing their staff. “If they don’t see evidence of that, it could result in them leaving,” shares Laflamme. Look at the onboarding process. Is there enough support and training? What problems keep coming up, if any? Exit interviews – whether conducted in-house or by a third party - can prove valuable too, says Hisey, as it allows an employer to understand what’s not working.

Imagine Canada’s Standards Program can come in handy here, offers Harper, as it provides organizations with set standards of practice to follow – including written job descriptions, work plans, performance objectives – for better results.

Getting creative with retention and recognition

Sometimes it’s a matter of trying new things. Hisey shares how a client who was having a hard time finding a hire that was a good fit created a co-op program to give prospects exposure to the organization. The new approach didn’t bring in the same volume of applicants, but it helped them land on the right one. “It’s a matter of putting on the brakes and trying something different, though it may take several tries before you find something that gives you a better result.” There are many other preventative measures an organization can take to reduce turnover, says Harper. To counter the lower compensation at a nonprofit, for example, they can offer flex time, the ability to work remotely, additional vacation and a more comprehensive benefit plan. “Instead of looking at benefits as a cost, it should be looked at as an investment, especially in our environment where we want to help employees take a proactive approach to employee health,” echoes Laflamme.

Recognition can go a long way too, says Harper. Keep in mind, most folks are working at your organization despite the lower pay because they believe in the cause. Thanking them for their service and acknowledging that their commitment makes a difference ensures they feel valued.

Organizing social activities can promote teamwork, morale and help reduce burnout – which can all contribute to turnover. Harper shares how Imagine Canada is a strong believer in social activities as well as flex time, professional development programs and staff retreats. In fact, he just returned from a retreat where one of the items on the agenda was how to have more fun at work. “There are many ways of introducing some levity to make people feel better about spending so many hours at work,” he says.

Creating an engaging and positive work environment is invaluable, adds Laflamme. For their part, YMCA has a people strategy that keeps their human capital processes and practices in check. Recognized as a top employer for nine years, YMCA of Greater Toronto is committed to elevating their standards to attract and retain the best out there, says Laflamme. Staff investment is key, as displayed by their extensive benefit plan, two-day orientations for new staff, professional development, mentorship and leadership opportunities and an annual service recognition event.

Employment should be regarded as a reciprocal relationship, says Laflamme. “We know that employee engagement results in retention; you need to treat them like valuable assets, because they are.”

Elisa Birnbaum is a freelance journalist, producer and communications consultant living in Toronto. She is president of Elle Communications and Publisher & Editor-in-Chief of SEE Change Magazine and can be reached at: info@ellecommunications.ca.

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taylor.dwater@gmail.com taylor.dwater@gmail.com
Ms. Birnbaum refers to managers being pulled away from their roles to fill in as "her". May I remind the writer of this article that there males working in the non-profit sector as well including myself.
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