Employers have been urged to do more to hold on to their best performing staff after research estimated that the failure to retain talent is costing UK businesses around £42 billion per year.
The study, by professional services firm PricewaterhouseCoopers (PwC), suggests that the cost of replacing a competent member of staff equates to approximately one year of that person’s salary, reflecting all the costs associated with lost skills and productivity, replacement and the training of a new recruit.
With annual staff resignations in the UK averaging 10.4% and the average salary around £25,000, the UK’s failure to retain talent to the level of other mature economies costs British business around £42 billion per year, or around £8 billion for every 1% increase in resignation, the report says.
The research “presents a stark warning to businesses”, according to PwC, given that almost a quarter (24%) of the 1,150 UK employees it surveyed for the report are looking or intend to look for a new job because they feel their pay is insufficient.
The PwC research follows a pan-European survey of more than 7,500 workers by consultancy Aon Consulting, which last month revealed than nearly half (47%) of the 1,000 UK respondents were planning on seeking a new job before the end of the year.
Richard Phelps, HR services partner at PwC, warned that companies “often vastly underestimate” the financial benefits of retaining existing employees.
“With many businesses eager to maintain or grow staff levels as the economy starts to recover, it is crucial they consider the full costs of losing staff through resignation,” he said. “The need is particularly pressing given that many employees who sat tight during the downturn may now be looking for new opportunities elsewhere.”
PwC argues that these costs extend far beyond any employment agency fees and “golden hello” incentives sometimes given to recruits from rival firms.
The research factors in:
- time spent interviewing candidates, particularly if a number of senior people are involved;
- reference checking and administration;
- the induction process and loss of competence before the new joiner is fully up to speed;
- revenue/productivity loss and customer disruption at the point the person leaves; and
- the higher salaries often attached to new hires.
“Employers often resist pay rises because of the immediate cost impacts, and may resent being ‘held to ransom’ by workers threatening to leave,” said Phelps. “But losing dissatisfied staff can prove a far more costly exercise. When multiplied across a number of employees, high turnover can have a dramatic impact on a business’s bottom line.”
To keep staff loyal and prevent unnecessary departures, companies need to consider carefully how they reward and motivate staff, according to Jon Terry, head of reward at PwC.
“For many people, non-material incentives such as career development opportunities can be just as important as pay in maintaining loyalty and preventing the need to seek new opportunities elsewhere,” he said.
XpertHR has just published its latest research findings on managing employee departures.