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Ah, this makes sense. The cost of the trainer and the trainees/0 production crossed my mind. But unless it's a sales job or a job that directly impacts bottom line, I just find it hard to believe that keeping say... 100 employees around that perform well and get raises each year is less expensive than replacing all 100 employees every few months at their starting hourly wage.
Well, it is. Except for the most elementary jobs, employees don't really hit their stride until they have 6 months to a year of experience with the current company. Most jobs require familiarity with the company's product line, some technical competence, and a feel for the customers and the problems they encounter. I'll take seasoned employees any day, even at a higher wage.
I agree with everything you said, except the portion I put in bold letters. How is it "costly". It's not like you're paying anyone extra to interview and train these employees. The people involved in the hiring and training process would be paid the same anyways. Maybe my mind isn't wrapping around a core concept here...
Didn't Circuit City layoff all the higher-paid, experienced sales staff? They were going under by then, but as I recall the new hires were notorious for not being able to provide adequate customer service and the outfit folded.
Raises in fast food places are so low, we're talking nickels a day here, that I can't imagine there would be much savings by continuing to hire and train new employees. When you consider that many new employees don't work out, some don't even show up for work on a regular basis, the cost of continually hiring, training, and supervising new employees likely outweighs whatever extra the old-timers are earning.
In addition to the lost productivity due to training new hires, you also have the lost productivity of those old-timers preparing to leave. Once employees realize things are heading south (either pending layoffs or better opportunities elsewhere), much of their energy is naturally devoted to figuring out where they are going to go rather than what they can do for the company.
I have a relative who sends his resume around to check out the waters every two years. He knows that given the current corporate world, his whole department could be eliminated, sold off, downsized at any moment and he needs to build his network, see what's out there. So every two years, he spends several weeks updating his resume, working his network and interviewing. He is, of course, less productive during that time for his company. Sometimes he accepts another position and gives notice.
He always leaves on good terms and has been hired back by previous companies on several occasions, but as his job involves negotiating complicated contracts with customers, the knowledge, skills, and relationships he takes with him are a cost of turnover to the company.
Didn't Circuit City layoff all the higher-paid, experienced sales staff? They were going under by then, but as I recall the new hires were notorious for not being able to provide adequate customer service and the outfit folded.
It was true quite a bit to the point that in the retail industry no one wants to be known for being "Circuit city"at the same point the industry has changed so much that best buy was nearly on its death bed last year.
When I bought my first hdtv I first went to circuit city but the guy flat out lied to me. It's one thing to say you don't know. Fine I get that. But don't lie. These days the consumer has access to much more information then the people working in the store. Best buy got into some trouble for having two websites. One main one you see and one internal one though the wifi in their stores. So when people complained of price matching the internal one had higher prices..ie. price fixing.
People realize when they are being sold something these days. It does not always work. Who doesn't check online reviews?
Years ago I read a business book and it said that for the average career position it will take the average person 3 years to become average, it basically works where the 1st year average production is about 60% of average, the 2nd year 80%, and the 3rd year you finally should get to average. Of course the complexity of the job is a big factor, but we will just use 3 years as it makes sense in many professions.
So for a career position where the average person makes $55K a year, starting someone out at $45K the company is losing $12K a year as your expected production is only $33K. The 2nd year they get $44K of production but usually someone will have gotten a raise to around $47,5 a year meaning they are still losing money. Then finally in year 3 they will get $55K in production, and the employee will be making around $50K so they start making that money back. In the end they will break even if they get an above average employee.
The problem is that over the years companies have figured out this stuff, and now will offer someone 2 years into their career much closer to that $55K a year, as their expected production should be around 95% for someone already having 2 years experience as they will only have to spend a minor amount of time learning the different ways things are done between the companies. meaning the 2nd company gets the benefit of the 1st companies training, the employee gets a big benefit of being trained and moving up the pay scale quicker, and the 1st company loses $15,500 in production for that position and now has to either hire a trained employee from another company or start all over again.
That is one reason companies are no longer hiring those without experience, and it is a very large reason that so many company are hurt by having to much turnover. You cannot continue to throw money at training and getting people up to speed if they continually leave before you reach some kind of return on your investment.
The poaching and job hopping really started in the late 1980s, and now most companies have caught on, which is one reason that so many young people are having a hard time getting started in a career. Nobody wants to lose money or production while they get someone up to speed, and when you add in the lost time and extra hard expenses of finding and hiring a new employee I cannot really blame them.
You also have to factor in the reason so many people jump after a couple years. Companies have policies restricting raises to such a small amount that someone who got those first 2 years in, and is now competent is pretty much FORCED to leave if they want to really increase their salary. Conversely, someone else is willing to pay more because they don't have to train that person.
Yet another silly policy that helps to create wasteful turnover. This coincides with HR policies that seem to punish managers that put together good teams.
At one place I used to work, my boss was allowed to have 2 associates, 2 "regulars", and 2 seniors. That seems fine, but what happens when he gets six good people, but can't promote anyone. The associates are raise restricted but can't move up until someone higher leaves. Provided they have attained those skills needed to move up - they should be allowed to at some point.
Another issue is when you've had some turnover and a Sr leaves. If someone below that isn't quite ready to move up, you bring in someone from the outside. That newbie hires in as a Sr, but is GUARANTEED to not actually have ANY of the real technical skills you need. The environment is too unique, so what we really hired was industry experience. But, now you've got someone BELOW them doing their training, but probably making less money than the newbie. Needless to say that doesn't go over well and someone gets mad.
