Everyone knows it’s cheaper to keep a customer than it is to find a new one. What you may not realize is the same holds true for employee turnover: The cost of replacing a lost employee can range from 16 percent of their annual salary to 213 percent, depending on the employee’s level.
Not all employee losses are preventable. People move. Interests change. But if you want to minimize your labor replacement costs, you need to build an environment where people genuinely enjoy coming to work. Creating that sort of culture takes more than ping-pong tables and free beer. Go the extra mile by:
1. Putting Employees First — Even Ahead of Paying Customers
A lot of companies will claim their most valuable assets are their teams, but Southwest Airlines — the third-largest airline in the world — openly admits it prioritizes its workers above its customers and shareholders.
What’s Southwest’s reasoning? “We believe that if we treat our employees right, they will treat our customers right, and in turn that results in increased business and profits that make everyone happy,” reads a blog post on the airline’s website.
Despite weathering multiple economic downturns since its founding in 1967, Southwest Airlines has never laid off a single employee, and it offers free unlimited flights to company destinations.
The takeaway here is to err on your employees’ side whenever possible. Let them take that vacation, even if it happens during a product release. If they make a mistake that costs you customers, surprise them with a continuing education stipend instead of a stern lecture. Invest in deeply desired benefits that are hard to come by, like pensions and fully paid healthcare.
2. Inviting Employees to Codevelop Your Company Manifesto
At most companies, executives craft the vision statement behind closed doors. When they unveil it, employees groan and go back to work. Because the workers weren’t consulted during the vision statement’s development, they feel no attachment to it. Nothing changes.
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Don’t guess at what kind of culture your workers want. Instead, invite them to help your company craft its vision, mission, and values alongside leadership. As Ritch Wood, CEO of direct-selling health and wellness company Nu Skin, insightfully put it, “I believe success begins with listening. We have to decide what we want together because it’s only as a team that we will achieve it.”
Use an anonymous survey to ensure employees feel comfortable giving their honest opinions about the company’s vision. If that doesn’t yield useful information, put together a focus group of volunteers. With either method, ask participants for the top five cultural elements they’d like to see in the company. Compile the results into a single document, and send it out to the whole team for feedback.
While it takes a significant amount of deliberate planning — and time — to get everyone involved in the company’s vision, the effort will pay dividends when it comes to securing employee buy-in. When employees are engaged in the decision-making process, they’ll feel personally invested in and aligned with the company’s goals, and that translates to higher engagement levels and better retention rates.
3. Paying Bad Fits to Move On
Because replacing someone who quits or is terminated is so expensive, many companies put up with bad cultural fits. As long as their quality of work is good, what’s the harm?
The harm is that hiring people who aren’t excited to work for you can damage the workplace environment for everyone. According to a survey from Robert Half, one of the biggest costs associated with a bad hire is the degradation of team morale. Over time, your employees who actually are passionate about the company and its culture will quit, leaving only the people who simply show up for a paycheck. Your whole company’s performance can suffer.
This is why shoe-shopping giant Zappos is so protective of its company culture that it offers new hires $2,000 to quit after the first week if the job isn’t for them.
“Every single hire has the ability to change the culture for the positive or the negative,” Zappos Chief of Staff Jamie Naughton explains in a blog post on the company’s website. “And if you make too many compromises in your hiring decision, you end up with an imbalance in your culture.”
When evaluating candidates, don’t just look at the skills they can bring to the table. Their attitude, work ethic, and sense of humor matter as much as, if not more than, what’s on their resume. And even if a bad cultural fit is competent enough to get the job done, the cost of keeping them around will likely be higher than the price of simply replacing them with someone who fits.
Culture is tough to build and even tougher to maintain — but it can be done with the right strategy. Skip the platitudes and instead give employees a say. What kind of company do they want to work for? Make workers feel heard when times are good, and they’ll stick with you even when times are tough.
Sofia Hernandez has been a senior HR executive at multiple Fortune 500 companies.