In the competitive job market, employers often face the dilemma of whether to grant salary increases or other financial incentives when a candidate requests them. While it may seem costly to meet these demands, it’s crucial to consider the potential expenses associated with candidate turnover. In this blog post, we will delve into the true cost of replacing a candidate, explore the financial implications of saying no to their requests, and provide examples of costings to highlight the significant impact that employee turnover can have on an organisation.
When a candidate leaves, organisations must initiate the recruitment process to fill the vacant position. This includes advertising the job, conducting interviews, and screening applicants. These activities entail time and monetary resources, such as job board fees, recruitment agency costs, and internal staff involvement. The expenses incurred during the hiring process can quickly add up, especially for specialised positions that require extensive candidate searches.
Training and Onboarding Expenses
Once a replacement candidate is hired, the organization must invest in their training and onboarding. This includes orientation programs, job-specific training, and mentorship. Training costs can include materials, trainers, and the time and effort of existing staff involved in the onboarding process. The more specialised the role, the higher the cost of training to ensure the new hire reaches the desired level of productivity and proficiency.
When a valuable employee leaves, there is a temporary decline in overall productivity. Other team members may need to take on additional responsibilities or temporarily cover the workload of the vacant position, which can lead to decreased efficiency and potential burnout. It takes time for new hires to become fully integrated and perform at the same level as their predecessor, further impacting productivity during the transition period.
Knowledge and Experience Gap
Replacing a candidate means losing the accumulated knowledge and experience they brought to the organisation. This loss can hinder the team’s ability to effectively solve complex problems, handle specialized tasks, or maintain continuity in ongoing projects. Acquiring the same level of expertise from a new employee can take months or even years, impeding the organisation’s ability to operate at full capacity.
Cultural Disruption and Team Moral
A departing employee can also create a cultural disruption within the team. Strong team dynamics and a positive work culture contribute to employee satisfaction and retention. When a valued team member leaves, the morale of the remaining staff may be negatively affected, leading to decreased motivation and potential turnover among others. Rebuilding a cohesive team and restoring a positive work environment takes time and effort.
To provide a tangible understanding of the expenses associated with replacing a candidate, let’s consider the following expenses:
- Recruitment and advertising Costs
- Training and Onboarding Expenses
- The estimated loss of productivity for three months.
- Time required to reach the same level of expertise (six months) with a reduced efficiency rate of 20%.
- Decreased productivity and potential turnover costs due to cultural disruption and team morale.
Research suggests that a replacement employee can be as high as 50-60% of an employee’s annual salary, with the overall cost ranging between 90 -200% of an employee’s annual salary.
For example – if an employee makes R750 000 per year the initial cost can be as high as R450 000 up to an overall cost of R1.5 million rand.
Considering this costly conclusion
While it may seem costly to accommodate a candidate’s request for a salary increase or financial incentives, the cost of saying no and losing a valuable employee can be far more substantial. The expenses associated with replacing an employee can have a significant impact on an organisation’s bottom line. Considering the true cost of replacing a candidate highlights the importance of evaluating the long-term benefits of retaining skilled professionals and staff in general.