It costs more than you might think to transition an employee into a new role. And if they leave soon after, that’s even more money down the drain.
Tina has been working at a company for two years and she’s about to step into a leadership role. She’s never had management responsibilities before, but she’s excited to learn the ropes.
Her colleague Joe has been with the company for ten years. He’s never held a management position, but he’s earned his stripes as a senior member of the advertising team. Feeling it’s time for a change, Joe decides he’d like to transition into the editorial arm of the business. He’s always considered himself something of a wordsmith and feels confident he could pick things up quickly.
According to new US-based research from leadership training company VitalSmarts, it would cost the organisation 6-7 months and around $25,000 USD to get Tina to form the important new habits required of her role, and 3-4 months and $11,00 USD for Joe to do the same.
You don’t want to pour that much money into an employee to then lose them to a competitor. To avoid that, here are some things to keep in mind.
Cost of adapting to a new role
Career transitions can be costly, so it’s important they’re done right. The VitalSmarts research found that emerging leaders like Tina experienced the toughest (and most expensive) transition, but new hires, first time workers and people like Joe, who are transitioning internally, also come at a price.
To determine the various transition costs, the researchers took into account the time it took to learn the skills for the job, manage its demands, understand the ins and outs of the team or company, navigate the culture, and to become “fully proficient”. They paired this with the salary costs during the transition period and opportunities that were delayed/missed.
They found that:
- Employees entering the workforce for the first time had a transition period of 5-6 months and their transition cost the company $18,000 USD. The habits these employees found hardest to master were: taking initiative, mastering company systems/processes and knowing when to ask for help.
- Employees taking their first people-management position had a transition period of 6-7 months and their transition cost the company $25,000 USD. The habits these employees found hardest to master were: knowing how to delegate properly, learning how to communicate downwards (helping others to understand the reasoning behind their decisions) setting clear expectations and providing effective discipline such as holding staff accountable for performance issues.
- Experienced, non-supervisory external hires had a transition period of 4-5 months and their transition cost the company $16,000 USD. The habits these employees found hardest to master were: knowing when to ask for help and mastering company systems/processes.
- Experienced, non-supervisory employees, hired internally had a transition period of 3-4 months and their transition cost the company $11,000 USD. The habits these employees found hardest to master were: needing to receive coaching/training, mastering new systems/processes and knowing when to ask for help.
“As [organisations] look to reduce those costs, they need to consider that onboarding requires more than mastering the skills involved in the new role. They need to help employees turn these skills into the kind of automatic, unthinking habits that drive reliable performance,” says David Maxfield, vice president of research at VitalSmarts.
Australian turnover data
The Australian Bureau of Statistics estimated that over one million Australian employees changed employers or the businesses they ran in the year leading up to February 2018, and two thirds of those employees left voluntarily.
Taking an industry specific look, turnover rates during this time were particularly high in the hospitality (16 per cent), administrative services (12.3 per cent) and IT, media and telecoms (11.9 per cent) industries (see chart below for other industry averages).
Recruitment company Hays recently found that 33 per cent of companies in Australia had reported an increase in turnover rates over the last 12 months and that 44 per cent of Australian employees are planning to look for a new job in the next 12 months.
It’s easy to disregard the costs associated with a single employee who chooses to leave the business, but if you were to do some quick maths on your turnover rate for the year so far, you might be shocked at the result. If, like me, you’re no maths whizz, there are plenty of online calculators to help you out. Using a resource developed by the Victorian government, let’s play out a scenario.
Say you’re the CEO of a SME with roughly 40 staff on board. The average salary sits at about $70,000, that’s around $33 per hour. If ten of your staff resign (that’s 24 per cent of your workforce), that’s going to cost you a whopping $203,449. Think about all the other things you could spend that money on: training and development opportunities, new facilities, or many, many, many cups of coffee.
