Employee Compensation and Turnover Essay

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Employee Compensation and Turnover Often, "an excessively high turnover rate compared to the industry standard is a symptom of problems within the organization" (Gomez-Mejia, Balkin & Cardy 1998). Managers must realize that "high staff turnover can prove costly, particularly to small businesses" (Oliver 1998). Strategies have to be crafted that will minimize turnover and the costs associated with it. Although strategies used to retain employees can be expensive, turnover is a cyclical problem that usually becomes more expensive in the long run (Brannick 1998). Costs that organizations face when employees depart include recruitment costs associated with finding replacements, selection costs associated with interviewing, relocating and …show more content…
The loss of productivity is detrimental as it often takes 45 to 60 days to refill a position (Auxillium 1998). There are costs associated with training new employees (Auxillium 1998). Estimates from the U.S. Department of Labor indicate the significant impact employee turnover has on the financial performance of an organization. According to these estimates, "it costs a company one-third of a new hire?s annual salary to replace an employee" (Brannick 1998). For an employee whose wage rate is only six dollars per hour, it costs a company $3,600 when he or she departs (Brannick 1998). The fast-food industry has done their own calculations on the costs associated with turnover and has found that it costs $500 to replace a crew person and $1,500 to replace a manager (Brannick 1998). A fast-food operation with 500 total employees and 100 percent turnover faces annual turnover costs of $250,000 (Brannick 1998). Managers in the trucking industry estimate the cost of replacing one driver to be between $3,000 and $5,000 (Brannick 1998). These estimates are an indication of the direct costs associated with employee turnover. Direct costs encompass the time involved in the recruitment, selection and training processes, and the costs associated with advertising expenses and manpower (Brannick 1998). When a manager has to take time out of his or her schedule to select new employees this is a direct cost of turnover

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