Losing top talent puts organisations at a disadvantage both financially and culturally. How can organisations use benchmarking to prevent this from happening?
There is no denying that employees are one of the greatest cost outlays for any organisation. But losing them can be even more costly. According to research conducted by the Institute of Managers and Leaders (IML) in their annual National Salary Survey (NSS), the cost of attracting, hiring and training a new employee can cost an average of $23,753 (from the 2017 NSS). When an organisation fails to hang onto staff and becomes a constant revolving door, these costs are obviously multiplied. So, what are some of the key reasons why employees leave an organisation?
The IML research identified three main drivers:
Understanding why employees are leaving your company is just one part of the equation. It’s also imperative for organisations to know what their employees are being offered elsewhere. Top performing staff are likely to know what their worth is, so you should too. This goes for both your existing staff and the ones that you hope to attract.
One of the most effective ways of identifying what other organisations are offering employees is through benchmarking. Not only does it afford companies the ability to create a competitive salary baseline, but also it allows them to identify their own potential deficits and the ways to improve upon these. “Being able to keep salaries within a specified budget is really crucial to profit margins, so it’s important that organisations benchmark salaries,” says Charles Go, research product manager at IML.
“To prevent your best staff from becoming a turnover statistic, organisations need to provide them with a reason to stay. And more often than not, it will be about the salary,” he says.
“Benchmarking helps you to create attractive salary packages – whether that’s a salary increase every year, performance pay structures or bonus structures that keep them engaged. This also applies to bringing talented staff onboard by offering them a reason to join your company over another.”
Paying employees their worth, and knowing what they could be receiving elsewhere, goes a long way in terms of both retention and engagement. But while offering prospective and existing employees a competitive salary is a strong incentive, it is not always realistic. The IML research also points out that salary growth has declined by 1.1 per cent from 2013 to 2017.
Benchmarking can help keep salary costs down by ensuring organisations are not paying employees more than is due. Overpaying staff can impact a company’s financial health, and can have a detrimental effect on the workforce. Just as underpaying staff can negatively impact morale, so can overpaying them. Inflated paychecks can act as a disincentive to achieve and really work hard. It can also eliminate any sense of competition and motivation, working against what it is designed to do, which is to attract and retain a highly competent and driven workforce.
“If you have a mediocre staff member who stays because they are being paid well, these are obviously not the kind of people you want working in your organisation. If you keep inflating their wages, they will stay in the company and impact the morale of your better performing staff,” says Go.
So, if increasing wages isn’t always viable or effective, what else can organisations do to attract and retain staff? It is here where a little creativity and strategic initiative is required. Gauging what other companies are offering in terms of employee benefits, bonuses and development opportunities allows them to come up with competitive offerings of their own.
Benchmarking allows you to know what other companies are offering in terms of learning and development allocation, length of induction periods and flexible working arrangements. This data is further broken down by hierarchical level. Addressing these concerns will go some way to preventing people leaving a company while saving money on unnecessary wage increases.
You can use benchmarking to your competitive advantage by accessing the Institute of Managers and Leaders’ National Salary Survey.
The BBC defines the ‘Gig Economy’ as “a labor market characterized by the prevalence of short-term contracts or freelance work, as opposed to permanent jobs”. On-demand hiring promises lower costs, but it also creates more competition for talent where traditional workers’ career paths are phased out and are now replaced with temporary jobs focused on skill. Talent sourcing practices need to build speed and agility in order to quickly identify work/projects in need of attention, source employees with the required skills, and staff project teams that can quickly perform the necessary task.
Also, the decoupling of location from productivity has been accelerating: research has shown that the volume of employees who have worked by telecommuting has risen to 44%, up from 39% in 2012. Having flexible work provisions will drive a firm’s employer value proposition, expand the candidate talent pool and is a great way of retaining highly valued employees.
A Better Workplace in 2018
All of these trends point to having a slightly better workplace for all of us in 2018, and while companies have new challenges in making this possible, they are likely to be rewarded by higher productivity and greater employee loyalty.