A few years back, a friend confided in me with a decision she was having a hard time making. She had a team member who was a bonafide "rock star." This person was expert at their craft. Yet, the person appeared to have stopped caring about their job.

As a result, the person showed up to work late, often never even came into the office. When the person did show up, they were negative and were making those around them miserable.

My friend was conflicted: should she confront the employee, fire him, ask him to quit? Or, just let it go? After all, she said, turnover is expensive.

The Myth of Employee Turnover

We've all been told that employee turnover is bad because it is expensive. And so, we react by hanging on to employees even after our gut instincts tell us we should let them go.

So, take comfort in the fact that the equation we've been using to guide employee turnover costs is wrong.   

We are told that when an employee quits or is fired, the cost to replace them is roughly 1.5 x their salary. The reasoning is that it takes time and money to hire and onboard their replacement.

While this is true, the equation is incomplete.

The Real Turnover Cost Equation

The true cost of turnover is:

Turnover cost = 1.5x salary +/- net team productivity

This means that if a team member is a net negative on team productivity, then losing that person will actually improve team productivity.  If increased team productivity leads to increase profits (which it usually does but not always), then gains to team productivity is beneficial to the business. And, despite that fact that replacing the individual will cost money, it will be a net positive for your company.

Team Productivity vs Individual Productivity

Notice the formula above focuses on net team productivity and not net individual productivity.

Let's say you have a team member that is by all measures, expert at their craft. Yet, they are a culture mismatch. Perhaps they continuously miss team meetings, or disrespect team norms. This type of individual, no matter how good they are individually, is a net negative on the team. Ask yourself: would your team productivity increase or decrease if they we no longer on the team? I recognize that this question is often difficult to answer.  Still, it must be asked.

So, next time you look at the cost of turnover, take into account the value that each individual adds or takes away from your team. And, if someone is a net negative on team productivity, work to either turn them into a net positive for your team, or work on an exit plan for them.

Published on: Feb 5, 2019
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