Employee Turnover vs. Improved Job Quality
Oct 05, 2011
This week, CLASP and CEPR released a dynamic new tool to help businesses calculate the cost of employee turnover. Turnover can cost employers millions, but many don't have any idea how much their business really spends each year from losing employees.
Just yesterday I received an email from Frank Koller, who recently wrote a book about Lincoln Electric's guaranteed employment policy. Cleveland's Lincoln Electric is the world's largest manufacturer of arc welding technology. Mr. Koller wrote in his email:
Dick Sabo, who was for many years a senior executive at Lincoln, told me a story that when he first started at the company in the late 50s or early 60s, there was an off-the-cuff assumption in the front office that the cost of replacing a pieceworker on the electrode assembly lines was under $4,000.
He'd just graduated from university with a degree in industrial management and was suspicious of that figure - even though, of course, the company wasn't laying anyone off anyway and hadn't for many decades.
A few years later, the early 70s, he was still intrigued by this number and so he spent several months looking more closely. At the end, Sabo became convinced that once all the real costs were factored in ... severance, recruiting, training (which required pulling someone else off the line) and the learning curve (which in a manufacturing environment , inevitably involved a lot of expensive mistakes) ... the real costs of replacing a pieceworker was closer to $100,000!
Mr. Koller's story demonstrates that when an employee is laid off or leaves and the company looks for a replacement, there's more than just salary to consider. Recruiting, advertizing, benefits administration and training a new employee can add up to large amounts. The turnover calculator allows businesses to vary wages, weekly hours, and recruiting and hiring costs to calculate the cost of turnover for different categories of workers. It considers typical hourly or annual pay as well how employers fill vacancies and how long it takes new employees to become proficient in the position.
CLASP and CEPR developed the turnover calculator to help HR managers and small businesses owners understand the true cost of turnover as well as the importance of solid workplace policies that reduce turnover. Policies that expand job quality lead to improved employee loyalty and morale and can make a significant difference for workers and for businesses.
Policies like paid sick days and paid family leave help workers meet their work/life obligations by allowing them to take needed time off to deal with illness or care for family members without fear of retaliation or losing a paycheck or their job. These policies provide workers a measure of security in their jobs, leading to raised productivity and an improved bottom line.
We hope once employers understand the true toll of employee turnover, they'll support expanded work/life policies that improve job quality and that work for their businesses and employees.