All business leaders need to justify the investments they make. HR executives are no exception. With employee recognition programs generally funded at 1% (or more), it’s important to understand and be able to explain how they impact worker retention and productivity, corporate revenues, and customer loyalty. Over the next few weeks I will be doing just that. Let me start by framing the value recognition plays against mounting employee retention challenges.
As the economy shifts into a new gear, employee retention has become the number one issue for growing businesses. In fact, Fortune recently categorized retention as the biggest concern for senior executives in 2017, while Kronos noted that 87% of c-level managers felt that improved retention was a critical priority for their organizations.
Why the acute focus on employee retention? As economic prospects strengthen, companies know that their employees have more job options. The pressure is on HR to utilize all of the resources available to them, including their employee recognition programs to retain talent. There’s a sense of urgency to do so right now. Willis Towers Watson, places a quarter of all employees in the “high-retention-risk” category. Many are top performers who possess critical skills; the kind that are difficult and expensive to replace.
No matter where it occurs, employee defections can become a pricey proposition. Depending on their roles within the organization, the cost of replacing employees can be a big blow to profits. Replacing entry-level employees can cost up to 50% of their annual salary; mid-level staff upwards of 150%. Highly skilled are the most expensive. The cost there can exceed 4 times the average earnings.
Why are the costs of replacing employees so high? There’s recruitment and interviewing expenses, of course, and then once hired the costs of training and on-boarding kick in. Mostly though, its opportunity costs that impact the bottom line. A new employee can take up to two full years to reach the same level of productivity as an existing staff member.
Defections are expensive. Conversely a retained employee is worth more than you might think. Remember, experienced employees possess institutional knowledge and know-how. They understand the ins and outs of the business. Simply stated they know what they are doing. Their departure causes voids in the operation. The productivity lags can be quite pronounced.
Retention is equally important across inexperienced employees (restless millennials who are more inclined to jump ship after a short period of time). A Gallup report noted that one out of every five millennials changed jobs within the last 12 months. That’s three times higher than any other age group. Only 41% of millennials expect to be in their current job in two years (compared to 17% of Gen X and 10% of Boomers). Left unchecked, millennial turnover will rob companies of the talent they need to move forward in coming years.
So how does recognition support retention? Finding ways to make an employee’s work more meaningful is one of the more powerful things a company can do to increase the likelihood that an employee will want to stay. Right now almost half of all employees feel their work lacks meaning. They feel that their efforts don’t really matter because no one is telling them so. That’s a missed opportunity for any business.
Social recognition defines a worker’s value and does so across multiple sources. That’s important because employees who derive meaning from their work are more than three times as likely to stay. Employee recognition delivered consistently and across all levels within the organization including senior managers, front line supervisors and coworkers alike lower turnover rates. That’s how recognition supports retention.