Put simply, employee churn is the turnover of an organisation's staff. The churn rate is usually defined as the percentage of the workforce that leave the company over a defined time period. This can be very costly to a business, however most businesses do not recognise the true costs of a high employee turnover rate. These cots include,
- Time spent advertising, interviewing and hiring new employee
- Time and resources relating to the on-boarding process
- Lag in productivity - up to 2 years in some cases
- Disruption to the team
- Training (This is likely to be 10-20% of the employees salary)
- Cultural Response (Why did this employee leave?
"Josh Bersin [HR professional of Deloitte] believes the cost of losing an employee can range from tens of thousands of dollars to 1.5–2.0x the employee’s annual salary. These costs include hiring, onboarding, training, ramp time to peak productivity, the loss of engagement from others due to high turnover, higher business error rates, and general culture impacts."- Huffington Post.
A report by Oxford Economics reveals that replacing members of staff incurs significant costs for employers: £30,614 per employee. The report states that the most significant cost to the employer is the opportunity cost of hiring a new employee. A new employee will initially be far less productive than the employee they are replacing as they are not familiar with the job and the business. Their productivity begins to slowly increase for a period of approximately 28 weeks after which an employee reaches their optimum level of productivity.
So what about the gender pay gap? Well, a company that we worked with at CDO Partners found that, in general, women were more likely to leave their job for a larger salary than they are to ask for a pay rise. This is particularly prominent later in their careers, as women tend to be less well represented in the highest pay quartile, meaning that the gender pay gap widens with seniority at most companies. As a result, companies have the most to gain from both an ethical and financial standpoint in reducing the gender pay disparity. This would improve the motivation of employees as they are being fairly compensated and would subsequently reduce the chances of employee churn.
CDO Partners were able to work alongside the client to introduce a data driven performance based bonus system that rewarded employees on their contribution to the business. The result of this was a reduction in the gender pay gap, as illustrated below, this was accompanied by a decrease in female employee churn. And of course by a decrease in money spent (lost) recruiting new employees!
This demonstrates that there are significant gains to be made by becoming data driven and identifying trends early. For example, identifying and decreasing a gender pay disparity early through utilising data could reduce the effect of employee churn. Having higher levels of staff retention and a narrowed gender pay disparity can lead to benefits such as spending less on training, attracting and retaining top tier talent and having a more motivated workforce.
The University of Sussex recently worked with us to identify where gender pay disparities laid in their administration and how to tackle them. They recognised the importance of undertaking a detailed analysis of their gender pay gap, stating that if they did not address the issue they were likely to see adverse impact in recruiting high-calibre staff.
Overall a data driven approach can help to reduce the effects of employee churn by identifying groups of people who are being under-valued and might be prone to leaving to find a higher paid job. By identifying these employees one would be able to rectify the issues and save the company money in recruitment, training and on-boarding. Therefore, increasing the contribution of the HR department to the business as a whole.
Click here for more information about how we're tackling the gender pay gap for our customers.