2. For some this means leaving the organisation.
Lost talent can cost businesses £millions p.a. and
causes significant business discomfort through
constant rehiring and the talent and motivation
drain it creates.
It’s possible that by the time you finish reading
this report a disengaged employee has searched
for a new job. If they are successful you’ve lost
£thousands.
The remaining group, who are also disengaged
but stay, cause incalculable damage to profits,
service and reputation as they resist, resent,
underperform and undermine at every turn.
Change is a bitterly contested notion.
Relationship tension causes unnecessary
conflict. Customer service levels are low and in
doing so they erode brand reputation. That may
sound extreme, but it’s alive and well in many
organisations today
Businesses today face a very real and often silent threat. It
causes reputational damage, poor results and jeopardises
long term financial survival: poor employee engagement.
So the question we need to ask is why aren’t
more organisations facing into the engagement
issue? Why is it such a silent threat?
Firstly, because most organisations aren’t
effectively measuring the financial impact. The
costs are seen as mostly intangible, but they are
real nonetheless. Secondly, is the preoccupation
with focussing on the group of employees who are
leaving the organisation. But it’s the resentful-
remainers who cause the real damage.
It cannot be ignored. Business are at significant
financial risk if the issue isn’t addressed. It is the
difference between surviving and thriving.
Successful businesses today can answer and
address the question : ‘Why are our people
disengaged?’
This report looks to illuminate the financial impact
of disengagement and why you should act.
3. 7 Mistakes Most Leaders Make
Cracking the Engagement Puzzle
I believe all leaders truly want to solve the engagement puzzle. Firstly, who wouldn’t want to work in a
vibrant and stimulating workplace? And constantly re-hiring and retraining new staff is a headache for
leaders. Then there is the lost tribal knowledge and positive attitude of those leaving, creating a talent
and motivation drain.
For the people who are disengaged but stay, morale is so low that they underperform and merely
exist, if you can even call it that. In addition, as an organisation’s reputation begins to suffer, it
becomes harder to attract talent in the first place, so a vicious cycle ensues. It’s frustrating and
exhausting. What compounds the problem is that in today’s age of social media, a new job is never
more than a click away. Job mobility is rising as quickly as job loyalty is falling. Something must be
done to stem to tide.
When organisations try to measure the engagement issue, they usually have a good sense for the
level of employee engagement (although a yearly survey is a very poor tool indeed), and HR can
usually provide up to date staff turnover stats, but what most organisations consistently fail to do is
wrap an accurate financial price tag around the issue. If they did, the shock alone would kick-start a
period of intense activity, focus and resource allocation until the hitherto unseen financial risk was
under control.
So let’s begin there, with the ‘why?’ Why should you even have this on your radar? Why is this one of
the biggest hidden risks in most organisations? Why should precious time, resource and budget be
allocated to measuring and addressing engagement? Basically, why read this report?
Louise Mallam
Leading Edge Performance
5. “If you don’t already have a highly engaged and fiercely loyal workforce,
that must be your full time job until you do. Your business depends on it.”
Louise Mallam
Director of Leadership Capability ~ Leading Edge Performance
Report Part A
The Cost of Staff Attrition
6. The Hidden Financial Risk To Your Business
It’s widely acknowledged that high employee turnover is a significant cost and risk to many organisations
today, but surprisingly few organisations understand the full impact or act upon the attrition problem.
Instead they focus their efforts on being agile in responding to the ‘inevitable’ loss. Wouldn’t it make
more sense to understand why people are leaving in the first place and keep them in the business?
Tangible costs of attrition
This includes advertising, recruitment fees, CV
screening and interview time, signing bonuses for
replacement staff, temporary/agency cover and the lost
productivity and morale of the person leaving the
organisation. Performance and results go down,
attendance and commitment fall.
Intangible costs of attrition
This includes the cultural impact of the motivation drain,
wider impact on other employees who begin to question
their future in the business and the reputational damage
impact on potential incoming talent. The hiring bar
begins to lower as the available talent pool diminishes.
7. Understanding The Scale Of The Problem
First and foremost, organisations must be able to
quantify the scale of the problem; current attrition
rates, the reasons for leaving and the likelihood
and imminent risk of others exiting the business.
No one data source provides all of the information
needed. Driving retention should be a regular
agenda item for senior leaders.
