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Hang On Loosely: The Common Sense of Retention

Posted by on 2 January 2012


Easy come, easy go.

For years companies accepted employee turnover as part of the cost of doing business. Some companies, lulled into complacency by a sleepy economy, a surplus of workers, and the belief that they can hire a replacement at a lower salary, still do. Experts predict that as the economy continues to strengthen those companies are in for a rude awakening. Workers, weary of having to do more with less and irritated by the lack of growth opportunities in their current job situations, are quietly networking over lunch or at their kids’ soccer games looking for something better. Estimates for just how many are considering changing jobs range from 30 to 86 percent1, which means it could be anything from seriously disruptive to devastating for some companies.

The surplus of workers that companies have come to rely on in the last few years is temporary at best. The Bureau of Labor Statistics is forecasting a labor shortage of six million workers by 2008; it is also projecting that much of the shortfall will involve professional and service occupations, which will increase the fastest and add the most jobs.2 The labor shortage will continue to increase until sometime between 2015 and 2025, when there will be between 10 million and 16 million fewer workers than there are jobs.3 Charles Kolb, president of the Committee for Economic Development, a group of business and education leaders that conducts policy research in Washington, told the New York Times, “This is a sleeper issue. We do have a demographic time bomb.”

And what about the cost of replacing workers? To drive home the reality of that cost, Beverly Kaye, coauthor with Sharon Jordan-Evans of Love ‘Em or Lose ‘Em: Getting Good People to Stay, tells a true story about John, an outstanding engineer at “XYZ Company” who asked for a 15 percent raise (about $15,000). His manager refused, and John went to work for a competitor for 30 percent more than he had been making. To find a replacement of equal caliber, XYZ hired a headhunter for $40,000 and spent $5,000 flying candidates in for interviews. It then wooed its top candidate by offering a $10,000 signing bonus, a $25,000 moving allowance, and a salary that was 25 percent higher than John’s. In order to keep John’s engineering friends, who had heard about how much more he was making at his new company, the company gave them each 15 percent raises. The cost of replacing John now hovered around $100,000. But then, because of John’s expertise, the new company won a multi-billion dollar contract that would have gone to XYZ.

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