• dbtunr

    You have HR people who have no idea what scientists do making these absurd decisions. Then you have bean counters who don’t know these numbers.

    In your case, a “spot bonus” of say $20K would have been appropriate. It does not raise your annual pay. It’s just a way of saying “great job” and thanks. You would have felt that and would have been happy. The company still would have saved a ton.

    • Petra421

      You also have whole HR departments being laid off because computers can do the same job.

    • eric79

      Part of H/R’s problems are they rely too much on each other. I work in the hotel business and I have confronted H/R managers that claim they research pay. All they do is call and ask other hotels what they are paying.

      Yet I can hand my friend a fake resume and he’ll come back with a job offer that is $10,000 more than my H/R assures me is possible. Why? Because H/R isn’t doing their job. They just call a friend at a hotel and ask what they are paying. The other hotels lies, as I’ve proven time and time again, by showing our H/R job offers substantially higher than what they get when they “phone their friend in H/R.”

  • Julie Ann Dawson

    The issue is not just about money. It is about stability and trust. A big raise doesn’t mean anything if three months into the year the CEO decides he needs a bigger yacht and you get caught in the layoff. Unfortunately, too many corporations only think about “increasing shareholder value” at the expense of employees and often even customers (Comcast, I’m looking at you!). So long as corporations place the monetary gains of shareholders before the employees that do the work, you are going to have your best jumping ship because being the best doesn’t mean anything when the CEO needs to drive up the stock price by another .15 percent.

    • eric79

      To be fair, this is an issue that is legit. In the old days, corporations were actually part of the work force. Palley ran CBS but he WAS CBS. His company was about TV broadcasting or somehow related industries such as records.

      Now a company is owned by a group of investors who lump said company with a dozen other companies, none which is related in any way, close or distant. If a sector of that doesn’t measure up it is sold off very quickly.

  • MarthaB

    Great points made. I’ve shared with one of our executives, who is still entrenched in the “promotional increases must never exceed 5%” mindset.

    • Charles

      Lead by example, go get another job at higher pay =)

  • SaturdaySportsman

    Trouble is, there are not many jobs out there to go to and employers know that. They can turn up the burners as high as they want. Very few are going to walk out. In my office, if a competitor were to open up similar positions down the street, that place would empty out in a heart beat, but the chances of that happening are pretty much nil.

    • eric79

      I disagree. Yes, jobs are harder to get now but it’s mostly back to normal. And this same phenomena occurred during the 90s, when I couldn’t even replace my workers as unemployment was so low.

    • Charles

      That was the case when the market collapsed, business is booming and employee turnover is very high, especially with younger employees.

      Everyone’s Boomers are retiring and garbage pay/rewards won’t keep your younger workforce around when they can jump ship for a lot more pay.

  • eric79

    This is so true, I never really understood, why employers take leaving a company so personal. Even when it’s NOT their company. I went to H/R and pointed out, that after one year, I was now doing two additional jobs. The Reservations manager quit and the PBX manager quit, so I took their jobs over at no salary increase.

    The H/R manager stated she could not increase my salary as I was doing the job without any pay now. My boss said, I should go get “firm” offers and come back to the company so she’d have some leverage to ask for a raise.

    I walked down the street and the first hotel I went to offered me $7/hr more. I went back and resigned.

    They wound up no only hiring two more people but having to pay more than I got at my new job to replace me there. So what the ??? T

    And I’ve seen this repeated time and again, companies won’t pay more, so the good employees leave and the bad one, who can’t get more stay.

  • Bryan Harrell

    How true this is. Very informative and well written. Investment in human capital is more important than ever! Here is a calculator for managers to plug in their own company’s numbers to get a true cost as it relates to their business. I enjoy your articles,

  • Mahesh

    Yes, its high time organizations start looking at cost of employee turnover very seriously. One of the ways is to engage with your current employees pro-actively and build a work-environment to maximize their productivity and motivate them to stay with you longer. This could be achieved by having right analytics in place. Its important to integrate employee engagement with Big data analytics. To know more Read @ http://goo.gl/s46pVm

  • FraudAlert

    The “cost of inflation” number is a joke as well. In reality, most families are experiencing a higher than 2% inflation rate based on the proportion of their budget that is going towards housing/property taxes, education/college, food, etc. The consumer price index is not a realistic measure for average families.