“You’re only a
click away from
losing your
heroes.” Andre Marcos
HR Partners should be able
to provide data on the rate of
attrition and if exit interviews
are held, the reasons people
state for leaving
HR Teams
Employee forums provide a
pulse for the feeling or
general mood of the
workforce, which is often
hidden to senior leaders
Employee Forums
Responses to formal or ad
hoc engagement surveys
provide snapshots and trends
over time. Take care if using
data from annual surveys
Engagement Scores
8. How Much Is Your Business Losing?
Do you know the cost of staff attrition to your business? Does anyone? Do you have an agreed
calculation method? Is it on the senior leadership team agenda like other risk and financial
discussion points? What if the cost to your business was £millions p.a.?
What if you were losing more money p.a. in lost talent than lost customers? What if the two were
intrinsically linked? What if cracking the retention puzzle was the difference between surviving and
thriving? What if your organisation measured leadership success by retention and engagement
rates; what behaviour would that drive? How would that impact the bottom line?
“In similar findings to
previous years, just 15% of
respondents report that
their organisation
calculates the cost of
labour turnover. Nearly
three-quarters reported
they do not (72%), while a
further 13% did not know if
they do so or not.”
CIPD Resourcing and
Talent Planning Report
2015
The sad truth is that most businesses have resigned
themselves to the fact that high turnover is an inevitable
part of business life. They put their efforts, time and budget
into having robust and agile plans to deal with the issue
e.g. quick and responsive recruitment pipelines that
necessarily exist to manage the problem.
They are looking at the problem through the wrong end of
the telescope. Rather than focussing on the downstream
impact of attrition, successful businesses focus on the
source of the problem.
9. There are various industry calculations used to measure the cost of losing people. Some refer to a specific
£sum per lost employee e.g. Oxford Economics quote £30,614 per person. Others calculate the figure
based on a % of salary depending on seniority within the organisation. This figure can be stated as high as
250% of salary for C level leaders. To even this out and provide a mid-point for examples, at Leading
Edge Performance we apply 120% of salary.
Using this calculation the cost of losing someone on £60,000 salary is £72,000 to the
business. How many people has your business lost in the past year? Let’s be conservative, let’s imagine
you’ve lost ten people and they each earned £30,000, that’s a hidden cost to your organisation
of £360,000, and if that figure is one hundred people? it’s £millions lost revenue p.a.
Oxford Economics
cited the annual
attrition cost (UK) to
five key sectors;
Legal, Accountancy,
IT/Tech,
Media/Advertising &
retail as £4.13bn in
2014.
It cannot be ignored.
Attrition ~ The process of reducing
something's strength or effectiveness
through sustained attack or pressure.
In the time it takes you to read through this report,
it’s highly likely that at least one of your employees
has searched for a new job. If that search results in
the person leaving your business, you have
potentially lost over £30,000 (many times
more than that if that person is a senior leader).
10. Attrition costs are more than job posting fees and recruiter fees. Some of the hidden costs include lower
productivity and effectiveness, training for new hires, lost knowledge and overworked and demoralised
remaining staff. Ultimately this shows up as poor service and customer experience, so not only are your
people leaving, but so are your customers.
Although salary is a factor in people’s employer decisions, in the main as long as salary sits comfortably
within the acknowledged range for the role, it is is only a factor when dissatisfaction is high in other areas.
For the most part, attrition costs are intangible. Nobody writes a cheque, raises a purchase order or settles
an invoice for low morale or the lost knowledge of an outgoing person. It doesn’t show up as a separate
line in the P&L. Leaders aren’t usually held to account. Attrition costs so much because it’s mostly an
unseen, unmanaged financial risk.
Formal and informal training
time and events. Role
complexity and experience will
determine the amount needed
Training
The person leaving the business
becomes disengaged and the
wider team has to cover if the
position is vacant
Lost Productivity
Advertising, recruiter fees and
interview time. Organisations
with high hiring bars carry
significant costs at this stage
Recruitment
It takes time to learn any new
role and to become effective to
move from a cost to an
investment for the organisation
Ramp Time
Attention to detail suffers as
outgoing people ask ‘why should
I care?’ Customer service levels
and ownership fall
Accuracy & Service
Others become demotivated and
overworked and start to ask
‘should I stay?’
