Blog

Keeping talent: Five strategies for avoiding the high cost of turnover

flyingmoney1

Two years ago, we profiled 11 graduates who were accepted into Goldman Sachs’ highly competitive analyst class of 2014. In 2016, only seven of those remained — an attrition rate of 36 percent.

 

While this informal study involves a small sample, it does point to a larger trend that’s affecting organizations across industries. According to a recent study by LinkedIn, the rate of turnover in financial services and insurance in the first five years after graduation for the classes of 2006-2010 is just over 60 percent.

 
And it’s not just millennials who are job hopping. A survey by Compensation Force reflects an overall voluntary turnover rate of 14.2 percent in financial services in 2015. While this number may not appear to be alarmingly high, it takes on a new gravity when we look at the cost of replacing those employees.

The high costs of turnover

Studies have shown that the overall costs of turnover can reach as high as 1.5 to 3 times an employee’s salary. That means replacing a single senior employee earning $120,000 (£98,490) could cost you as much as $360,000 (£295,470).

Where do those costs come from? Typically they include

  • Offboarding costs (severance pay, benefits continuation, administrative costs)
  • Hiring costs (advertising, interviewing process, new hire processing)
  • Onboarding costs (training, management time)
  • Lost productivity (the time it takes for a new employee to reach the productivity level of an existing team member)

Given the high costs of replacing people, it’s not surprising that in a recent survey by LinkedIn, 32 percent of talent leaders cited retention as their No. 1 priority for the next 12 months.

Why employees leave

To understand how we can better retain our top talent, let’s look first at the reasons why employees leave in the first place.

Managers typically expect money to top the list of reasons for job switching, but it’s not the only reason. The 2015 Employee Retention Report, published by employee engagement firm TINYpulse, offers insights on additional reasons to seek out greener pastures:

  • Employees who report feeling burned out are 31 percent more likely to look elsewhere.
  • Employees who feel frustrated by micromanagement are 28 percent more likely to consider leaving.
  • Employees with low levels of peer respect are 10 percent less likely to remain, and those who receive little or no peer recognition are 11 percent less likely.
  • Employees who assign low marks to their workplace culture are 15% more likely to start thinking about a changing jobs.

How to keep the best and brightest

While monetary compensation will always be a factor in retaining talent, additional strategies can also play a vital role.

Hire from the “hidden pipeline”: According to a study by Leadership IQ, that more than 46 percent of employees hired based on the traditional transactional recruitment approach (sourcing, job ads, etc.) leave the organization within 18 months. Conversely, those hired from among the 75 percent of qualified talent not currently seeking a job are more likely to stay longer.

Make work-life balance a priority: Several financial institutions have taken steps to rein in the long working hours that have become a hallmark of the industry. J.P. Morgan, for example, has introduced a “protected weekends” policy, under which the firm’s junior employees are barred from working for one full weekend per month.

Look to your culture: Cultural factors arise frequently in research on why employees leave. Consider what your company can do to improve in areas such as employee feedback systems, transparency, communication, collaboration, and employee autonomy.

Offer opportunities for faster advancement: Goldman Sachs now promotes every one of its analysts to associate positions after two years instead of three. The most talented analysts will then be able to become vice presidents (VPs) after just three and half years with the firm.

Show appreciation: When employees feel valued at work, they’ll be less likely to look elsewhere. Consider innovative ways in which you can show your appreciation to employees at all levels of your organization, and not just for their work on big projects.

Be proactive

As the competition for top talent continues to increase, smart employers are realizing that retention strategies cannot be an afterthought. Firms looking to keep their best and brightest must adopt a proactive approach and implement policies designed to keep good people around. One HR consultant summed it up this way in a recent article: “If you’re making a counter-offer, you’ve already lost.”

Need help finding and retaining top talent? Contact us here to learn how we can help.

Our clients include