One year’s salary: the cost of replacing staff

Oct 13, 2010

 

As the economy begins to recover, businesses are looking to maintain or grow their staff numbers. Yet the cost of replacing employees who resign for employment elsewhere could amount to the equivalent of a year’s salary.
 
That is the warning from new research carried out by business advisers PwC, who are highlighting the hidden costs of lost skills and productivity, replacement and training of new recruits.
 
Every year more than one in ten UK workers leave their employer for a new job. The figure is double that of other major economies and costs British business around £42 billion a year, says the PwC research.
 
Just under one in four staff hand in their notice because they feel their pay is insufficient. The employer faces extra cost in terms of lost productivity and replacement that can total around £25,000 per resignation.
 
Rupert Hutton (pictured), human resource services director at PwC in Milton Keynes, said: “Companies in Milton Keynes should be careful not to underestimate the financial benefits of retaining existing employees. With many businesses in the region eager to maintain or grow staff levels as the economy starts to recover, it is crucial they consider the full costs of losing staff through resignation.
 
“The need is particularly pressing given that many employees who sat tight during the downturn may now be looking for new opportunities elsewhere.”
 
Replacement costs extend beyond employment agency fees and ‘golden hello’ incentives. New recruits often join on a higher salary than their predecessor and the research factors in interview time, reference checking, induction and the ‘competence gap’ while the new recruit is brought up to speed. It also includes revenue loss and customer disruption.
 
Mr Hutton said: “Employers often resist pay rises because of the immediate cost impacts and may resent being ‘held to ransom’ by workers threatening to leave. But losing dissatisfied staff can prove a far more costly exercise. When multiplied across a number of employees, high turnover can have a dramatic impact on the bottom line of a business.”
 
PwC’s research found that around 90 per cent of staff are competent at their jobs and, while recruiting will help expansion, acquisition of new skills or a fresh perspective, it adds that businesses should recognise the value of holding on to good people.
 
To keep staff loyal and prevent unnecessary departures, companies need to consider how they reward and motivate staff.
 
Mr Hutton said: “Pay alone is no guarantee of a content workforce. Different individuals will be motivated by different rewards and ultimately incentives need to be tailored to the company and individual. For those companies with cash constraints, share ownership may provide an alternative incentive, or small ‘one off” token rewards for good performance help can show appreciation that most workers crave.
 
“For many people, non-material incentives such as career development opportunities can be just as important as pay in maintaining loyalty and preventing the need to seek new opportunities elsewhere.”
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