In a nutshell: To keep from losing your top employees, consider growth plans, training, competitive compensation and perks.
You’ve heard it before: Employees are your greatest asset. This is especially true for small businesses that must run efficiently to be successful. But as employees gain experience, they may be tempted to seek jobs elsewhere. If you can keep employees happy and turnover low, you’ll save money – and headaches.
When you think about the cost of employee turnover, you’re probably thinking about hiring costs and training costs. But, beyond these hard costs, there are other losses associated with employee turnover. According to The Balance’s “Learn About the Cost of High Employee Turnover,” opportunity costs and morale costs must also be considered. Opportunity costs are the losses of the potential gain you would’ve realized if you retained the lost employee. Examples include sales calls not placed to prospective customers or trade show appearances canceled due to lack of human resources. Morale costs are due to employees being asked to cover the workload of the lost employee. This might start to take a toll on employees before the lost employee leaves (as they’re preparing their exit) and last beyond a replacement being hired (because the new hire still must be trained and brought up to speed).
Research conducted by Willis Towers Watson showed that more than one-quarter of employees are in a high-retention-risk category, and many are top performers or high potentials and possess critical skills. So, what can you do to combat employee turnover and retain your best employees?
Provide a Path for Growth
If your employees can see a future with your company, they’re less likely to be looking at other employment options. So, show them there are growth opportunities with you. Create an individual development plan with each of your employees so they can visualize promotions and actively work toward them. Even if there’s not a formal opening available, consider offering to expand employees’ job responsibilities so they can continue to learn (and adjust their title, of course!).
Promoting from within benefits your company too. According to Forbes’ “Why Promoting from Within Usually Beats Hiring from Outside,” external hires were paid 18% more than internal people promoted. Additionally, external hires scored worse on performance reviews and were 61% more likely to be fired than internal hires. While external hires tended to have more experience and education, there’s something to be said for internal hires understanding the company culture and operations: They can hit the ground running.
You might be thinking if you inspire your employees to learn new skills and invest for them to do so, they’ll take advantage and gain a bunch of knowledge — then leave. Sure, training makes them more marketable, but Goldman Sachs’ 10,000 Small Businesses program report showed that 74.2% of its participants that increased training for employees also increased revenue within 18 months. What’s good for employees is good for business.
HR Magazine found companies that invested at least $1,500 a year per employee on training had 24% higher profit margins than companies that invested less. But there are affordable training options for you to consider:
- Community colleges or other continuing education programs
- Apprenticeships with senior employees
- Training co-ops with other small businesses
Compensation Should Be Competitive
You may worry that, as a small business, you’ll lose top talent to the major corporations that can pay better. But what you should consider instead is what that employee or their job function is worth to you. To ensure you’re paying employees competitively, take a look at PayScale’s “What’s My Worth?” report. While it’s intended for employees, employers can gain insight into what compensation is expected for certain job titles and duties for specific locations. A little research will go a long way in retaining employees when it comes to money.
Aside from knowing what a particular job is worth to you and what the market is paying for that job, Entrepreneur’s “How to Set Salaries” suggests these tips for determining what to pay employees:
- Match jobs whose value comes with hours to hourly pay
- Match jobs whose value comes with insight or skill to salary pay
- Match jobs whose value is revenue to commission
- Use bonuses to align everyone in the company or department to accomplish goals
- Customize employment offers for experts and upper managers
- Consider trading cash salary for intangibles or services (See the next section on perks for ideas.)
Sure, money talks. But, Glassdoor’s Q3 2015 Employment Confidence Survey showed that 79% of employees would prefer new or additional benefits to a pay increase. Younger employees valued perks over pay raises at a higher rate than older workers, but a majority of respondents in all age groups preferred the perks. The perks most valued over a pay raise were healthcare insurance (40%), paid time off (37%), performance bonus (35%), paid sick days (32%), retirement plan (31%) and flexible schedule (30%).
While these are more common offerings, you could get creative in planning your company’s benefits. Do a lot of your employees have dogs? Consider having a dog-friendly workplace. This may be valuable to employees who previously had to hire a dog walker or brought their pooch to doggie daycare while they were in the office. Working from home may be a valuable perk for those who have a long commute, just as paid volunteer days are important for employees who are socially conscious. There are tons of ideas out there. What’s important is tailoring perks to what your employees value most, so survey them to find out.
These four tips will have you well on your way to retaining employees, thereby lowering turnover and costs associated with it.