New PwC research reveals that the cost of replacing a competent staff member is approximately equal to a year of the employees salary, lost skills and productivity, cost of replacement and training of new recruits are all contributing factors to this figure.
This revelation may cause uneasiness for many employers given the recent news that almost a quarter (24%) of UK employees are looking or intend to look for a new job because they feel their pay is insufficient.
Annual staff resignations in the UK averaging 10.4% and the average salary around Ã‚Â£25,000, the UK’s failure to retain talent to the level of other mature economies costs British business around Ã‚Â£42 billion per annum.
Richard Phelps, human resource services partner at PwC, commented: “Companies often vastly underestimate the financial benefits of retaining existing employees. With many businesses 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.”
PwC argues that these costs extend far beyond any employment agency fees and ‘golden hello’ incentives sometimes given to recruits from rival firms. Recruiting a new employee is time consuming and expensive as a lot of time is spent interviewing candidates, reference checking and administration; the induction process and loss of competence before the new joiner is fully up to speed, productivity loss and customer disruption when the employee leaves and the higher salaries offered to new hires
Staff turnover rates will differ depending on the company, sector and market. The issues are perhaps most significant for growth industries such as retail and service sectors, which need to retain or increase staff levels in a rising market. For instance, the typical level of resignation rates in retail can range from 20-100%, which represents a more significant cost to employers in these sectors despite lower wage levels.
To keep staff loyal and prevent Companies need to consider carefully how they reward and motivate staff, in order to maintain staff loyalty and prevent unnecessary departures,
Jon Terry, head of reward at PwC added: “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.”