The Cost of Employee Turnover: Retention and Loyalty Drivers

Editor’s note: The following article is adapted from NCA’s newest publication, HR Management: Best Practices for Private Clubs.

One of the goals in most organizations is to maintain a strong, engaged and productive workforce. When employee turnover is high, clubs face numerous added costs in terms of lost employee productivity, new employee recruitment, selection and hiring and new employee training. In general, estimations for the actual cost of employee turnover range from 20 to 25 percent of the salary for the position that needs to be filled.

Human Resource Replacement Costs
There are four types of costs associated with employee turnover:

Separation Costs – Including financial and nonfinancial outlays such as benefits, separation pay, unemployment insurance costs, exit interview staff time, outplacement and having a vacant position.

Recruitment Costs – Including fees for job postings, campus visits, recruiters and search firms.

Selection Costs – Including staff time spent on interviews, tests and reference checks and relocation costs.

Onboarding Costs – Including time and expense for orientation, training materials, trainers, employees and mentors.

To help quantify turnover rates and costs, clubs can calculate their annual turnover rate using the simple formula below:

The number yielded is a representation of the percentage of the club staff that has been replaced in the past year. Analyzing this rate can help clubs identify the causes of staff turnover and identify and address any major problems.

In so doing, clubs should look at both the source of the turnover (whether it was voluntarily initiated by the employee, as in cases of transfers, quits or retirements, or whether it was involuntarily forced upon the employee by club management, as in cases of layoffs or discharges). Then turnover rates can be calculated for each of the four categories in the chart above to better determine problem areas for the club in terms of employee retention.

Employee Retention

One of the best ways to lower employee turnover is to improve employee retention efforts and those elements of the workplace that directly improve employee engagement. While there are many factors that contribute to employee retention, retention ultimately hinges on employee satisfaction, engagement and loyalty. Employees should feel recognized for their hard work, rewarded for their efforts, and respected by the club. They should also feel that the club, as their employer, is meeting their basic needs in terms of compensation, a path for career advancement, and job security.

Metlife’s 10th Annual Study of Employee Benefits Trends, May 2012, found that employees and their employers tend to have different perceptions on what factors are important to employee loyalty. While a similar majority of employees (73%) and employers (71%) see salary and wages to be the most important consideration, nearly every other job benefit drives employee loyalty more than employers anticipate, including health (66%) and retirement benefits (59%) and advancement opportunities (51%). Only company culture breaks the rule, with employees considering it less important (48%) than employers think they do (52%).

According to the Metlife study,employee loyalty reached a seven-year low in 2012, as fears over benefit reductions and job insecurity damaged employee relationships with their employers. One in three employees hoped to work for a different employer in 2012—and that figure jumped to almost one in two when looking at members of Generation Y, those born between the 1980s and the late 1990’s.

Gallup research over the years has consistently identified several factors influencing voluntary job changes. Nearly one third of all job changers indicated that career advancement and promotion (32%) was the reason for seeking a new position. Surprisingly, less than one fourth leave jobs because of pay and benefits (22%) or a poor job fit (20%). Only 17 percent leave positions due to issues with management or the work environment and only eight percent leave positions because of flexibility on work schedules.

Research by Bank of America Merrill Lynch, detailed in their Workplace Benefits Report, June 2011, has found that the benefits attracting new talent are largely the same as those driving employee retention. Those factors include health care benefits, retirement benefits, flex time, and formal training and mentoring. One exception is the presence of a respected manager, which leads nearly twice as many current employees (60%) to retain their positions as it does attract new talent (31%).

When attempting to evaluate the main causes of employee turnover at your club, employee exit interviews are of paramount importance. Asking employees why they decided to leave the club’s employ can help identify the areas that need to be addressed in order to reduce turnover. Determining whether employees are dissatisfied with one particular aspect of their employment at the club can also help mitigate the circumstances that may motivate employees to leave the club. Employee satisfaction surveys can also help to pinpoint employee issues that can be addressed before they lead to unnecessary departures.

Developing and Implementing Retention Programs
Strategic retention drivers increase employee engagement, satisfaction and loyalty. There are several job elements and employee benefits that are particularly important to reinforcing employee loyalty. Competitive compensation and benefit packages, active employee recognition, engaged management, mentoring for employee growth and development, and opportunities for advancement, as well as careful attention to employee integration into the club culture and workplace.

To learn more about employee retention programs and other aspects of human resource planning, see NCA’s newest publication, HR Management: Best Practices for Private Clubs.