Yes, there are plenty of pecuniary (as explained above) and non-pecuniary costs (disengagement from other staff, weakened levels of morale etc.) associated with high levels of employee turnover. But it doesn’t always have to be a bad thing. Having a semi-regular supply of fresh employees can do wonders for productivity, workplace morale and innovation.
“It is one thing to lose a highly valued, high-performing employee and quite another to lose a disgruntled, underperforming employee whose skills are outdated. Indeed, the turnover of some employees may end up saving an organization more money than it would cost to replace that employee,” says author Edward Lawler III in an article for Forbes.
But how can you tell if your turnover rate is too high?
According to a study published by the Australian Human Resources Institute (AHRI) in August 2018, two thirds of the HR professionals surveyed cited between 1-10 per cent as the “ideal turnover rate for their organisation” and the remaining portion believed turnover rates closer to 20 per cent were acceptable.
Turnover rates have been steadily increasing since 2012 (see chart below) and, in 2018, were only 0.5 per cent lower than rates seen during the GFC.
The majority of HR professionals surveyed felt their turnover rates (which averaged at 18 per cent) were either slightly too high or far too high. So, what’s the remedy?
Hold onto your people and your pennies
“When it comes to employee retention, leadership quality matters according to the respondents, 70 per cent of whom identified effective management and leadership as the most effective method for employee retention,” says AHRI’s CEO Lyn Goodear.
“The respondents clearly believe that providing a sense of purpose and direction from above is a critical factor in generating employee engagement and loyalty.”
HRM reached out to various HR consultants who also offered their best tips for employers with high turnover rates.
Retention and engagement is a dynamic concept that changes over time, says David Owens, managing director of HR Partners – a Randstad company.
“Recognise that people’s desires change and evolve. Just because you spoke to someone in February about their goals and what they want to achieve, that doesn’t mean they’ll feel the same in August,” Owens says.
“It takes more than one conversation every six months, to keep up-to-date with people’s aspirations. I never get prescriptive about how often you should be checking in, it’s just about having those close, human-centric relationships at work. The more connected you are to your people in the organisation, the more frequently you talk, the more honest the relationship is, the more likely you are to get a perception of how people’s desires and expectations are changing.”
Adding to this point, Jamie Sims – managing director of People Measures – says “know your staff”.
“When staff feel their contribution is important, and that they’re valued, they are much more likely to stay. Also, it’s worth noting that good leaders will encourage staff to stretch themselves and take other roles either in the organisation or outside the organisation for their continued development. This means that having high retention isn’t always a mark of a good leader,” says Sims.
It takes a long time to form a new habit. Think about trying to master a new language or learning how to juggle – it doesn’t happen overnight. The same can be said for those transitioning into new roles. In order to try and accelerate this habit forming process, the VitalSmarts researchers offer the following four points:
- Focus on “Keystone” habits: While new roles require new skills, focus on one or two behavioural habits that will create small wins and momentum. These habits can naturally lead to other good habits.
- Don’t break habits, replace them: Rather than thinking in terms of the old habits you need to stop, focus on the replacement behaviors you need to adopt. Break them down into small, specific, concrete routines and then make sure you have the knowledge, skills and tools to form the new habit.
- Identify cues: Put something in place to trigger this new habit. Will it be a notification? When you enter a certain meeting? A certain time of day? When you feel a specific emotion? If you identify your triggers, you’re much more likely to actually perform the behavior.
- Identify Rewards: You won’t form a habit unless you think there’s a payoff. Choose a reward that gets you excited, and then make that reward both immediate and obvious.
If you encourage your staff to form these vital habits, they have a greater chance of succeeding in their role, meaning they’ll likely feel fulfilled and engaged in their work and less likely to throw in the towel. Because as the old saying goes, you only get out what you put in.
Save your business from having to pay high turnover costs by arming yourself with the best practice knowledge. AHRI’s Attracting and Retaining talent course will provide you with some creative solutions to engage and retain your best people.