If you want a seat at my table, you have to talk my language, and that’s the language of numbers and dollars, says Dan Oswald, BLR CEO and author of the Oswald Letter.
Oswald offered his remarks at BLR’s Advanced Employment Issues Symposium under way this week in Las Vegas.
Here’s what I want to talk about, says Oswald:
- Dollars—stock price, revenue, profit, cost of goods, working capital
- Percentages—sales increases, ROI, profit ratios, even turnover
- Units—hours billed, units sold, units produced/hour
Take turnover as an example of something HR might want to talk about, says Oswald. Turnover rate doesn’t matter to me—but dollars do. Yes, you can talk to me about lost productivity, institutional knowledge walking out the door, cost of hiring, and the risk of hiring the wrong person.
But here’s how to talk to me about turnover, Oswald says:
Let’s make the following assumptions about replacement costs (Source: SHRM data):
Cost to replace employees:
| Type of employee | Cost to replace |
| $8/hour | $3,500 |
| Entry-level employees | 35-50% of annual salary |
| Mid-level | 150% of annual salary |
| High level employees | 400% of annual salary |
And we’ll make these assumptions about the number of employees I have and the turnover rate.
| Type of employee | Number | Turnover Rate |
| $8/hour | 1000 | 12% |
| Entry-level employees | 500 | 10% |
| Mid-level | 250 | 8% |
| High level employees | 25 | 5% |
And these assumptions about average salary:
| Type of employee | Average Salary |
| $8/hour | $8/hr |
| Entry-level employees | $30,000 |
| Mid-level | $60,000 |
| High level employees | $400,000 |
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The formula for turnover cost will be:
Number of employees
X
Turnover rate
=
Number of employees lost
X
Cost to Replace
=
Total Cost
So for 8/hr employees:
1000 8/hr employees
X
12% turnover
=
120 employees lost
X
$3500 replacement cost
=
$420,000
And for entry level employees:
500 entry level employees
X
10% turnover
=
50 employees lost
X
$14,000 replacement cost
=
$700,000
And for mid-level employees:
250 mid-level employees
X
8% turnover
=
20 employees lost
X
$90,000 replacement cost
=
$1,800,000
And for high level employees:
25 high level employees
X
5% turnover
=
1.25 employees lost
X
$400,000 replacement cost
=
$500,000
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Let’s total that up.
| Type of employee | Turnover cost |
| $8/hour | $420,000 |
| Entry-level employees | $700,000 |
| Mid-level | $1,800,000 |
| High level employees | $500,000 |
| TOTAL | $3,420,000 |
Now you’re talking my language, Oswald says. He notes that some industries (e.g., Food service) typically have much higher turnover rates, and some (e.g., utilities) typically have much lower rates. For his exercise detailed above, he calculates that turnover is costing him an additional 6.84% of payroll.
If HR could cut that in half, his savings would be $1.7 million.
In tomorrow’s Advisor, Oswald’s tips for talking about productivity and absence, plus an introduction to the trusted compensation program, Employee Compensation in [Your State].
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