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An article from Forbes made the rounds last week with some pretty startling statistics:
• The average raise an employee can expect in 2014 is 3%, but given the cost of inflation, it actually amounts to more like 1% in additional spending power.
• If an employee leaves a company, however, they can look forward to a 10%-20% increase in salary. In extreme cases, they may even see as much as a 50% increase.
In other words, we've cultivated a system in which employees who are loyal to their companies are financially punished and those who jump ship every few years are financially rewarded. The cause? Well, one culprit is certainly antiquated HR tactics that only allows raises as a certain percentage of the employee's current salary, regardless of external market conditions. Others argue that employers are not equipped to rapidly promote, develop, and reward their employees in ways that aren't simply monetary. But regardless of the reason, what this information exposes is a fundamental lack of understanding about what turnover really costs an organization.
When you consider all of the costs associated with employee turnover - including interviewing, hiring, training, reduced productivity, lost opportunity costs, etc - here's what it really costs an organization:
• For entry-level employees, it costs between 30% and 50% of their annual salary to replace them.
• For mid-level employees, it costs upwards of 150% of their annual salary to replace them.
• For high-level or highly specialized employees, you're looking at 400% of their annual salary.
A business loses 12 employees in one year, averaging one per month.
• Six of these employees were entry level, with an average salary of $40,000. It costs, on average, $16,000 to replace each employee at 40% of their annual salary, for $96,000 total.
• Four of these employees were mid-level, with an average salary of $80,000. It costs, on average, $120,000 to replace each employee at 150% of their annual salary, for $480,000 total.
• Two of these employees were senior, with an average salary of $120,000. At 400% of their annual salary to replace them, you're looking at almost $1 million, specifically $960,000.
Add everything up and you're looking at costs of over $1.5 million to replace just 12 employees.
• The average raise an employee can expect in 2014 is 3%, but given the cost of inflation, it actually amounts to more like 1% in additional spending power.
• If an employee leaves a company, however, they can look forward to a 10%-20% increase in salary. In extreme cases, they may even see as much as a 50% increase.
In other words, we've cultivated a system in which employees who are loyal to their companies are financially punished and those who jump ship every few years are financially rewarded. The cause? Well, one culprit is certainly antiquated HR tactics that only allows raises as a certain percentage of the employee's current salary, regardless of external market conditions. Others argue that employers are not equipped to rapidly promote, develop, and reward their employees in ways that aren't simply monetary. But regardless of the reason, what this information exposes is a fundamental lack of understanding about what turnover really costs an organization.
When you consider all of the costs associated with employee turnover - including interviewing, hiring, training, reduced productivity, lost opportunity costs, etc - here's what it really costs an organization:
• For entry-level employees, it costs between 30% and 50% of their annual salary to replace them.
• For mid-level employees, it costs upwards of 150% of their annual salary to replace them.
• For high-level or highly specialized employees, you're looking at 400% of their annual salary.
A business loses 12 employees in one year, averaging one per month.
• Six of these employees were entry level, with an average salary of $40,000. It costs, on average, $16,000 to replace each employee at 40% of their annual salary, for $96,000 total.
• Four of these employees were mid-level, with an average salary of $80,000. It costs, on average, $120,000 to replace each employee at 150% of their annual salary, for $480,000 total.
• Two of these employees were senior, with an average salary of $120,000. At 400% of their annual salary to replace them, you're looking at almost $1 million, specifically $960,000.
Add everything up and you're looking at costs of over $1.5 million to replace just 12 employees.