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Employee Retention: A Best Bet in Any Economy
added: 2008-11-19

According to research by VIST Insurance, Employee Retention Programs drive better bottom line performance in growing and uncertain economies. In fact, engaging and rewarding your employees with financial or non-financial awards are retention actions you can no longer overlook or dismiss as trivial. Today there is convincing evidence that these actions make a difference.

"The costs of replacing talented and effective employees far outstrip the expense of retaining and developing new employees," said David Lacey, Vice President of Human Resource Business Development at VIST Insurance. "Recruiting and training new employees acts as a drag on earnings from three to six months until the new employee is performing at the expected level or better. However, retained and highly motivated employees contribute to the company at a higher, more consistent and sustained level of performance."

According to industry studies, it is estimated that it takes roughly six months for a new professional hire to be trained and performing at or above the level of a prior employee. The timeframe does drop to three months for C-level positions because more is expected from those hired for positions at the executive level. Both timeframes take into account learning a new position's responsibilities, the structure and the culture of the department and organization, as well as meeting clients and positioning a company's products/services in relation to its peer competitors.

"For example, over the course of a year, if a small company loses three long-time employees, each making $50,000 in cash compensation, it will cost the company a minimum of $75,000 to prepare the new hires to be effective and productive. Even if they are replaced at the same salary, it will take an estimated six months for the new employees to be up to speed and as productive as the prior employees. Also, the company will incur the additional expense of advertising the positions, recruiting fees, and training," said Lacey. "Quite often these expenses are sizable and can equal the $75,000 referred to earlier. For a fraction of that amount, the company could've had an Employee Retention and Development Program in place and seen most of that $75,000 added to the bottom line as an increment to NOP (Net Operating Profit)."

Lacey is quick to add that retention is not simply a pressing issue for a small or mid-sized business or a particular industry. "I've seen recruiting data where it costs an IT company an average of $34,000 to replace one lost professional and where a clothing store had a decline of over $100,000 in revenue when a sales representative with an excellent and loyal customer base left and joined a competitor. So retention costs aren't limited to just one industry." For every company in today's market, retention is the most important priority for their talent development.

Investment in employee retention can also have a direct impact on the bottom line in terms of revenue generation and earnings growth. Companies with high retention rates expect their "stars" and "go to" professionals/managers to drive achievement of these two financial performance measures among others.

Employees who feel valued and appreciated by management are more engaged in the success of the company and tend to perform at higher levels than disengaged employees who are simply going through the motions or, worse, actively working against the company's stated business interests and priorities.

According to a survey by ISR, a Chicago firm that studied employee engagement at seventy-one companies worldwide, there is a direct correlation between engaged employees and company performance. The study's findings conclude:

- 52% difference in one-year performance improvement in operating income between companies with highly engaged employees compared to companies with low engagement.

- 13% improvement in net income growth over a one-year period at companies with high employee engagement.

- 28% improvement in EPS (Earnings Per Share) growth in companies with high employee engagement.

"Without an engaged workforce, a company is merely going through the motions instead of being a top performer," said Lacey. "It's a challenge to persuade a company and its management to retain and engage their employees, and then become a top performer in its business sector. "That challenge must be embraced and acted on. However, economies like the uncertain one we're experiencing today demand that change to survive and to grow in the future."

Source: PR Newswire

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