Employee Turnover

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Understanding the True Costs of Employee Turnover

By Rick Amero

Of all the threats and challenges your company can face in this economic downturn, losing top performers can be one of the most damaging. It is often said that we do not have a turnover problem—we have a retention problem. No matter how you look at the issue, turnover at the unit level remains an unfortunate constant in the restaurant industry.

Retaining valuable employees and workforce stability is key to any company’s success and longevity. Employees represent the brand, the image and core values of your organization, which means that you lose a sense of the company’s history when people leave.

Business strategist and futurist, Roger Herman, emphasized that the employee turnover problem is more than just finding enough people to fill the vacant positions. Turnover is a real dollars and cents issue. Turning over one employee can cost around half of a skilled hourly worker’s annual wages plus benefits, while losing a member of upper level management can cost 3 to 5 times his or her annual wages and benefits. Most executives sense that employee turnover is expensive, but few comprehend the real numbers that affect the bottom line.

Workers are at a premium in today’s economic and demographic climate. And yet our industry continues to struggle to retain these employees—a failure that comes at a great cost. According to People Report, the cost of turnover can be divided among into four general areas: separation, replacement, training and opportunity costs.

 

RESTAURANT BUSINESS TURNOVER COSTS
Category Per Unit Level Manager Per Unit Level Employee
Separation Costs
     Time and travel costs for exit interviews $149 $16
     Administrative activities $171 $178
     Separation/Severance pay $1,767 N/A
     Vacancy costs for overtime or temporary employees $2,305 $255
     Increase in unemployment payment $674 $37
     Other $200 $50
Replacement Costs
     Attracting applicants (advertising, time, etc.) $1,372 $354
     Executive search or recruiter costs $1,741 N/A
     Interviewing $627 $60
     Pre-employment testing $347 $27
     Travel/Moving expenses $2,049 N/A
     Pre-employment administrative expenses $216 $53
     Other $1,468 $576
Training Costs
     Trainer time $3,257 $388
     New employee’s time $6,734 $367
     Travel expenses $1,894 N/A
     Training materials, computer time, etc. $236 $58
     Training time by colleagues (informal training) $1,025 $115
     Other N/A $705
Opportunity Costs
If you were to estimate the cost for lost business or customer service, difference in performance for replacement of employees, and loss of departing person’s knowledge, what would the costs be? (Annual Cost Numbers reflected here) $9,732 $1,886
Average Total Cost of Turnover $35,964 $5,125

Source: People Report, “New Economy Workforce in a Bricks and Mortar World”, 2008

What Can You Do About it?

The stakes are clearly high when it comes to retaining good employees and managers within your company.

The following five employee retention tactics exemplify the practices of companies that retain their best employees.

  1. Turnover often starts with a bad hire. A Harvard University study reports 80 percent of turnover can be blamed on mistakes during the employee selection and hiring process. If your company wants to reduce turnover, the first step is developing a structured, rigorous and repeatable hiring process that is conducted by trained and competent managers. Doing so can help to make hiring decisions much more objective and can reduce liability exposure from lawsuits for employment discrimination. Every person you hire needs to have the right skill set for the job, demonstrate the ability to do the work and be a fit for the organization’s culture.
  2. Offer a competitive compensation package. Your “A” player employees are motivated by doing good work and fair pay. Any team member wants to feel that he or she is being paid appropriately and fairly for the work they do. Be sure to research what other companies are offering in terms of salary and benefits. It is also important to research what the regional and national compensation averages are for that particular position. You can be sure that if your compensation package is not competitive, employees will find this out and look for employers who are willing to offer more competitive compensation.
  3. Develop a good on-boarding and orientation program. When a new employee joins your company, consider enrolling them in an employee ambassador program. An employee ambassador program is where they are paired with a seasoned employee for the purpose of making a smooth transition into the company. Ambassador activities include a welcome note sent to their home, a welcome breakfast, regular lunches and ongoing communication to ensure the new employee adjusts to their new environment. People want and need to feel included in a group. By making personal connections to others in the company, bonds are formed, and the connection to the company becomes stronger.
  4. Provide the tools and training an employee needs to succeed. Nothing can be more frustrating to an employee than a lack of training or the proper tools to successfully complete his or her duties. Providing the new employee with the tools and training they need to be successful shows a commitment and investment in that employee and will encourage them to stay with the company.
  5. Management must take the time with employees. It is often said that employees leave their supervisors and not the company. Managers are very busy, but it is crucial that managers and supervisors take the time to get to know their employees. Learn and remember team members’ names, what skills and talents are unique to them and what their interests in life are. The famous quote, “People don’t care what you know until they know you care” is very true when you are leading people. If a manager or supervisor is not respected or trusted by employees, turnover will occur in only a matter of time.

Finding and keeping capable employees will always be challenging but not impossible. Following these tips can help to greatly improve the levels of employee retention in your organization. Take some time and seriously evaluate what your organization is doing to encourage a high-retention workforce. Having a seasoned and well-trained workforce can deliver a competitive advantage that is difficult to replicate.

 


This article is an excerpt from the Handbook for Excellent Restaurant Operations (HERO), published by the Washington Hospitality Association.  Want a hard copy of the whole manual?  It’s one of the many benefits of becoming a member!  Find out more about joining the Washington Hospitality Association here.

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