Monday, June 4, 2007

One impact of employee loyalty

One statistic that seems to elude many in management is the cost of employee loyalty. Rather, I think it would be better to look at it from the perspective of employee disloyalty or disengagement. A recent study by Best Practices, LLC indicated that a reduction in turnover rates of 2% can translate into an annual savings of $3 million. This is just the tip of the iceburg when the turnover is in management. In that case the figure could increase to $40 million annually.

One component of this cost is the cost to replace an employee. The Metrus Group performed a study and found the cost to replace an employee ranges from 0.41% to 2.41% of the annual salary.

Now to add to the problem, when an employee disengages himself (herself), the number of errors committed will increase by significant amounts. The notion that employees who are engaged in the company business will be much more attentive to the quality of their work than those who have disengaged themselved and are just putting in the time with little concern for error control seems to be simple logic. The Metrus study further indicated that the top performing companies spent a great deal of effort to train their employees to understand how their performance contributed to corporate performance. 75% of the high performing companies hold their managers accountable for engaging their employees. Only 35% of the average companies hold their managers accountable for engaging their employees.

The Bottom Line - employee turnover and employee engagement are critical components for a successful company. That makes dollars and sense!

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