urnover costs preoccupy many workforce management executives, but at SAS Institute,
the vice president for human resources has little interest in them.
"The recruitment and training expenses incurred in turnover are
minimal," Jeff Chambers says. "We don’t focus on losing money; we focus on making
money. We don’t measure turnover costs, but we know that retaining our critical
employees saves us $50 million to $70 million a year in business productivity. We
concentrate on getting products to market and selling solutions in C-level suites."
Some companies rely on consultants’ estimates of turnover costs
that range from 25 percent to 1,000 percent of annual salary for the position. In any
other estimate of business costs, a range this wide would be unacceptable. Even the
most common estimate of 150 percent of salary is wildly off for most positions. Some
companies use an estimate of 25 percent for nonexempt positions, but open-position
savings and the ability to hire at a lower pay rate may easily cancel out typical
separation, vacancy and replacement costs.
Other companies use the ubiquitous turnover cost calculators in
an attempt to arrive at more exact numbers. These calculators provide input for up to
60 categories of financial costs related to turnover, but no inputs for financial
gain. In what should be a standard cost/benefit analysis, only the cost side of the
equation is completed.
The point is to calculate for both sides of the equation and
then manage turnover levels so that financial gains outweigh the losses. This means
documenting all of the savings generated by turnover, including annual bonuses that
are not paid, open-position savings, lower salary costs for the new hire, benefits
savings and the value of any performance improvements that occur.
Turnover can produce substantial savings in employee benefit
programs, particularly when younger workers replace older workers. Generally, total
benefit costs for older workers are 20 percent higher than for younger workers,
according to Jamie Hale, senior consultant at Watson Wyatt. Most of the higher costs
come from health care premiums, which are age-related.
A Watson Wyatt analysis found that for each year that the
average workforce age at a company is above the aggregate average, health benefit
costs increase 2 percent above trend. For example, if trend is rising 10 percent a
year and the company’s average workforce age increases by one year above the
aggregate average, that company’s cost will increase by 2 percent above trend, or 12
percent.
A cost calculator recalibrated to include savings and benefits
from turnover would include these basic elements:
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