The Cost of a New Hire?

Kymm

We are in the process of evaluating whether or not we will be able to give our employees a salary increase this year (did not have one last year.) I know that if we fail to do so again, we are going to lose some valuable employees. My question is to you all - Can you help me justify to top management how that will affect the bottom line? I would like to write up the figures involved in the actual cost of hiring a new employee (ad, interviewing costs, physical/drug test, background check, etc.) I think I know most of the basics, but am trying to think of some "hidden" costs which you might not think of. I just don't want to forget anything - I think this will show that it will cost us more in the long run if we don't try to give our current employees some kind of recognition now. Your help would be most appreciative!

gillian2

The cost of lost productivity because the new employee isn't as good as the one that left, the time taken by you and others to interview and hire the new employee, training the new employee, the next employee who leaves because their friend left first, the customer who doesn't come back because the friendly face is no longer there, the feeling on the part of remaining employees that the grass must be greener outside because employees are finding it etc. etc. etc.

Don D

Kymm: I suspect what you really want to determine is 'the cost of turnover'. You'll get a lot of good responses on the Forum maybe, but a quicker way to capture this might be a Google Search for 'turnover cost'. In addition to what Gillian said, I can think of; costs associated with testing, advertising, flying or driving people in, management down time if sales managers for example have to stay at the office and interview for a week, costs associated with retooling phone and computer setups, on occasion the costs of new boots or safety glasses or uniforms and business cards, sending new employees off site for orientation or seminar, total lack of productivity for a period of time when new ee is getting up to speed, replacing desk name plates, buying new daytimers, a ton of hidden costs in the accounting department, and don't forget that two reams of paper that disappears with the old employee and a couple of printer cartridges. Perhaps the biggest unseen cost will be the message that spreads throughout your community and your industry that this place has not given a one cent pay increase in years and everybody is leaving.

Pork

I BELIEVE THAT "DANDY DON HAS GOT IT ALL COVERED"; DRUG TESTING PRE-EMPLOYMENT, I would also suggest you obtain a local wage survey which shows the rise in average cost over the last three years which points to your inadequate participation. Another way of getting the management team on board with your idea is to sell them on doing away with automatic wage annual increase now and forever more. It is much easier to sell a performance based wage/compensation program. We do not give annual increases, we pay for performance throughout the year based on individual performance! There have not been any annual increases in four plus years and everyone is happy. The department heads know the budget for their department and they must manage within it. Therefore, performance based budgets create money for wage increases based on the timely departure or demotion or whatever expense is reduced to save money. The cost of salary and wages are set in the beginning and the managers manage their budget to the bottom line accordingly to their needs. It works so nicely and we do not have to worry about the complaining individual, they want more they must earn it and the managers must come up with it to give raises.

We are facing another year with out raises, oh how horrible for us!!!Yet we remain very competitive in the compensation range!

PORK

marc

Some of the gurus that value companies are now touting a concept that measures a companies knowledge capital. This is more than technical expertise, it also has to do with how long people have been in positions in various levels of a company, the historical knowledge they have and the familiarity and efficiency that comes with understanding a companies processes, etc. I am sure the google search proposed by Don D. will lead you to some of this.

mwild31

Hi Kymm - I can recommend three books, "The Cost Management Toolbox" by Lianabel Oliver, "How to Measure Human Resources Management", by Jac Fitz-enz and Barbara Davison and "Pay People Right!", by Patricia K. Zingheim and Jay R. Schuster. In addition to the google search already mentioned, these books provide a lot of the formula's necessary to measure different aspects of HR & most include the retention/new hire information you are looking for.

Finally, some additional advice. You may already be planning on doing this, but if in case your not, beef up your presentation by providing current market conditions and trends. We too have not given many increases in the past two years, but we also know that in our economy, unemployment is at an all time high & it's even worse than the state numbers within our own county. We also know that while housing prices continue to climb, rentals (which affects most of our folks) have declined as well as the price of food & other items ('cept gas of course). We use this information to balance the decision of whether or not to go into debt or significantly reduce profit by lifting the wage freeze. The other aspect of your presentation, should look at other scenarios other than across the board lifting of the wage freeze. If your concerned about very specific individuals leaving & their knowledge is vital to continued success - offer them spot bonuses. These are easier than increasing hourly wages as those increases lead to more being paid out in OT and taxes. Present a well rounded briefing & at the end, make your recommendation based on the information you have provided. Good luck!