For businesses to thrive in today’s competitive global economy, we know that retaining the most talented employees is crucial. Frequent voluntary attrition impacts employee morale and productivity, and most importantly it has detrimental effects on turnover and profits.
Numerous pieces of research, including the Society of Human Resource Management (SHRM), suggest that it costs on average between 6 to 9 months’ salary to replace an employee in terms of recruitment and training costs¹. Of course, this cost is subject to significant variances because of industry wage standards, seniority and role function. It can be anywhere between 16% for low-paying positions, 20% for middle-tier management, and over 200% for executive positions². This represents the percentages for recruitment costs, training costs and a temporary loss of productivity during this time. These numbers are only averages across industries and in most cases don’t account for lost management time through the interview process, loss of knowledge capital and of course the loss of clients. If you take a Partner at a law firm for instance you can double the 200% costs³. Some of our professional service clients use a guide of between 3 to 5 times salary for the replacement of client-facing staff.
What is often overlooked is the true cost in terms of the effort it takes to replace lost profit through new turnover, and the amount of turnover it takes to work back to that number. In our experience, when working with senior business leaders and partners who are running their own practices, sharing what sales they need to generate to replace attrition costs really focuses the mind.
As an example let’s calculate the additional new revenue an organisation needs to bring in to cover a senior employee leaving. If an individual earns £250K, replacing them would cost approximately £530K. A business with a 15% profit margin would therefore have to make £3.6 million in new revenue to compensate for that loss. That’s a significant amount of new business effort, which in turn will have a cost associated with it.
We also know that the cost of losing women is significantly higher than for men. How much so – continuing with a lawyer as an example, 10-20% more4. Run the above example again as if that executive were female and the number jumps to around £4.3 million in new gross revenue to cover them leaving.
Setting out the true quantitative cost to an organisation, a specific practice, or even an individual’s personal business targets, you can help shift perspective on where leaders should allocate their energy and time. The importance of focusing on the engagement and retention of a team are important business considerations. In most cases, managers and leaders will see that it’s a fool’s paradise to ignore these key aspects if they are only going to set themselves an even larger revenue mountain to climb when they have a revolving door of talent with the associated replacement costs impacting the bottom line.
It can also bring into sharp focus how important well targeted talent and development programmes are when it comes to supporting individuals through some of the more important career and life transitions. And how important it is to track the ROI on programmes aimed at engagement, retention and progression, in order to demonstrate the commercial value to the business. Take Talking Talent’s Maternity Coaching Programme for EY, which in the first year saw a 17.5% increase in retention, conservatively helping them make an estimated annual saving of over £16 million. This represented a very significant return on the programmes fees and cemented future investment in the programme which still runs today.
So what key lessons can you take from above?
- Create your own business case and be as precise as you can about the economics.
- Build the hard numbers to back up your storyline and qualitative data - senior management will respond far better to a solid business case and clear numbers.
- Identify where you have a leaky pipeline and why.
- Create coaching and development programmes that are targeted at the engagement, retention and progression of key female talent at these critical stages of the careers and around key life transitions.
- Involve line managers and other key stakeholders as part of the solution; help them understand what good looks like
- Be clear with them that the time they spend mentoring, sponsoring, and developing talent is also a business priority.
- Give them space and time to be able to do this effectively. Support managers to help them understand what good looks like – recognise and reward these behaviours.
- Get rid of people with important line management or pastoral responsibilities who have no energy for that part of their leadership role or those who are poor managers, they will cost the business in more ways than is first imagined!
In the spirit of International Coaching Week, get into action and don’t risk seeing your valuable talent walk out the door.