Cost of the Growing Employee Turnover Rate
U.S. employers are struggling with an unprecedented rise in employee resignation rates. According to new figures from Gartner, 37.4 million people will voluntarily quit their jobs this year, a quite staggering 20% increase on pre-pandemic levels.
The effects of employee turnover are slashing productivity, damaging the corporate culture, and incurring significant replacement expenses. Studies suggest that on average, it costs U.S. companies more than half a trillion dollars annually. So what can companies do to combat this financial risk?
The Case for ‘Thanks’ in the Workplace
Recently, CFO Magazine addressed this issue in an article entitled, “The Financial Upside of Employee Recognition”. The article makes the case that by recognizing employees for their achievements at work businesses can address the two related problems of low productivity and high turnover.
The article states that recognition ensures people feel engaged, connected, and respected, even in the most difficult of times. These factors play a huge part in reducing turnover rates by building employee loyalty and improving productivity. Employee recognition enhances both the employees’ morale and the company’s bottom line.
Financial Implications of Employee Recognition
Recent research from Gallup suggests that a company of around 10,000 people can save an estimated $16.1 million in turnover annually when they make recognition an important part of their culture. This is because such workers are more strongly bound to their companies and inspired to put in their best work.
When employees feel like their organization is invested in them, they are more invested in their organization. That same data shows that people who have positive recognition experiences are three times more likely to feel a sense of loyalty to their company, and this loyalty translates into staying power.
The Role of the CFO
Research suggests that many organizations are not fully investing in recognition nor truly integrating it into their culture. This is largely a reflection of the priorities of business leaders and the fears that hold them back from investing in these programs. In fact, 81% of leaders surveyed for the Gallup report say recognition is not a major strategic priority for their organization. Clearly, given the cost implications, it should be the CFO’s role as the financial steward of the enterprise to work alongside the chief human resources officer in championing recognition as a value driver.
Next Steps for the “C” Suite
Integrating a recognition program is not nearly as difficult as it may seem. It can be as simple as celebrating an employee’s birthday or as sophisticated as bringing in employee recognition companies to help develop a recognition program. As for a formal budget for these programs, a good rule of thumb is for CFOs to start by budgeting 1% of their employee payroll for recognition programs and go up from there.
However, data has shown that more frequent recognition has a greater positive effect on engagement and retention than salary increases alone. C-level sponsorship is probably the most critical factor in ensuring effective recognition programs.
The Value of a Recognition Culture
Clearly, creating a culture of employee appreciation is your best defense against the great resignation occurring within companies and organizations. We at Incentra have the technology and expertise to help you overcome this current challenge. Give us a call.