Motivation Drain
Why Does Attrition Cost So Much?
11. Organisations that
engage the workforce win
“According to our data, 20 per cent of people expect to
change jobs in the next year. For employers, this represents
a huge challenge. They need to keep hold of the talented
people they already have, and they want to attract the best
people to help them grow.
Failure to do this will have a financial impact on businesses
because hiring people entails significant investment, and it
will mean that your organisation could be losing out to a
competitor.”
Kate Shoesmith, Head of Policy and Public Affairs at the
Recruitment and Employment Confederation
Even your star performers’ productivity and
effectiveness can decrease as they draw closer
to leaving the business. This may have been
happening for some time before they handed in
their notice.
During their notice period, people leaving can
become more obstructive in their views and
actions as any sanction becomes ineffective and
somewhat pointless in all but the most serious
situations. Those remaining become dissatisfied
with having to bridge the productivity gap.
Internal recruitment teams need to be larger for
businesses with high turnover. Hiring external
recruiters decrease time on task and salary
costs, but the recruiter may charge 25-30% of
one year salary for senior positions.
Conducting interviews and screening takes time
and focus from the business. Company leaders
can spend hours conducting interviews and
represents lost productivity. It also reduces the
time the leaders has to spend with the remaining
staff, further demotivating the wider team.
Lost Productivity Recruitment
12. According to business expert Josh Bersin, of
Bersin by Deloitte, a new employee can take up
to two full years to reach the same level of
productivity as an existing staff member.
Even entry level jobs take time to master. To
calculate the cost as a minimum use 100%
salary for month 1, 50% for month 2 and 25% for
M3. Adjust the calculation for more complex and
technical roles.
Constant hiring is like constantly hitting the reset
switch on team effectiveness, it’s hard to get and
maintain traction.
Internal training costs include the training team’s
salaries, room hire, catering, printing and
materials and any technical support from subject
matter experts and leaders who support the
event. External events can be very expensive.
In the first 2 years businesses typically invest
10-20% of an employee's salary in training. All of
which is lost if that employee then leaves the
organisation.
‘Tribal knowledge’ learned over many years is
undocumented and may be lost forever if a key
person leaves the business.
Ramp Time Training
“Losing talent is a constant issue for most
organisation. I’ve always been fascinated by the
link between attrition, overall engagement levels
and leadership styles. Engagement filters down,
not up. Some leaders just ‘get it’, sadly most
don’t.”
Louise Mallam ~ Director of Leadership Capability, Leading Edge Performance
13. Leaders and organisations that engage the workforce
inspire loyalty, and those organisations win: fact.
It doesn’t matter how great your products are, how fancy
your marketing is, how shiny your offices are or how
efficient you are at delivering on deadlines, if underpinning
that is an ineffective, unproductive, disengaged, disloyal
workforce ready to leap at the first opportunity that comes
along.
Employees who are leaving the organisation
rarely have the right focus or positive attitude. As
they take their foot off the accelerator standards
slip. As they sense a new opportunity dawning,
the current one loses its appeal.
New hires generally do not know the answers to
the typical questions they will face on the job.
Their intention is good but they will probably take
longer to resolve common issues. Customer
expectations may not be met and service levels
may decline while new hires get up to speed.
Some staff turnover is inevitable, healthy in fact.
High turnover becomes a red flag to those
staying as they begin to wonder if the business
is floundering and if they should still be anchored
to it or look elsewhere. The gossip-machine
begins.
Those who stay often have the pick up additional
tasks while vacancies are filled, and a little after
while new hires learn the ropes. Leaders spend
their time managing performance issues such as
absence and attitude and not leading the
business.
Accuracy & Service Motivation Drain
“Train people so well they can
leave, treat them well enough so
they don’t want to” Richard Branson
14. “If you don’t already have a highly engaged and fiercely loyal workforce,
that must be your full time job until you do. Your business depends on it.”
Louise Mallam
Director of Leadership Capability ~ Leading Edge Performance
Report Part B
The Cost of
Disengaged Remainers
15. What About Those That Remain?
“There are organisations with such high levels of employee engagement that top talent
seeks them out. Employees are fiercely loyal, operating at a very high level in
self-directed ways and customer service levels are legend. These people are set apart by
a love of Mondays.” Louise Mallam
Usually, once the financial cost and risk of people leaving the organisation is highlighted to senior leaders,
the conversation and strategic plans quickly move on, but there is an additional risk and cost to
disengagement that needs to be considered. It’s more challenging to measure, and vastly more dangerous
to organisations: the disengaged people who stay.
