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Chapter 5
108 Optimizing Human Capital
employees get used to a new co-worker, compensate for his lack of productivity, answer his questions, correct his mistakes, and integrate him into the group. With clients or customers, there are missed opportunities and lower quality results while waiting for the new employee to get up to speed (see Table 5.1).1,2
TABLE 5.1 Turnover Costs Calculation Worksheet
This is a worksheet for use in calculating turnover costs. It includes direct costs, such as the cost of background checks, as well as indirect costs, such as lost productivity. The chart below can be used to show the “green money” or actual costs of turnover, and the “blue money” or softer costs of turnover.
Blue Money and Green Money Turnover Cost Calculations Notice Period
Green Money (actual) Costs:
1. Last paycheck, accrued vacation, separation pay $_______________
2. Increased unemployment tax $_______________
3. Continued benefits $_______________
Blue Money Costs:
(appropriate salary/hour × time spent on each activity):
1. Administrative costs for processing the separation:
process benefits; contact unemployment office,
payroll, IS departments; schedule exit interview; etc. $_______________
2. Lower productivity: employee, peers, supervisor,
subordinates $_______________
3. Exit interview, transition meetings $_______________
Vacancy Period
Green Money (actual) Costs:
1. Advertising and recruiter fees $_______________
2. Interview expenses (meals, mileage, or other) $_______________
3. Printing costs for company marketing materials $_______________
4. Assessments $_______________
5. Criminal checks, reference checks, credit checks, etc. $_______________
6. Medical exams and drug tests $_______________
7. Temporary/contract employee costs $_______________
8. Overtime costs $_______________
9. Relocation expenses and salary $_______________
The Turnover Solution 109
TABLE 5.1 (continued) Turnover Costs Calculation Worksheet Blue Money Costs
(appropriate salary/hour × time spent on each activity):
1. Lost productivity: peers, supervisor, subordinates $_______________
2. Advertising creation and placement $_______________
3. Recruiter selection $_______________
4. Administrative costs: ordering forms and copies of annual reports, scheduling and scoring assessments,
coordinating with hiring manager and others, etc. $_______________
5. Résumé screening $_______________
6. Interviews: first, second, third $_______________
Hiring/Orientation Period Green Money (actual) Costs:
1. Orientation materials
(handbook, video, handouts, etc.) $_______________
2. Formal training programs (materials, course fees) $_______________
3. Informal one-on-one training (materials, if any) $_______________
Blue Money Costs
(appropriate salary/hour × time spent on each activity):
1. Orientation participants’ salaries $_______________
2. Lost productivity: peers, supervisor, subordinates $_______________
3. Administrative costs: orientation setup, ordering
materials, etc. $_______________
4. Informal training and one-on-ones $_______________
Hidden Costs
1. Missed deadlines and shipments $_______________
2. Loss of organization knowledge $_______________
3. Lower morale due to overwork $_______________
4. Learning curve $_______________
5. Client issues due to turnover $_______________
6. Loss of client relationships $_______________
7. Disrupted department operations $_______________
8. Chain reaction turnover $_______________
Total Replacement Cost $_______________
Source: Adapted from the work of Nancy S. Alrichs
(copyright 2003, all rights reserved). Accessed June 2004 from www.edo.ca/member/NAO/ The_Cost_of_Turnover_Worksheet.doc.
110 Optimizing Human Capital
Thesedescribe the issues for a team-member position, so it is easy to see that replacing a management-level position creates even greater impacts. Analytical tools for measuring human capital developed by Mercer Human Resource Consulting have helped FleetBoston Financial reduce its turnover rate by about 40 percent among salaried employees and are estimated to have saved the bank $50 million.3 Yet in a recent survey, executives said they spend an average of only 16 minutes to determine whether a candidate might be a good match for a position.4
Sixteen minutes? Why is it there is never enough time to do the project of staffing right the first time — but always time (and resources) to do it over? Instead, why not set up a process specifically geared to bring the right project personnel into your organization, and plan to keep them?
This chapter provides a review of the literature and some guidelines on recruitment and retention for knowledge workers. These guidelines will move an organization toward the goal of becoming an “employer of choice”
— an organization that outperforms its competition in the attraction, devel- opment, and retention of people with business-required talent. According to Deloitte & Touche and the Wall Street Journal, employers of choice enjoy a direct positive impact on the shareholders’ (owners’) value.
At this writing, some of the focus on retaining top performers, especially in the IT field, has lessened. Economic factors and the offshoring market have caused a rise in the unemployment rate. However, many experts feel that this is a temporary phenomenon, and that the next five to ten years will see a continued “people shortage.” As noted recently in CIO Magazine, “While headlines are filled with stories of massive layoffs and abrupt bankruptcies, CIOs still struggle to find and retain skilled employ- ees.” Intellectual capital will always be necessary to effectively exploit new opportunities and to maintain old sources of capability; resulting in recurrent IT staff shortages. Companies that have not bothered to put any effort into retaining their employees will find out that they are “a way- station” for talent until the economy improves.5
Also, as the “baby boomers” begin leaving the workplace and transi- tioning into retirement in the next ten years, many years of capabilities such as expertise, attitude, and practical knowledge will be lost unless companies have a plan in place to capture their knowledge, and new employees to put that knowledge to work.6
Another angle on the talent shortage issue was explored recently when SHL surveyed corporations in the United States and discover ed that employers lost $105 billion annually by failing to recognize the talents of current workers and potential job candidates. Many firms place workers in the wrong positions, and experts suggest that this has caused the
“illusion” of a talent shortage.7 In any case, companies can only benefit from developing a systematic process for the recruitment and retention of high-value employees.
The Turnover Solution 111
What Workers Want
Studies of highly talented employees reveal certain values that cause individuals to join or stay at their place of employment. These quality employees seek organizations with a strong sense of direction, an empha- sis on training and development with clear opportunities for advancement, an organizational culture and environment that place a premium on innovation and creativity, competitive reward strategies linked to perfor- mance, innovative benefit plans that are designed to meet individual needs, and an open and fair culture that values diversity and respect for individual differences. According to studies by Towers Perrin and the National Association of Colleges and Employers (NACE), the desires of top per- formers (that is, those individuals who have the potential to be the best- performing, most successful employees in an organization) today include challenging work, change on the job, opportunities for growth with the employer, performance-based pay, and the autonomy to complete work assignments. These same studies identified what top performers do not want in their jobs: rules, regulations, policy manuals, and long meetings topped the list. Top performers want work to be fun in the sense that highly skilled employees find enjoyment in being able to utilize their skills and expertise. Top performers have very high expectations for themselves and for the people with whom and for whom they work.
Employers who seek top performers must be prepared to meet the needs of this group.8
One more clue that the talent shortage is real: major IT service firms such as IBM and EDS spend about half of their marketing budgets to support recruiting. Apparently they have less trouble finding projects than people to perform them. That is why results from a study of IT personnel practices in 32 organizations in the United States concluded that companies should shift their focus from myopic HR remedies (such as one-time inducements or bonuses) to more holistic or systemic solutions such as better management of workloads, rewards, and training and development.9