Maximizing the Return on Your Talent Investments – Small Business Trends


A lot of companies know that their employees are valuable. Yet, a report from Gallup reveals that 33 percent of U.S. workers are engaged and 51 percent of employees are searching for new jobs.

Losing your workforce to competitors can undermine the time and money you’ve invested. Understanding these costs can help you realize how important it is to focus on talent retention.

Talent Acquisition and Other Costs of Employee Turnover

Direct replacement costs can reach as high as 50 to 60 percent of an employee’s annual salary, and total costs associated with employee turnover range from 90 to 200 percent of annual salary. It can take the equivalent of six to nine months of an employee’s salary to find and train a replacement.

An employee who earns $8 an hour will require a total cost of $3,500 to replace. According to estimates, entry-level employees cost 30 to 50 percent of their annual salary to replace, while middle-level employees and high-level employees cost 150 percent and up to 400 percent of their annual salary to replace, respectively.

Companies spend a significant amount on turnover. Turnover-related costs represent more than 12 percent of pre-tax income at companies with an average turnover rate. For companies in the 75th percentile for turnover rate, costs equal nearly 40 percent of their earnings.

Why does turnover cost so much? Here are some factors.

  • There are direct costs of hiring new employees, including advertising, interviewing, screening and hiring.
  • Onboarding a new employee requires training and management time.
  • New employees can take one to two years to reach the productivity level of an established worker.
  • Other employees notice high turnover rates, which decreases their productivity.
  • There are industry-specific errors and loss of customer service reflected in turnover rates, such as the costs in healthcare like higher error rates and illness.
  • Training costs of the new employee can amount to 10 to 20 percent of an employee’s salary (over two or three years).
  • There is a cultural impact of employee turnover. Other employees will ask “why?” when coworkers start leaving.
  • The most significant part is that companies lose “appreciating assets,” or the organization’s return the longer an employee stays.

Ways to Improve Talent Retention

Make talent retention a priority by considering the following topics.

Compensation Incentives

Employees highly rank above-average pay, raises, retention bonuses, stock options and other opportunities to be financially incentivized. Experts point out how companies would be better off giving a 5 percent raise instead of letting an employee walk, given the high costs of turnover. Paying employees more can actually save money.

Professional Growth

This is particularly relevant to retaining millennials, who make up the largest share of the American workforce (34 percent in 2015). A majority of millennials in a survey said that their leadership skills were not being fully developed, and many others felt they were overlooked for leadership positions. Offering opportunities to grow within a company can help prevent employees from looking elsewhere to advance in their careers.

Tuition Reimbursement

Employee tuition reimbursement programs help make education more affordable. These programs help create a more knowledgeable staff, which plays an important role in actively supporting professional growth opportunities in an organization. Keep in mind that external hires cost an average of 18 percent more than internal hires. Tuition reimbursement programs also help talent retention by increasing employee loyalty and improving company culture. Finally, these programs can help with branding, enabling the company to be seen as socially responsible.

Mission and Meaning

Half of 12,000 employees surveyed said that they lack a level of meaning and significance at work. Those who experience meaning at work are more than three times as likely to stay with their organization, which was the highest impact of any other survey variable tested. Make sure you align the organization’s mission with the work that employees are doing.

Remote Work Options

Working remotely is desirable for employees and employers alike. Studies and surveys have revealed that employees who work from home are more productive.

  • Call center employees at a travel agency in China who worked from home completed 13.5 percent more calls than those in the office.
  • Half of home-based workers at Sun Microsystems returned about 50 percent of the time they saved by not commuting to the company, keeping the other half for themselves and their families.
  • A survey from a software provider found that 70 percent of telecommuting employees improved their productivity.
  • Seventy-eight percent of managers reported that telecommuting workers were more productive than or as productive as their in-office colleagues, according to a survey from Korn/Ferry International.
  • A meta-analysis of 46 studies published in the Journal of Applied Psychology found performance benefits for telecommuting.

There are other benefits to remote work. Companies save on office furniture and space. And, according to the study of call center employees, “predictably, at-home workers reported much higher job satisfaction.” Eighty percent of telecommuting employees at Sun Microsystems reported improved morale, 82 percent improved their stress levels and 69 percent improved for absenteeism. Remote working policies may be better for certain types of work, but research is increasingly revealing how beneficial working from home can be for employees and employers.

Work-Life Balance

Work-life balance is relevant for more employees, but this is especially true for millennials. Experts believe that this was caused by what many millennials witnessed from their parents’ lack of work-life balance. With higher levels of education, many of these workers now focus on “making a life” over “making a living.”

Employer-Sponsored Training

Business evolves. To keep your employees up-to-date with the latest technologies and skills, corporate training programs offer a unique approach to meeting your goals. Investing in your employees helps reduce costly turnover and supports employees’ goals for career growth.

Knowledgeable Leaders

There are plenty of differences in the discussion of boss vs. leader. The business world is starting to understand that bosses merely manage work, expects results, control workers, criticize and more. A true leader goes above and beyond these qualities — a leader leads people, praises, trusts, encourages and more.

You can’t separate management and leadership. For employees to feel valued and want to stay at your company, you should make sure that you have leaders, not bosses. This will help develop your employees into leaders as well. It’s a part of creating a workplace that rewards employees and an environment where they want to stay.

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