Taking care of employees is a wise hedge against a tough economy, according to research conducted by VIST Insurance. The company goes so far as to say that engaging and rewarding employees with financial or non-financial awards are retentions actions companies can no longer overlook or dismiss as trivial.
“The costs of replacing talented and effective employees far outstrip the expense of retaining and developing new employees,” said David Lacey, vice president of human resource business development at VIST Insurance. “Recruiting and training new employees acts as a drag on earnings from three to six months until the new employee is performing at the expected level or better. However, retained and highly motivated employees contribute to the company at a higher, more consistent and sustained level of performance.”
Industry studies, VIST noted, estimate that it takes roughly six months for a new professional hire to be trained and performing at or above the level of a prior employee. That timeframe drops to three months for C-level positions.
“Over the course of a year,” Lacey said, “if a small company loses three long-time employees, each making $50,000 in cash compensation, it will cost the company a minimum of $75,000 to prepare the new hires to be effective and productive. Even if they are replaced a the same salary, it will take an estimated six months for the new employees to be up to speed and as productive as the prior employees.
“Also, the company will incur the additional expense of advertising the positions, recruiting fees and training,” he said.
Lacey noted that he has seen recruiting data showing that it costs an IT company an average of $34,000 to replace one lost professional and showing where a clothing store had a decline of more than $100,000 in revenue when a sales representative with an excellent and loyal customer base left and joined a competitor.
Employees who feel valued and appreciated by management are more engaged in the success of the company and tend to perform at higher levels, according to VIST.
ISR, a Chicago firm that studied employee engagement found the following:
- 52-percent difference in one-year performance improvement in operating income between companies with highly engaged employees compared with companies with low engagement
- 13-percent improvement in net income growth over a one-year period at companies with high employee engagement.
- 28-percent improvement in earnings per share growth in companies with high employee engagement.
VIST Finanical is a diversified financial services company with corporate headquarters in Wyomissing, Pa., and regional headquarters in Blue Bell, Pa.