What’s your budget?

Great sources of free and relevant talent management data are vendor research, white papers and blogs. Of course, vendors have a bias towards research and conclusions that support their cause, but that doesn’t make the research less interesting or actionable. It just means that the reader has to understand the context.

I read an interesting article in the May issue of Talent Management that referenced a survey done by Cornerstone OnDemand and Harris Interactive on performance management.  I traced the survey results back to a post on the CSOD blog by Charles Coy.  The survey data about the effectiveness of legacy performance management systems is interesting and not at all surprising.  They don’t work and everyone knows it – employees and HR.

What was more interesting to me were the math and sources behind the potential price tag of $2 Ttrillion to U.S. employers in 2012 simply due to voluntary turnover.  That’s right: $2 Trillion!

$2 Trillion is a big number.  A very big number.  Could it be true?  If we take the stats one by one, it absolutely could be true.  Take a look:

Here’s the equation where E = total employees and AW = their average wage (divide total salary cost by the number of FTEs):

(E x .15) x (AW x 2.5) = Total Turnover Cost

Try the math in your organization.  If you have 350 employees and the average wage is $50,000 then

  • 350 x .15 =                                             52
  • Average wage =                                $  50,000.00
  • Average full replacement cost =   $ 125,000.00

52 x $125,000 = $6,500,000.00

And what’s your budget? 

But, you say, your voluntary turnover is only 8%, not 15%.  Well, even if that’s true – and congratulations if it is – that’s still a lot of money.

28 x $125,000.00 = $3,500,000.00

And what’s your budget?

But, you say, that 2.5 times the average wage calculation for replacement costs is way too high.  You don’t buy that the loss of an average employee means a potential loss of intellectual capital or client relationships.  OK.  How about the impact on internal relationships and getting things done?  How about the productivity and morale of colleagues left behind?  How about the experience and job skills that you’ve lost?  Add in the hard costs of recruiting a new hire, the onboarding time, the training time to full productivity and you’ve still got a big number – even if you found and hired replacements really quickly.  Try the math at 1.5 the average wage as the full replacement cost.  With 8% turnover and 1.5 times the average wage, that’s still a big number

28 x $75,000.00 = $2,100.000.00

And what’s your budget?

And what if your voluntary turnover is higher than 15%?  Or what if the training time to productivity is longer than average?  Or what if you – like 52% of employers – can’t find the replacement talent quickly or at all?  Then the impact will be greater.  Much greater.

This is a useful discussion because it can help create a context for the broader conversation about the real cost of voluntary turnover and the cost savings in having an engaged workforce.  It can be part of the rationale in a business case for investing in any of the levers that will increase retention and reduce turnover.

It’s almost budget time in most organizations.  Financial resources are still scarce.  As you plan your 2013 budget requests for more spending on talent management solutions, be prepared with fact and data.  This might help.

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1 Comment

Filed under Average Wage, Budget, China Gorman, Cornerstone OnDemand, Engagement, Harris Interactive, Talent Management, Turnover, Uncategorized

One response to “What’s your budget?

  1. Pingback: Paycheck Pessimism |

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