Employee Recognition: Countering the High Cost of Turnover

Comprehensive, Measureable Solution

By: Scott Newman, President & CEO

A recent article by Jim Pawlak entitled “Turnover costly, retention less so” appeared in our local newspaper (The Commercial Appeal, November 17, 2013) about the high cost of employee turnover and how companies are struggling to find solutions that address the issue successfully. The article mentioned everything from implementing flextime, job sharing and telecommuting programs, to on-site day care, fitness centers, concierge services, cafeteria fringe benefit programs, and even golf, tennis and skiing lessons as solutions being provided by employers.  While these are nice benefits/programs, they also require a significant investment, and depending on the solution, the additional cost of liability insurance and related claims.  I was surprised that the most effective (and proven) solution at reducing turnover, and perhaps the least costly to implement, wasn’t even mentioned – an Employee Recognition Program.

The impact of employee turnover is costly, as the article correctly states:

“The pain of turnover is deeper than the inconvenience of having to hire and train. Few employers realize the true financial impact of employee turnover because its costs, outside of advertising and outside training, usually aren’t identifiable line items in the firm’s income statement.”

However, the solution can be as simple as building a Culture of Recognition by starting with a Years-of-Service Award program and then adding other components over time.  These can include employee-based initiatives such as safety incentives followed by performance-based initiatives, like no unscheduled absences, on-time performance, training, quizzes, surveys, peer-to-peer or manager-to-peer recognition, etc.  As other components are added, consider assigning points to program objectives, thus allowing employees the opportunity to accumulate points as program objectives are achieved, resulting in increased reward purchasing power for the employees.  Such comprehensive solutions (we refer to this as the “Umbrella Approach”) are proven to increase employee loyalty, improve employee morale and reduce turnover.

The article goes on to state that the U.S. Department of Labor shows the average employee will stay with an employer for about four years, translating to a 25% turnover rate for most companies.   This statistic lends one to conclude that “employees are changing jobs because they want to, not because they have to,” evidence enough of just how important it is for employers to build a Culture of Recognition.  An Employee Recognition solution that not only reinforces and rewards positive behaviors, but that can also help to identify poor performing employees as well as those employees exemplifying behaviors that could signal (before it’s too late) intentions to leave the company.  Such important and potentially turnover-reducing feedback is not provided by offering, for example: golf, tennis or skiing lessons.  After all, how many employees actually play golf? With a comprehensive Employee Recognition program, employees have the choice to decide how they want to spend points accumulated for achieving program objectives; for some this choice might be golf lessons, but for others it’s the Sony 55” TV or some other reward item, which includes over 16,000 choices if using QIC as your Employee Recognition and Incentive solutions provider.

The article continues with data from the Society of Human Resources Management, which estimates the cost to recruit, hire and train a new employee at $8,150 and the time required to hire at 45 business days.  For a company of 1,000 employees, this means 250 employees will be replaced every year, at a cost of: $8,150 x 250 = $2,037,500. Those are significant dollars coming right out of the employer’s bottom line – “far from chump change.”  This is just the beginning, however.  If it takes 45 business days to replace an employee, assuming each employee gives a two-week notice, the lost hours in productivity per turnover are: 35 days without help x 8 hours per day = 280 hours of lost productivity.  For a 1,000 employee company, with 25% turnover, that equates to: 250 x 280 hours = 70000 hours per year in lost productivity, or about 34 full-time equivalent employees.  As shown, the loss in hours of productivity, coupled with the cost to recruit, hire and train replacement employees, can have a material effect on both the top and bottom lines of an employer, an effect that if not addressed proactively, with a comprehensive, measureable program solution, can turn an otherwise profitable company into a company that can’t afford to stay in business.

The article concludes by suggesting the key/solution to reducing turnover is “Treating Employees as Long-Term Assets.”  While I agree that’s a worthy goal, it’s not a solution.  Recognizing and rewarding employees for positive behaviors (i.e. Building that “Culture of Recognition”) with a comprehensive and measureable Employee Recognition and Incentive program is not only an investment in the long term well-being of an organization’s human capital, but also in the long term well-being of the organization.  Such a program provides the solution for improving employee morale, increasing employee retention, thus reducing the cost of turnover, as well as a vehicle for frequent communication, reporting and program feedback. At the same time, it gives employees a choice to redeem points for rewards that are the most meaningful (and motivating) to them.   And through program initiatives like Wellness Incentives, part of that “Umbrella Approach” mentioned earlier, employers are investing (and demonstrating their concern) in the long-term health of the employee, another feature toward achieving the goal of “Treating Employees as Long-Term Assets.”  And when this goal is achieved, employers will know it by being known as “Employers of Choice.”