high cost of nonprofit employee turnover

A Great Place to Work

Posted by Laura Otten, Ph.D., Director on August 3rd, 2017 in Thoughts & Commentary

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We don’t often get the opportunity to look at our nonprofit and think, “We have something in common with the White House!”  So, exactly what do the White House and nonprofits have in common?  Turnover.


HR professionals all agree that turnover is costly.  According to the Center for American Progress, for jobs that pay less than $50,000 a year—sadly, way too many jobs in the nonprofit sector, and 75% of the American workforce—it costs 20% of a position’s annual salary to fill those vacancies.   For positions that pay less than $30,000—about 50% of the workforce—it costs “only” 16% of that salary.  The Society for Human Resource Management paints a worse picture, saying that the cost of finding and training a replacement hire costs six to nine months of that position’s salary.  Others note the cost of replacing a mid-level employee may approach 150% of the position’s salary, while hiring “highly specialized” employees can cost as much as 400% of the position’s annual salary.

You may be wondering what could possibly cost this much.   First, there are the direct costs, often referred to as the “separation costs:”  exit interviews, severance pay, higher unemployment taxes, the cost of paying others extra to fill in while the position is empty.  Next come “replacement costs:” advertising for the new hire, costs associated with the search, screening, interviewing, testing (if there are required  background and/or drug tests), perhaps even relocation costs.  And, of course, there is the cost of orientation.  Second, there are the indirect costs:  loss of the departing employee’s productivity; inefficiencies by the fill-in employees; slower productivity while the new employee gets up to speed; sometimes, reduced morale among those who remain behind.  All these costs add up, getting to the 16%, the 60%, the 400%.

About 20% of employees leave their jobs by choice each year; another 17% leave not by their own hand.  That’s 37% of the workforce that goes in any given year.  Even if 100% of those departing employees aren’t replaced, turnover is costly.  Loss of productivity and reduced employee morale are givens no matter how employees depart, as is the chaos that ensues; and no matter the reason for departing, it is costly.  A workplace would be well advised to invest in those things that stem the voluntary flow of departures, beginning with good benefits, such as fair sick time and flexibility in hours, and, in general, compassionate leadership.  Point of fact:  being a great place to work lowers turnover.

If talk of turnover troubles makes you think of the President’s problem, here’s another similarity:  the issue of loyalty.  Part of the challenge the President is having with staff, and the cause of much of the turnover (and diatribes against those who have not yet left), according to political analysts and psychologists is that the President demands loyalty:  complete, total, blind loyalty.  Or, to use a common synonym given for loyalty:  obedience.

Loyalty or obedience in the workplace is an odd expectation, and yet, we actually do demand loyalty and obedience in a nonprofit.  The difference, however, between us and the President is that we demand loyalty and obedience not to a person (in fact, loyalty to a person is a negative as more often than not, that gets nonprofits into trouble), but to two things:  the organization and its mission.

Nonprofit boards have three legal mandates.    Duty of care:  did each individual board member—and the board collectively–act with skill and diligence and the best information possible in making decisions?  Duty of loyalty:  did each board member and the collective board act in the best interests of the whole of the organization?  And, duty of obedience:  did each board member and the collective board act to further the mission and in accordance with applicable law?

There is to be no self-dealing by board members, nor pursuit of their own personal agenda.  Board members must not be loyal to individuals—be that the executive director, another staff members or fellow board members; they must be loyal to that which is in the best interest of the whole, which is, in the end, in the pursuit of the mission.  Through the duty of care, board members are charged with being impartial and objective, with asking questions and challenging others’ positions.  They are charged with not going along to go along, but to be an active player in a system of checks and balances—a system that checks people going rogue and balances personal agenda of board members and/or staff.  And though not legally mandated, the same expectations are there for staff.  They, too, are asked to obey the mission, to ensure that all of their work is helping to push forward the promises that are made in those mission statements.  Staff, too, are asked to be loyal to the whole organization, not even just their own piece of the whole, and to help the whole be as successful in fulfilling the mission as possible.  While both board and staff members may admire individuals in the organization, they risk harm to the organization if/when they put individuals above the whole and what it seeks to achieve.

 

The Nonprofit Center will present a webinar on 3/21/18 about limiting the high cost of turnover by hiring right and then keeping your high performers.   You can register here> And you can also get a free benefits audit from FFG Nonprofit Benefits Group.  Contact [email protected] for details.

 

 

 

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.