From advertising, employer branding, and referral programs, to recruiting software and talent agencies, a majority of American employers are investing in recruiting talent. And yet, most experts agree it is far less expensive to increase current employee job satisfaction—and by extension, retention—than to hire new employees.
The question of how to bring more balance to the focus on both recruitment and retention is thornier than it appears at first glance: While a study by Kronos and Future Workplace found that a full 87% of human resource leaders acknowledge retaining employees will be a priority in the next five years, 20% of respondents said they are too overwhelmed by other priorities to address the issue. Another 14% cited lack of executive support as a primary obstacle.
Could there be a more forward-thinking, budget-conscious approach to retaining employees?
Quantifying employee value
Estimates of the cost associated with losing or replacing an employee range widely.
Deloitte’s Josh Bersin, for example, believes the expense could fall anywhere between “tens of thousands of dollars” and up to twice the lost employee’s annual salary, basing his calculation on a variety of factors, including:
- The cost of hiring an employee replacement, which includes advertising, interviewing, screening, and hiring
- The cost of onboarding and training a new employee
- Lost productivity, as the new hire can take a significant amount of time to reach desired productivity levels
- Lowered engagement and morale amongst remaining employees
- Customer service errors that result from turnover
Other researchers, however, are convinced the price tag could be considerably higher. A recent meta-analysis of studies conducted by the Center for American Progress suggested the cost of a lost employee can range from 5.8% up to more than 200% of their annual salary, depending on the job and employee skills.
The compounding value of staff
Many of these calculations struggle to properly account for the intangible values of an existing staff member.
Over time, the value that an employee brings to a company compounds significantly, making it difficult to compare the cost of an employee who exits after two years to one who leaves after 10—even if they held the same title.
Longer-term employees develop “soft” skills that contribute to the culture of a workplace and gain a deeper understanding of how an organization works, allowing them to more readily identify and address challenges within the company ecosystem.
Karlyn Borysenko, owner and principal of the HR consultancy Zen Workplace, pegs the cost of losing an entry-level employee at 30–50% of their annual salary. That estimate jumps significantly (upwards of 150% of annual salary) for mid-level employees. For high-level employees or those with highly specialized skills, the employer stands to suffer financial losses equivalent to a 400% of that employee’s annual salary.
How companies can mitigate this issue
Here’s the good news: Small investments in employee satisfaction and retention have the potential to provide significant returns—even when the largest share of the American workforce hails from a generation infamous for frequent job-hopping.
A Gallup survey found that only 29% of millennial respondents are engaged at work, with millennials three times more likely to have changed jobs within the past year compared to the rest of the adult population—a figure Gallup estimates costs the US economy $30.5 billion annually.
At the same time, a recent LinkedIn survey of more than 13,000 millennials suggests the turnover issue is hardly an intractable one: Millennials are most attracted to a prospective employer by its culture, values, and workplace perks and benefits.
So with the retention “lock” for younger employees located, companies must simply go about the business of fashioning a “key” that fits it.
The best ROI bang for your benefit buck
While progressive benefits come in many different shapes and sizes, one of today’s hottest new employee perks is also one with a significant return on investment. Recent research has found that employees struggling with student debt are more attracted to companies that can provide repayment assistance, yet only 8% of American employers currently offer this perk, making it a truly differentiating factor.
According to an Oliver Wyman survey, among working professionals with student debt:
- 80% consider their debt to be a significant source of stress
- 58% would rather have student loan repayment assistance than a mutual fund contribution
- 45% selected student loan repayment as the most compelling employee benefit compared with other options like health care and retirement contributions
- 90% indicate that student loan repayment assistance would positively impact their decision to accept a job
At the same time, research from Gradifi has found that providing student loan repayment as an employee benefit provides employers with a fivefold return on investment in just one year, and that the average employee tenure needs to be extended by only two months for the benefit to pay for itself.
In a highly competitive talent marketplace, a thoughtfully constructed progressive benefits package can not only help you avoid the expense—both tangible and intangible—of employee turnover, but can also play a part in recruitment and retention by helping attract the best and the brightest potential hires to your enterprise.
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E*TRADE Financial Corporate Services, Inc. recently acquired Gradifi, Inc. Gradifi offers financial wellness benefits focused on solutions for employers to provide their employees student loan and college savings benefits.
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