The true cost of poor new hire retention
10.05.23 ArticlesIt goes without saying that in today’s competitive landscape, retaining top talent is a critical factor to the success of any business.
But what does ‘new hire retention’ actually mean? Well, it’s defined as the ability to retain a newly hired employee for longer than 18 months. Sounds pretty easy right? Alarmingly, 2 in 5 new hires will leave their employer within 18 months. That’s 40%!
And with as many as 68% of employees in the US looking to make a career change in 2023, the trend is set to continue.
What causes poor new hire retention?
In a 2022 article, Forbes reported the most common reasons an employee sticks with an employer to be:
| ✔ Leadership | ✔ Commitment to excellence |
| ✔ A relaxed & productive atmostphere | ✔ Honest, transparent communication |
| ✔ Compensation | ✔ Opportunity for growth |
| ✔ Job security |
Employees need to feel connected to their work, appreciated by their employer, and engaged in productive activities that give them an opportunity to grow professionally.
With an abundance of choice when it comes to alternative opportunities, employees quickly pursue career options elsewhere if they become disengaged.
The real cost of poor new hire retention
To understand the true impact of poor new hire retention, we need to consider both the direct and indirect costs:
| Direct | Indirect |
| Unrecoverable compensation Wasted management time Training Productivity Recruitment costs | Loss of productivity Lowered employee morale Lost business Opportunity cost Reputation damage |
The cost of hiring, onboarding, and training new employees is considerable. Losing the return on that investment is a big enough problem. But the resulting loss of productivity, impact on team morale and missed opportunity cost only increases it.
In actuality, the impact of poor new hire retention conservatively amounts to hundreds of thousands of dollars.
Finding a cure to the retention pandemic
Talent retention starts before an employee joins a company by ensuring the right person is hired in the first place.
Less than 20% of people leave their jobs due to capability. The majority leave because of a cultural mismatch. Meaning they are misaligned with the mission and values of a business or the people they work with.
So, assessing capability alone is simply not enough. Instead we need to take the time to understand an individual’s behaviours, character traits, motivations, aspirations to determine their cultural fit.
Spending the time during the hiring process to get this piece of the jigsaw right, means you are more likely to retain your new hire, and that they will be more productive, quicker.
Once onboard, employers need to have clearly defined retention strategies in place. These strategies are wide ranging and do require some investment in terms of time, resource, and cash.
Strategies include:
- Effective on-boarding and orientation
- Compensation & benefits
- Feedback & communication
- Performance & succession management
- Training and development
- Succession planning
If you don’t make the investments, the alternative is to endure a much greater financial burden as talent is lost to competitors at an unsustainable rate.
Final thoughts
The first step to addressing new hire retention is having a strategy in place that means you find someone with the right capabilities and the right cultural alignment. That takes commitment from everyone who has a hiring responsibility, as well as having the right plans and tools in place to make sure this happens in practice.
Secondly, retention needs to be embedded in your culture and values, continuously monitored, and evaluated. This underpins how effective your retention strategies will be in practice.
Thirdly, have your retention strategies and supporting process clearly defined and in place. Recognise that these will change as the business evolves, so make sure there is a mechanism to evaluate their effectiveness.
Finally, champion employee voice, encouraging your people to speak up regularly and have recognised platforms in place to facilitate that.
If you want to explore any of the themes in this article, then please feel free to schedule a call here.