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The Most Dangerous Aspect of Employee Turnover

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Mon Sep 19 2016

The Most Dangerous Aspect of Employee Turnover
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Years ago, I worked for an organization with a turnover problem. And this wasn’t just an isolated issue—it affected a significant amount of the 700-strong workforce and created an incredible burden on the HR staff. Despite small efforts here and there, little was done to change the direction of the firm and it ultimately went under, unable to stay afloat as a result of the constant turmoil. 

Everyone knows that employee turnover is a problem, but just how big of a problem? Anecdotally, I know that undesirable turnover can harm team morale, reduce revenue, and hamper innovation. And the data support these observations. The impact of turnover depends on the career level of the employee:

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  • For entry-level employees, it costs between 30 and 50 percent of their annual salary to replace them.

  • For midlevel employees, it costs upwards of 150 percent of their annual salary to replace them.

  • For high-level or highly specialized employees, you’re looking at 400 percent of their annual salary.

We know that this is a challenge, but I believe there’s an even more costly aspect of turnover that most organizations don’t examine: the impact on innovation.

Innovation Impacts 
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In 2014 Carnegie Mellon University had some of the world’s brightest robotics minds working on its campus. These people were focused on the bleeding edge of robotics technology and their research could have created new breakthroughs and advancements in the use of robotic technology for the betterment of mankind. 

But then they left. All of them.

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In a surprise move, Uberlured the scientists away and brought them into the fold. This not only caused a blow to the university—it affected each of us. The research that was performed at Carnegie Mellon would have certainly been published in academic journals and shared with the world, forming the basis for new breakthroughs in robotics and other fields. The research they complete at Uber? It’s going to be tucked away in a proprietary database for the benefit of the company. 

What does this have to do with you and your organization? 

While you might not have a team of PhD-level robotics experts on staff, you do have a set of smart, intuitive professionals within your organization who are constantly creating, innovating, and experimenting. They don’t have to be on a formal team or even in the same hierarchy, but they are pursuing new ideas and opportunities just the same. If an opportunity arises to serve customers in a new way or develop a new product or service, the people with that mindset are often the originators. 

Wherever this talent resides, the question remains: What do we do if one of these people leaves?

We know it’s painful to have people depart; the aforementioned statistics point to some of the challenges this creates. Yet the research looks mainly at the impact today, not for the future.

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We should view employees as appreciating assets, with a higher future value. While it’s challenging to quantify the value of innovation and predict what people are going to create, it’s fairly easy to see that the future value of one of these individuals is clearly higher than the cost of that person’s wages and benefits today. The long-term impact on innovation will harm the organization much more than the loss of the person performing the job function today. 

Consider this example. In the past I served as the HR director for a global government services firm. One of our employees, a software engineer, earned approximately $70,000 per year. If that person left, we would have lost that position, which would have required time, effort, and resources to fill for the unique skill set. Let’s estimate that total cost to be $100,000. What’s interesting is the $100,000 figure is actually a relatively minor amount when compared with the overall value of the employee and her innovative ideas. 

One day on a whim that employee developed a new method for licensing hardware and software to the government. That bloomed into a multimillion-dollar product line and became a steady source of organizational revenue. However, if we looked only at the “normal” cost of turnover, we would have seen an impact of $100,000, not several million dollars. 

Want to learn more about this issue? I presented at the HR Innovators Virtual Conference, which was sponsored in part by ATD.

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