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The hidden cost of staff turnover

By March 7, 2013 May 6th, 2020 No Comments

“The cost to replace an employee can be as much as 150% of their salary” (Mercer Consulting)

Employee turnover has some obvious ‘above the line’ expenditure associated with it, including recruitment, training and salary costs. However, every time an employee leaves, there are a number of hidden costs you might not have considered.  In a recent employee survey undertaken by Gallup the major reason given for staff turnover was the lack of appreciation and not feeling valued or being recognised for contribution to the business, resulting in a lack of engagement. The survey claims that 56% of Australian workers are not engaged, and 25% are actively looking for new jobs. What would it cost your business to replace a quarter of your workforce?

In 2012 lack of staff engagement cost Australian businesses $42 Billion (Gallup)

While you might not be writing a cheque for these hidden costs, they can have a serious impact on your business. I have compiled a list of some of the major hidden costs to show how staff turnover can drain dollars, hurt your brand and impact your remaining employees.

Slippage. When an employee is missing, the work that isn’t getting done has a price attached to it. Lost sales, production delays, cancelled marketing campaigns and lags in new product introductions can all cost your company money and competitive edge. These tasks cannot be picked up by the remaining staff as employees are often stretched and working harder as companies have decided not to replace lost staff in an attempt to reduce costs following the global financial crisis.

Ripple effect. Staff turnover has an impact on the peer group, as well as the management chain, making everyone less effective. If co-workers are able to pick up the slack, it is likely to distract them from achieving their own performance goals, while managers need to devote time to recruiting a new employee. A CEO I spoke with last year told me that his five-year growth plan had turned into a six-year plan because of delays due to employee turnover and the lack of appropriate staff to replace those leaving.

Customer loss. When an experienced or knowledgeable employee leaves they take that experience and their customer relationship with them which can have an impact on customer confidence and satisfaction. Customer commitments may not be met, customer service may suffer, and the company could lose important clients as a result. Dealing with trainees can also be challenging. If you experience a lot of staff turnover, customers can get annoyed, frustrated or begin to lose confidence in your business. Your best staff will often have a great relationship with your clients, so when they leave it may lead the customer to consider whether they should move on too.

Lost credibility. Employee turnover is a cost to management in two ways. Firstly, management can lose credibility when it creates an environment with excessive staff turnover, and secondly your existing employees (especially your top performers) can become demoralised. Demoralised or disengaged staff consistently underperform which can further increase staff turnover as your high flyers lose confidence in their managers and leave.

While the above points are well documented by employment industry experts such as Mercer Consulting I think that there is a fifth cost element associated with staff turnover. It’s what I call “gone time”. That is the time when an employee has mentally left your employment but has not yet resigned or physically left his or her job, and it goes beyond the ripple or slippage effect.

With hindsight trends can easily be seen.  Above average time off (sick leave, dental appointments, picking the kids up from school etc.), arriving late and leaving early may all be signs of disengagement.

An employee planning to leave may become less productive, and even disruptive, making negative comments to other staff members or customers that may be detrimental to the business. So the impact and cost to your business could be that much greater than the obvious costs.

Motivating and engaging your staff should lead to a reduction in employee turnover. There is a significant amount of evidence from many industry experts that have proven that engaged and motivated staff that ‘go the extra mile” can have a huge impact on morale, brand value and the corporate bottom line. So how do you ensure that your staff are motivated and engaged?

Implementing a cost effective staff recognition program that is in in line with your corporate vision and values, measuring excellence in staff performance can help your business in a number of ways.

Firstly, a well-planned recognition program can help to motivate and engage your teamby making staff feel valued and appreciated, which can increase morale and improve customer service. This is especially true in businesses that are not able to compete purely on straight salary packages. (E.g. SME’s, not for profit organisations, local Government or the hospitality industry).

When implementing a recognition program “instant recognition” should be viewed as a key component. The closer to the time that someone is recognised for an action, the greater the value of that recognition to the recipient. That is, don’t say to an employee “well done, you did a great job three weeks ago”. It will have little impact. Public recognition at the appropriate time can be really powerful. Also consider allowing peer to peer recognition.

Secondly, a well-executed recognition and reward program can act as a “monitor on the pulse of the business”, and should be able to identify changes in behaviour, thus assisting as an early warning performance management system. A program with a variety of management reports will provide up to the minute information on staff performance and allow you to view how staff are recognised, what they are being recognised for, and should be able to place a value on the return on investment from the improved behaviour when measured against key performance indicators.

At Brownie Points we believe thatstaff should be regarded as a major asset in any business and a recognition and reward program should pay for itself through measurable improvements in staff performance that have a positive impact on the business.

Brownie Points is an award winning world class software solution designed to implement high performance recognition and reward programs that are fast to implement, easy to use, simple to maintain and deliver a measurable return on investment.

Partnering with HR Anywhere, a specialist HR Consulting organisation we are providing experienced consultants to assist in designing programs to meet client’s needs and ensure that programs are personalised to maximise employee engagement and reduce staff turnover.

You can’t stop employee turnover, but you can minimise the impact to your business

To learn more about Brownie Points, call us 03 9909 7411 or email

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