The Surprising Financial Reality of finding the right talent
Updated: Feb 3, 2021
We’ve spent the last 3 articles talking about hiring right the first time, and we vaguely mentioned that there was a cost to not doing so. In this article, we’re going to show you just how big that cost really is. And, of course, we’ll walk you through the steps you can take to minimize the loss.
Before we jump into the numbers, we should define “cost”. What we’re referring to is the cost of turnover. While there are roughly 30 factors that contribute to turnover costs, we’ve listed 3 of the major contributors below:
Severance pay for employees leaving the company
Compensation to current employees for extra work completed while the position is vacant
Lost productivity resulting from attention being diverted toward the hiring process
More time and productivity is lost when a new employee is brought on board. This is time spent being oriented and trained, and time spent on understanding the company and industry structure.
Now that we’ve defined “cost”, let’s continue with your team of 100 employees. This team consists of members at all levels - Junior, Intermediate, and Senior - and each level is paid a certain sum. We’ll average out these salaries and say the typical pay is $80,000 per year.
When an employee exits, your company loses more than the salary paid out. Reflect on the cost factors listed above. Now consider the combined effect of not one employee leaving, but 15% of the team leaving. What is the financial impact?
As you can see in the table above, the company can lose anywhere between $1.8 to $3 million in turnover costs when 15 team members leave.
By now you’re probably wondering, why would 15% of your team leave?
If you use the wrong hiring strategies, you are likely to end up with subpar team composition. Your team won’t produce the results you want because they are not optimized to. And teams with poor performance see the most turnover, because members are unhappy and unmotivated to stay.
There are many reasons why an employee may be unhappy at an organization. And, as you will see, the way to spot these reasons beforehand is simple. At Planet, we use our Behavioural Focused Interview (BFI) technique to filter through candidates during the hiring process. This method successfully tells us which candidates are likely to leave, and if you recall from our previous article, what employee archetype they fall under. BFI helps us put together optimized teams that not only bring high productivity value to the workplace, but also fit well within the company culture.
So, what factors drive employees away? For starters, employees may not always work well under the boss’s management style. Some managers prefer to be more hands-on, while others are laid-back. BFI can uncover how a hire prefers to be managed, and this knowledge will help hiring authorities decide if the candidate will be able to work with them.
Another major issue that arises after a hire has been onboarded is commute. The location of your organization may not be convenient for a candidate to reach, but this is often missed in the hiring process. Interview questions should include finding out if location will become a factor in a hire’s decision to ultimately stay in the job.
The nature of the job and business will sometimes conflict with a candidate’s cultural background and personal beliefs. This is where BFI shines best; these questions can help hiring authorities understand what type of work the individual enjoys and wants to do. If the hiring authority discovers that the candidate’s goals do not align with the role, then BFI has just saved them a lot in future turnover costs and lost productivity.
Finding out how the candidate views the company is crucial in determining whether a candidate will stay, and BFI includes questions that check for cultural fit. What type of culture does the company have - and will the candidate be comfortable working within it? For example, if a candidate says they require a lot of direction in their day-to-day tasks, they may be suited for a more bureaucratic environment. If they do not, it is likely they will be unhappy with a supervisor looking over their shoulder throughout the day.
Salary is one of the biggest factors that causes hires to leave. If an individual is worth it, hiring authorities should ensure they offer the candidate the right salary in order to retain them.
BFI checks to see how a candidate views the industry overall. For example, with recent concerns over global warming, not every candidate will want to work for the Oil and Gas industry. Personal morals and future expectations of industry growth (or decline) can be discussed through BFI, and these insights will ensure hiring authorities select candidates that will stick around in the long-term.
So far, we’ve covered productivity value calculations, successful interview techniques, strategic team composition, and the financial impact of turnover. In our final article, we will tie these concepts together and calculate the performance improvement that you will ultimately achieve when you hire for success the Planet way.