Great managers are turbochargers for team and business performance. So, when good managers leave an organization, the impact is significant. Not only are the direct costs of hiring replacements expensive, but there are also costs associated with lost productivity while new managers are coming up to speed, as well as the lost revenue while a position is vacant.
In a growth economy where unemployment is low and employees tend to job-hop, high-performing managers—who can keep the organization running—are even more crucial. Designing initiatives to retain managers is paramount.
Just how expensive is it to lose a manager? The direct costs to hire an employee, which include standard recruiting, onboarding, and training expenses, can range from a couple thousand dollars for an individual contributor to tens of thousands of dollars for more experienced or sought-after talent.
According to industry expert Josh Bersin, the cost to onboard a new employee is at least 1 to 2 months’ salary, with higher ranges applying to managers. Add to this the cost of “losing a customer relationship or internal collaborator” or “having nobody in the job”: Bersin estimates these costs are at least 30%–50% of a year’s salary when you lose an employee, with the higher range being for a manager.
Michael Watkins, author of The First 90 Days: Critical Success Strategies for New Leaders at all Levels, found that it takes a manager an average of 6.2 months to reach a break-even point. At this point, a manager’s contribution to the organization begins to surpass the company’s costs of bringing him or her on board, such as hiring expenses, salary, and costs attributable to the person’s learning curve in the organization.
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Over and above these hard costs, there are also extensive intangible values of managers, which are difficult to calculate, including:
Loss of knowledge. The loss of historical context to past projects and decisions, intellectual property, and technical knowledge—especially with key roles such as management staff—can hamper organizations and force them to repeat past mistakes.
Knowledge loss is inevitable because of turnover through retirements, but organizations with good talent practices that include leadership learning and development, mentor programs, and knowledge management systems can alleviate the impact of both retirements and manager attrition.
Workplace disruption. The loss of these managers can cause stalls, confusion, and general productivity loss that ripple into other contributor roles. While good documentation and teaming programs alleviate the impacts of turnover, these solutions are imperfect. Retaining retiring managers, perhaps in part-time or formal mentor roles, can be additional solutions.
Network disruption. Networks are also an area of impact. Some managers are individuals whom others seek out for specific skills or knowledge. Others direct inquiries to those tenured staff members who know “where everything is” in the organization.
These individuals are highly sought after because they help maintain collaboration within organizations and regulate and accelerate production cycles, information flows, and knowledge dissemination.
Purple squirrel loss. Several years ago, John Sullivan, PhD, wrote about the value of “purple squirrels” or high-impact talent, citing what LeBron James brought to the Miami Heat: winning two NBA championships, increasing ticket and merchandise sales, increasing franchise value, and recruiting other stars to the team.
Consider the cost of losing a purple squirrel sales manager. If he or she quits, there’s a potential to lose an account loyal to that manager, as well as key talent that reported to this individual.
Using Analytics to Reduce Manager Turnover
When it comes to reducing manager turnover, people analytics can help HR organizations sharpen their focus and apply dollars where they will have the most impact. So, what exactly should companies be looking for? Here are a few telltale data points that all companies should be measuring:
Take stock of the damage: Determine what’s leading to higher turnover by first assessing what damage has already been done. It’s not uncommon in a single organization for turnover to be calculated a number of different ways—meaning there is a lack of ability for meaningful comparisons across the organization. Companies should start by calculating resignation rates the same for all departments and locations.
Identify who is resigning: It’s important for businesses to take stock of which employees are actually resigning. Are they top performers? Senior managers? When many of the managers who leave are the best and brightest, they take all their skills, knowledge, and connections with them, putting the organization at a disadvantage.
Analyze the causes of turnover: Rather than jump straight into giving raises across the board, dig deeper to determine how resignations are affected by factors such as compensation ratio, promotion wait time, tenure, performance, and training opportunities that managers may be seeking.
This insight supports better decisions around changes to pay, benefits, and professional development in order to manage costs while retaining the right people.
Determine who can be saved: Once it’s determined which general groups are experiencing high rates of turnover, implement a retention program targeted at the key managers with the highest risk of exit.
The cost of manager turnover is significant. At the end of the day, people analytics can help HR leaders identify which challenges and rewards are motivating managers to stay or leave the organization. With people analytics, HR leaders can design the right interventions—without having to rely on guesswork.
|Lexy Martin is a respected thought leader on HR technology adoption and value achieved. Known as the originator of the Sierra-Cedar HR Systems Survey, she now works at Visier with customers to support them in their HR transformation to become data-driven organizations. Lexy is Principal, Research and Customer Value at Visier.|