  • Rebecca Amato

    Can you please share your source for ”
    For entry-level employees, it costs between 30-50 percent of their annual salary to replace them.
    For mid-level employees, it costs upwards of 150 percent of their annual salary to replace them.
    For high-level or highly specialized employees, you’re looking at 400 percent of their annual salary.”?

    • Candice Lee Reeves

      I’d also like to know.

  • Christopher Roberts

    Hi Karlyn

    Can you please share your source for
    “For entry-level employees, it costs between 30-50 percent of their annual salary to replace them.
    For mid-level employees, it costs upwards of 150 percent of their annual salary to replace them.
    For high-level or highly specialized employees, you’re looking at 400 percent of their annual salary.”?

    • Shea O’Neill

      I would like to second this comment. This is a great article, but the source you link to just before this segment lists turnover by salary (i.e under $50,000 is 21%). There is no source that discusses 30-50% or 400% — and this would make a big difference in the calculations (it would still be costly to replace employees, but less so)

  • Jeanne Albright

    I would say that the issue isn’t due to antiquated HR tactics, but due to organizational leaders who will not translate their profits into employee increases.

  • http://www.gatelyconsulting.com/ Robert Gately

    If the employee turnover rate is above 5%, it may be a problem and if it is above 10%, it is problem. Involuntary turnover should be 0% or close to 0%. A well managed employer should see higher voluntary turnover when employees must leave to progress in their careers but that just makes room for other employees to progress in their careers.

    If a 600 employee company replaces 15% of their employees per year with an average salary of $20,000 per year, then the cost of replacing employees is $1.8 million, see other examples below.
    600 ee x 15% x $20,000/year x 1.00 = $1,800,000 = $1.8 million
    600 ee x 15% x $30,000/year x 1.25 = $3,375,000 = $3.4 million
    600 ee x 15% x $50,000/year x 1.50 = $6,750,000 = $6.8 million
    600 ee x 15% x $100,000/year x 2.00 = $9,000,000 = $18.0 million

    You may change the number of employees (600), the turnover rate (15%) and the annual salary ($20K, $30K, $50K, $100K) but use the closest multiplier (1.00, 1.25, 1.50, 2.00).

    Employee turnover is very expensive, bad for morale, and time consuming for the hiring managers.

    The solution to excessive employee turnover is not expensive, good for morale, and not time consuming for managers.

    Example of the cost of turnover in a financial services firm.

    The firm was replacing 200 customer service reps a year with an average annual salary of $48,000. After doing the data entry into the Bliss-Gately Tool, an Excel workbook, did the calculations. They were able to show that the full cost of that employee turnover was about $72,000 per employee, or $14.4 million per year. They were flabbergasted. That’s a big number even for a 2,500 employee company. By the way, their Cost-To-Hire was less than $10,000 per employee.

    I created the Bliss-Gately Tool, an Excel workbook, in the late 1990s because I could not find a method that was anything but rudimentary. Bill Bliss’ article Cost of Turnover was the most complete list of items that went into the cost of turnover but it was all words, no calculations. With Bill’s words and my Excel skills and Dr. John Sullivan’s critique we created the Excel workbook so that employers would know their cost of turnover.

    When we apply the tool to valued executive personnel, for example, the results can get really striking. The reason is that key personnel have roles where things like relationships, institutional knowledge and talent for the job can have considerable value. We’re dealing with situations where a question like, “What would it cost us if Mark or Sally were hit by a bus?” elicits worried looks and responses like “I have no idea. Boy that would be a real problem.”

    Analyze those types of situations carefully, and you’ll find Cost-To-Replace can run into the millions. We know of one situation where an executive team calculated the replacement cost of a particular key person at $50 million. After learning this, the CEO wrote him a bonus check for $6 million. Do you think any recruiter can make him an offer he can’t refuse?

  • Debra Healy

    Hi, Karlyn –

    It would be helpful to know your sources.


  • L.T. Myers

    Many companies spend unnecesary dollars on turnover. When you look at why employees leave (i.e., more money, bad management, poor work environment, etc) and how simple it is to correct the issues employees have with companies, you realize companies are poor HR decisions.