If your organization has an excessive turnover rate, it could be wreaking havoc with your bottom line. An estimate from a Rutgers study reveals that the average cost of one lost employee is 38 percent of their annual salary. Considering the median U.S. household income is $59,039, it would cost your company over $22,000 to lose just one employee. If you had a higher than average turnover rate, say 20 percent, in a 200 person company, that could cost you upwards of $880,000 annually, depending on salaries.
Why such a high cost? Turnover isn’t as simple as having one person walk out the door, and another fill their space. Before an employee even leaves, there are usually productivity losses. Once they are gone, the company experiences expenses related to additional productivity losses, hiring, training, and benefits payouts. There can also be morale issues tied to employee churn that can impact a company’s internal culture.
Reducing employee turnover is not only better for your organization’s morale, but also its pocketbook. Taking the same example above, cutting turnover down to just 15 percent (the national average), would save your company more than $220,000 each year. One of the best ways to reduce turnover is by better managing your company’s performance review process. Specifically, the use of a quality performance management software program can help you achieve this goal.
How Performance Reviews Decrease Employee Turnover
A study by the Society for Human Resource Management found that there are common reasons why employees walk away from their jobs. Among these are:
- Employee dissatisfaction
- Better alternatives
- A pre-determined plan to quit
- Impulsive resignations
While there isn’t much that you can do about an employee that impulsively quits or even has leaving as a career goal, there are several ways to increase job satisfaction and confront potential issues with performance reviews.
Build stronger relationships between employees and management. Gallup reports that 70 percent of employee engagement is affected by employee-manager Performance reviews give both parties the opportunity to build a stronger relationship by discussing issues through regular conversations.
Create a more challenging environment for employees. Believe it or not, employees are happiest and the most engaged when they are challenged at work. The best place to set and monitor goals is through regular performance review meetings.
Provide more opportunities for growth and development. Employees want to know that their jobs aren’t dead-end A performance review not only gives managers the opportunity to coach employees but also to discuss growth opportunities.
Using Performance Management Software to Manage the Employee Review Process
If your organization is still trying to manage employee performance with paper files or spreadsheets, there’s a good chance that your turnover rate is much higher than necessary. By switching to a quality performance management software solution, you can become more organized and drastically reduce employee churn. These systems are designed to help companies write accurate job descriptions, document performance, and write employee reviews. The benefits of using performance management software include:
Know Your Turnover Rate. Before you can fix your turnover issue, you’ll need to understand it. This system can provide you with churn rates, track costs, and give you the reasons for leaving.
Closely Monitor Employees. Want to know what makes your top employees tick? Use your system to compare factors and skills so that you can develop an effective retention strategy.
Locate the Right Talent. Fast hiring might be your goal, but effective hiring is more important. Use your list of essential skills and behaviors to help you hire top talent.
More Effective Onboarding. Hiring someone doesn’t necessarily make them a loyal employee. Your system can help with training, goal-setting, and communicating company culture.
Timely Performance Reviews. Strengthen your relationship with employees by giving them timely and meaningful performance reviews.
Provide Growth Opportunities. Use your software to help employees chart their development path within the organization. This will keep them engaged in their work and reduce churn.
Managing turnover is a challenge for any organization. Fortunately, by better managing your employee’s performance with performance management software, reduction in turnover will take care of itself. Not only will you have happier and more engaged employees working for your company, but you will also produce better bottom results.