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Cost to Replace an Employee

November 26, 2014

I have been reading articles regarding the cost of employee turnover, specifically for professionals.  The numbers are staggering.  According to a Center for American Progress study who reviewed over 30 case studies, they found that it costs business roughly about 20% of an employees salary to replace that worker.  That number goes up exponentially with very high paying jobs and those at the senior/executive level.  Some as high as 213%!

Pop quiz: An average performing employee comes to you with evidence that he is underpaid by 5 percent. Your company’s budgets are already tight. He makes $50,000 a year. Should you:
A. Offer a 1-2 percent raise
B. Offer nothing
C. Offer a 5 percent raise
D. Give him $50 gift card to the local mall.

According to a CBS News article, the answer is C – Offer a 5% raise.  Why?  Choosing to not give even a middling performer a raise may net a temporary cost savings, but if he quits you’ll be out 20 percent of his salary. The best option? Bump his pay up 5 percent. Although employee replacement costs are a one-time expense and a salary increase is ongoing, it would take four years of at higher salary to equal the cost of replacing him one time.

To see the full case study by the Center for American Progress.  Click Here

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