It has already been stated in Chapter 16 that recruitment and labour turnover rise and fall together with a small time lag. In which case it would be reasonable to assume that the associated costs would rise and fall in the same way. If, however, the effect of the behavioural ramifications of overtime are considered a slightly different possibility emerges. Labour turnover gener- ates two types of cost which can get very confused - some costs come directly from the rate
of
labour turnover but others come from thelength
of the vacancy.When it comes to the measurement of labour turnover costs, the conventional wisdom tends to be polarized. O n the one hand, there is the comprehensive approach which tends to heap everything but the kitchen sink onto the rate of turnover.
O n the other hand, the simplistic approach merely measures the cost of recruitment. The rationale behind the comprehen- sive approach is not difficult to see. What better way to beat managers into doing something about their turnover than to present them with the ‘real’ costs. To this end, costs are esti- mated to include not just direct recruitment costs nor simply the cost of keeping the vacant job going but also the time and documentation of the personnel department, and the time and cost of training, added to which there is the supervisor‘s time, low productivity of newcomers, cleaning uniforms, even
changing the sheets at the staff house, etc. Without wishing to be scornful, a little water needs to be poured on such ‘realism’
for while correct, such definitions are redundant in the sense that they offer no assistance in control. The basic criticisms of such methods are that many items would not vary with the rate of turnover. In other words, the decision to incur such costs is not solely a function of the rate of labour turnover (e.g. salary of personnel staff). Furthermore, even those items which do vary with the rate are too numerous for accounting to spend time collecting (e.g. documentation, uniform cleaning, etc.).
This approach can get out of hand and become impractical.
At the other end of the spectrum is the simplistic method of only measuring direct recruitment costs (advertising, agencies, transfer costs, etc.). Apart from the merit of simplicity, when compared with actual rates of labour turnover it does give a rough guide to the eficiency of the recruitment function.
Notwithstanding the merits of either approach, they both assume that the result of their measurement is derived from the rate of labour turnover. As such, both are flawed, because they do not recognize that costs are derived from two separate sources: the cost of replacement, which springs directly from the recruitment-labour turnover relationship and the cost of meeting the workload that has been vacated. This can be called job continuity costs - that element of increased labour supply and therefore costs (overtime, premium pay, casual labour) which is attributable to labour turnover. What is important is that it is derived from the length of a vacancy not the rate of labour turnover. Figure 18.2 illustrates the different allocation of costs for both tangible and intangible items across the two forms of cost constituency.
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If it is accepted that there are two costs involved in labour turnover, the reason why they should be measured separately is based on the relationship between recruitment costs and the
vacancy, then there is a direct trade off between the two types of cost. In these circumstances, as recruitment costs rise, job continuity costs decline. In this case, it is recruitment costs which are dictating job continuity costs. However, circum- stances may arise when it is job continuity costs which drive
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length of a vacancy. If the assumption is made that the more you spend on recruitment the shorter will be the length of the
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Tangible costs
Intangible costs
Derivedjom the Derivedjom rate of labour j o b continuity turnover
Cost of recruitment Cost of training
Documentation for etc.) recruitment
Documentation for training
Premium pay (overtime, bonuses, casual labour,
Low productivity of Short cuts
newcomers Lower standards
Time for recruitment Supervisory problems Time for training
Figure 18.2
both recruitment costs and the rate of labour turnover. To be precise, the circumstances in question are the behavioural implications of overtime described earlier.
Where staff have enjoyed enhanced earning from overtime or premium pay it is not uncommon to find that they reject newcomers because of the threat to their earnings. Here, one would expect to find the rate of labour turnover, recruitment costs and job continuity costs all rising at the same time.
However, these circumstances can persist with the acquies- cence of management who begin to ‘get used to’ job continu- ity costs and consequently undertake less recruitment and thus labour turnover goes down. It is in this sense that labour turnover costs could rise while labour turnover declines. Unless these two types of costs are measured separately, compared and separately compared with the rate of labour turnover, it is impossible to spot where the driving force is coming from. It is possible to suggest that when job continuity costs start to drive labour turnover and recruitment, management have lost a great deal of control. Management have a choice between the two types of costs at any rate of labour turnover requiring manage- ment to
ask -
which is the most expensive?The temptation for management is to let job continuity cost run on because it saves money on the basic wage bill despite the premium pay. Against this has to be judged the cost to pro- ductivity and quality standards of employees working on per- manent overtime. This kind of situation can 'creep up' on management. Labour turnover is declining, recruitment costs are going down, the wage bill is down and only overtime is up
- all looks rosy. But it can get out of hand so quickly and so easily.
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