Friday, 5 December 2014

Good help these days is hard to find

How much of a problem is employee turnover?

Family peers now in manager-class roles occasionally humblebrag about recruiting staff. Moans about finding a 'good fit for the culture' or the oxymoronic 'autonomous team player' are in essence a rehash of, "It's so hard to find good help these days."

In Japan, good help finds you!
As an aside, practising the lingo is vital to materialise upper-class aspirations. It's called 'affirmation'. In case you haven't heard, 'fake it till you make it' is now complimentary.

Leaving aside the views of managerial wanna-bes, how much should the business itself care about ill-suited recruits, or in fact turnover as a whole?

Business associations and unions have a mutual interest to talk up the problem. The former to argue for looser labour laws, the latter to encourage better worker treatment. They are little help.

After some searching, I present this quote from the well-referenced 2012 Insync Surveys Retention Review:
"There are 11.5 million people employed in Australia earning $638 billion per annum . Between 1.5 and 2 million of these employees are likely to leave their jobs in the next 12 months, taking with them customer relationships, internal networks, institutional knowledge and specialised skills. Staff turnover costs an organisation with 100 employees around $1 million per annum, assuming a staff turnover rate of 18%, an average salary of $75,000 and a conservative turnover cost per employee of 75% of annual salary (including the cost of recruitment, selection, induction, training and lost productivity whilst getting up to speed). Organisations that reduce employee turnover by 5% (e.g. from 18% to 13%) will save around $280,000 per year for every 100 people they employ."
The article also offers hope that 80% of staff turnover is within the employer's control. So it should be a no-brainer priority, right?

Firstly, I fail to see how the 5%, $280K saving was arrived at. My calculation ($1M x 5% = $50K) says otherwise.

Secondly, also using the example above and assuming all 100 workers are paid the average annual salary of $75,000, the total cost of turnover ($1.0125M) is a mere 13.5% of total salary expenditure ($7.5M).

While that's nothing to sneer at, if you also assume a gross-value-add per employee of $68/hour, an average 34.1 hour work-week, and a working year of 46 weeks, staff turnover is equivalent to 9.5% of total employee gross-value-add and 5.6% of total employee output.

Again, while these are sizeable percentages, you cannot blame executives for not doing more than commissioning a few 'employees are our most important resource' posters, especially in capital intensive industries where labour contributes relatively less to the profits made. Turnover costs can be written off against tax, further lessening their impact. I have not addressed the costs of a rogue employee on morale because I assume this would reflect, and be accounted for, in turnover.

(Well compensated) people leaders may protest that it is hard to find good help. The business reality is that it hurts little to replace it.

Additional links:
More detail on Australian staff turnover statistics from BRW.
OECD's International Productivity Statistics (The PWC/ABS figures I used were relatively conservative.)

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