The solution there is to allow them to hire in at a larger salary, but lower title. That keeps the associate from really knowing how much the new person is getting paid, which takes away some animosity.
Another HR created issue here is that the manager WANTS to have more senior people. So maybe after years of begging HR the team is now 4 seniors and 2 associates. Then someone leaves. He now MUST find a senior person, because he'll get dinged internally if he goes back to 3 associates and 3 seniors. To get the seniors their money the boss had to justify it to HR over the past years and now they are in trouble because he's saying he can do it with lower classified people.
And he might be able to, but those senior people were so productive they more than deserved what they brought in.
Bringing this back to the turnover cost, I've actually seen SEVERAL occasions where the loss of one or two experienced and better paid people required breaking up a job in to smaller chunks and hiring 3 or 4 new people to replace those two that left. The math here is simple. Lose 2 people making 80k, but have to hire in 4 at an average of 50k to replace them, and you've lost $40k on salary and your paying for twice as many health insurance policies. Not to mention training, acquisition and productivity costs.
Bottom line, it's often WAY better to just give people a raise and treat them better than to let them go and have to try and replace them. Not sure why companies with high turnover rates don't really investigate the math on this.
You also have to factor in the reason so many people jump after a couple years. Companies have policies restricting raises to such a small amount that someone who got those first 2 years in, and is now competent is pretty much FORCED to leave if they want to really increase their salary. Conversely, someone else is willing to pay more because they don't have to train that person.
Yet another silly policy that helps to create wasteful turnover. This coincides with HR policies that seem to punish managers that put together good teams.
At one place I used to work, my boss was allowed to have 2 associates, 2 "regulars", and 2 seniors. That seems fine, but what happens when he gets six good people, but can't promote anyone. The associates are raise restricted but can't move up until someone higher leaves. Provided they have attained those skills needed to move up - they should be allowed to at some point.
Another issue is when you've had some turnover and a Sr leaves. If someone below that isn't quite ready to move up, you bring in someone from the outside. That newbie hires in as a Sr, but is GUARANTEED to not actually have ANY of the real technical skills you need. The environment is too unique, so what we really hired was industry experience. But, now you've got someone BELOW them doing their training, but probably making less money than the newbie. Needless to say that doesn't go over well and someone gets mad.
The solution there is to allow them to hire in at a larger salary, but lower title. That keeps the associate from really knowing how much the new person is getting paid, which takes away some animosity.
Another HR created issue here is that the manager WANTS to have more senior people. So maybe after years of begging HR the team is now 4 seniors and 2 associates. Then someone leaves. He now MUST find a senior person, because he'll get dinged internally if he goes back to 3 associates and 3 seniors. To get the seniors their money the boss had to justify it to HR over the past years and now they are in trouble because he's saying he can do it with lower classified people.
And he might be able to, but those senior people were so productive they more than deserved what they brought in.
Bringing this back to the turnover cost, I've actually seen SEVERAL occasions where the loss of one or two experienced and better paid people required breaking up a job in to smaller chunks and hiring 3 or 4 new people to replace those two that left. The math here is simple. Lose 2 people making 80k, but have to hire in 4 at an average of 50k to replace them, and you've lost $40k on salary and your paying for twice as many health insurance policies. Not to mention training, acquisition and productivity costs.
Bottom line, it's often WAY better to just give people a raise and treat them better than to let them go and have to try and replace them. Not sure why companies with high turnover rates don't really investigate the math on this.
I agree, if you look at what happens with most companies if you look at their employees at each step, they seem to insist on trying to get the full value of the training they provide paid back in production within a short time. In a job that takes 3 years to be up to speed they want the full costs back in 5 years, if they would work that out to taken 8 years or so they would probably raise their retention considerably. It is a lot harder to leave a company you are happy and comfortable at for a 4% raise than it is for an 8-10% raise.
As for the problems with titles, that is always going to remain a problem, HR and Accountants are trained to look at the numbers and often have no idea what a job position even really does. The just know that it took X number of people at each position last year, and the budget is Y, so unless you can show enough production to justify raising Y than you will be stuck with X. That will force companies to lose good people, which is understandable, and justifiable as a company structure.
Having 0 turnover is not good, having to much turnover is terrible, but there has to be a balance and with the way most companies operate they HR and the short term bottom line have to much power which is going to start hurting companies long term if it has not already.
I agree, and it's important to follow up on your note that SOME turnover is good. People get "stuck" and bored with their jobs. People NEED to be moved up and sometimes that means moving to a different department, or out of the company. There are all kinds in a group.
That's a whole different thread, but you need your "worker bees" and your "high flyers". Or the A's, B's and C's., and ideally you let competent managers have the ability/resources to retain them.
HR's job in this (at least to me) is to make sure that you are keeping the talented people energized, engaged, happy and compensated enough to stay and not leave for a competitor. If that means helping them move around within the company, then do that. If that means allowing financial flexibility for their managers - do that. And HR should also be there to help managers clean out that 'dead wood' when for any number of reasons someone just isn't working out. HR should support these things - not dictate them.
Oh and if we really want to talk about wasteful turnover, look at the companies that hire ridiculous percentages of contractors, and then come along and limit them to 1 or 2 year total contracts. That's just training people for your competition. Someone will eventually realize that since every company is unique, so are the skills needed to properly execute the business. Except in rare cases, you wind up paying these contractors while you train them, they are useful for 6 months and then you kick them out - that just doesn't seem very smart.
Many companies have a waiting period for benefits. Could be a big saving with new employees.
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