Outline
Companies incur costs when recruiting and training of new employees. But in case they leave due to lack of job satisfaction or to join a competitor, the company will have to incur additional costs of recruiting and training new employees. The loss in productivity due to inexperience of new employees is also there. In case the employee leaves to join a competitor, the possible business loss (where existing customers and business are lured off) is even more.
Introduction
Employee retention can progress the productivity of the any organization. Companies are investing a huge amount for hiring and training for the people. Training can helpful to the candidates to involve his responsibilities much effectively in his work area. If the employees perform very badly without adequate training it will directly affect the company’s reputation and profitability. The company will not get any output during training period from an employee. The company is spending large amount of money in the time of training program. During training program, the organization has to take care of development, equipment, trainer, software, travel, facilities administrative, management, support, maintenance, and miscellaneous costs. This paper will review the financial impact of employee hiring and training. It will also analyze the impact when an employee leaves due to lack of job satisfaction or frustration with the job. The impact when a good employee joins a competitor will also be analyzed.
Costs of hiring and training
The usual procedure followed by organizations when hiring is adverting, in print and other media about job openings, conducting campus interviews in universities, paying consultancy fees to professional employment agencies, and the costs involved in interviewing and selecting them. The cost of interview will depend on the type or skill level of the job. The higher the skill required, the more complex will be the interview process resulting in higher costs to the organization. In the United States, costs of hiring new workers have gone up steadily over the years. For example, the average cost of hiring an employee in New York was approximately 900 USD during the 1960s. It went up to more than 4500 USD by the 1990s. There is also a huge gap in hiring costs of employees and managers. The average cost of hiring managerial level personnel was more than 13,000 USD during the same period during the 1980s. During the same period, the cost of hiring workers was around 5,100 USD in the case of workers. (Cahuc, & Zylberberg, 2004, p.214). These data were taken from the ‘Labor Economics’ by Pierre Cahuc, André Zylberberg Even though the figures are quite old, it was shown to illustrate the impact on an organization’s finances. The figure would be much higher now than what it was twenty years earlier. If calculated on the basis of the increase from 900 USD to 4,500 USD within a gap of twenty five to thirty years, the current costs should be somewhere around 22,000 per manager on an average
The cost of an employee leaving entails both direct and indirect costs. It does not really matter whether he or she leaves on retirement or whether due to job satisfaction. The direct costs involve all employment benefits if any payable to the employee. Indirect costs include the following. The costs incurred on training the employee who is leaving will be a waste for the company. This is more so if he or she leaves quite soon after joining. In case the employee has been with the company for a long time, such costs would have been offset by the work put in by the employee. If not, the company will incur a ‘loss’ on the training costs. The vacancy caused by the employee will have to be filled. If it is filled internally additional costs of recruiting will not be needed. But if not, recruitment costs will have to be met along with training of the employee. The indirect costs can be given in the form of a formula illustrated below
“Indirect costs = Costs of losing trained employees + cost of hiring and training new employees + costs of additional overtime + overemployment costs.” (Bridger, 2003, p.26). Cost of additional overtime indicates the time wasted on the employee who left due on factors like recruitment, training etc. overemployment refers to the existence of more employees than what is needed by a company. For example, if a post has a high turnover ratio of six per year. In that case six employees will come and go for that post during the year. The company has effectively incurred the cost of hiring and training for five people additionally in the place of one. Five people had caused expenses to the company while the work generated was only done by one employee post. There are other indirect costs connected with productivity also. A new employee will take some time to achieve the desired level of productivity expected. Moreover, a superior will have to spend time with each new employee as a process of mentoring or guiding. (Turn over costs, 2006). This is unproductive and the time spent on such activities also adds to the indirect costs incurred. Each time a new employee replaces an old one, this issue comes up
Costs incurred when an employee joins a competitor
The cost incurred when an employee joins another organization can vary depending on the quality of the employee and the volume of work or business generated by that person. In the first place all the factors that affect cost of recruitment and training will be applicable here also. For example take the case of a salesman who brings in a business profit of 1,000 USD per month to the company. If he leaves this profit is lost unless an equally efficient or better replacement is made. He joins a competitor and makes the same profit for the company by taking away the customers (and business) of his former employee. This will be the additional cost incurred in such instances. As mentioned earlier costs can vary according the type of work and the productivity of the employee who has left to join a competitor.
Conclusion
It is a loss for any company when an employee leaves for reasons of job satisfaction or to join a competitor. In the latter case, the costs incurred are all more because of the business that is bound to be lost. It is better to keep a bunch of satisfied employees rather than keep on hiring and training new ones. It may sometimes be better to replace an inefficient superior or HR manager who may be the cause of the turnover.
Reference
Bridger, R. S.(2003). Introduction to ergonomics: Oxen burgh Productivity model. CRC Press. 26. Web.
Cahuc, Pierre., & Zylberberg, André. (2004). Labor economics. MIT Press. 214.
Turn over costs. (2006). Cite Reference for Management Network. Web.