The resentful remainers. They’re unhappy, but not active enough to look elsewhere. They cause
incalculable damage as they resist, resent, undermine and underperform. They need to be managed rather
than led as they fail to self-manage even the most basic tasks such as good attendance. It’s exhausting.
“An ‘engaged employee’ is defined as one who is fully absorbed and enthusiastic about
their work and takes positive action to further the organisation’s reputation and
interests.” Employee engagement, (2016), Wikipedia
16. The Business Case for Driving Engagement
The financial implications of the disengaged remainers are staggering; it defies logic that the issue isn’t
a business priority. In addition to the cost saving outlined previously by reducing staff turnover, there
are numerous business benefits to driving employee engagement for the whole business.
2016 Gallup research is shown below. What’s incredible, is that they go on to report that shockingly,
87% of people stated they were disengaged at work. If you’re a Customer Service leader, a 10%
improvement in customer ratings would no doubt be of interest. Finance leaders would go to almost any
length for a 22% boost to profitability. Operations leaders are always chasing greater productivity. HR
and Resource teams benefit from reduced turnover and every leader is happier when absenteeism
goes down.
Gallup’s 2016 Meta-Analysis - the ninth Gallup
has conducted since 1997 - examines the effect
of employee engagement on organisations’
bottom line.
“Works units in the top quartile in employee
engagement outperformed bottom quartile units
by 10% on customer ratings, 22% in
profitability and 21% in productivity. Work units
in the top quartile also saw significantly lower
turnover (25% in high-turnover organisations,
65% in low-turnover organisations), shrinkage
(28%), absenteeism (37%), safety incidents
(48%) and quality defects (41%).”
They go on to add that companies with highly
engaged workforces outperform their peers by
147% in earnings per share
17. Facing Into The Engagement Issue
Leading Edge Performance is helping businesses to
transform employee engagement
Businesses that can acknowledge reality, quantify the current state and financial impact of
disengagement and face into the issue can make significant progress in a relatively short period of time.
Plasters don’t work. What is needed is a fundamental change in the culture, starting with senior leaders.
The aim of the culture shift is threefold; Retain Talent – stop good people from leaving. Improve
Performance – drive engagement so high that ‘talent’ becomes the norm in the organisation rather than
the exception. Improve Morale – create a vibrant place to work that people are fiercely loyal to and other
talent eagerly wants to join.
Our experts at Leading Edge Performance can
help you to discover the source of your
engagement issues and create a plan to solve it.
We specialise in implementing programs across
entire leadership teams that result in culture
change and improved results that persists over
time. Isn’t it time you finally resolved this issue?
At Leading Edge Performance, we help leaders to
discover the very edges of their capability and
inspire them to be and do more than they imagined
possible. We help organisations to save £millions
p.a. by engaging and keeping their talent. We also
help the workforce to have the level and style of
leadership that they deserve and want to stand
behind
Contact us today for a free discovery session
18. What others are
saying about our
work
“Louise is a master at what she does. Her
way of engaging leaders is inspiring: she’s
bold, direct, and on point with her
observations and recommendations. She
creates environments that bring out the
best in people. For any individual or
organization looking to make real changes
in their way of leading, Louise will be an
exceptional partner on that journey”
Stephanie Seracka, Talent Manager,
Amazon
“During the time I worked with Louise, she
delivered innovative, impactful and engaging
leadership development workshops and
coaching sessions. Her emphasis on crafting
strong working relationships was at the
centre of her consultative approach. I would
recommend her to any team or organisation
looking to significantly enhance performance
and engagement.” Des Ryan, HR Manager,
Apple
“I can honestly say that you were phenomenal
in your facilitation of the summit. You read the
audience and guided the process as it needed
to be. This kept the positive momentum going
whilst still achieving the desired results.
It has been a real pleasure dealing with you
and the value that you’ve brought to our team
has been invaluable. I cannot express how
grateful I am to you for being the catalyst in
the change in our team.” Senior Centre
Leader, Amazon
