From F. John Reh,
Your Guide to Management.
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A Customer Service Representative (CSR) walks into your office and makes you any offer. "If you will increase my annual salary of $18,000 to $20,000, I will sign a contract to stay here for three more years." What would you do? Well, you can't do THAT so maybe I should ask instead, what should you do? The smart play might be to accept it.

According to an article by Will Helmlinger of the The Resource Development Group, "the cost to replace one Customer Service Representative earning $18,000 annually is nearly $58,000". A study evaluating the effects of the US Family Medical Leave Act found that "turnover costs for a manager average 150% of salary, including tangible costs of hiring new workers and relocation, and intangible costs such as the new worker's inefficiency and lost productivity while the job is vacant."
(The same study, incidentally, found that the cost of a temporary replacement is only 39%).

Why are the costs so high?
Why does it cost so much to replace a departing employee? The total cost is so high because there are so many costs included. Some, like paying off accrued vacation time or the cost of a newspaper ad, are obvious. Some others, often overlooked, include lost productivity as the new employee gets up to speed. Consider also:

• Time to review resumes
• Time to interview candidates
• Interview expenses for candidates
• Possible travel expenses for new hire or recruiter
• Possible relocation expenses for new hire
• Additional bookkeeping; payroll, 401k, etc.
• Additional record keeping for government agencies
• Increased unemployment insurance costs
• Intellectual property lost
• Corporate history lost

What can be done about it?
The key is to focus on retention of your key employees. In some cases, all your employees will be key employees. To determine how to keep them, you have to know why they left, or are considering leaving. Always do an exit interview and ask those question. Dig past the initial pat answers departing employees will give. They don't want to "burn any bridges' so they may be less than candid to start, but keep digging. For the employees who haven't yet left, concentrate on casual conversation to solicit the issues that might be of concern to them. Listen to the comments they make in meetings on other subjects to see what keys you can find.

This Human Resources Learning Center article describes the Job Congruence System (JCS). an HR management tool for decreasing turnover which is based on "professional research linking various job characteristics to job candidates’ sources of personal discomfort and dissatisfaction."

Kimberly Stanséll takes a small business look at the issue in her Bootstrapper's Success Secrets article 5 Ways to Beat the High Cost of Employee Turnover.

Manage This Issue
Replacing employees is expensive, far more expensive than making them feel like they have a stake in the company and it's success. Spend the time, and the money, to take care of your employees. Not only is it the right thing to do, it will actually save you money.

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