The Real Cost of Turnover

Imagine for a moment that one of your best programmers comes to you and says, "Sorry boss, but I'm leaving for a startup with more opportunity." There are lots and lots of questions to ask, but let's focus on one: "What will it cost to replace her?" Here's a quick breakdown of the direct costs, assuming that her salary is $120K and it takes you three months to find and hire a replacement:

3 months unfinished work
$40000

Recruiter fees
$24000

30 hours of your time
$1800

60 hours of interview time
$3600

3 months of startup @ 50% productivity
$20000

3 months mentoring by team @ 25%
$20000

Total Direct Costs
$109400

That's a lot of money out of the company's bottom line: almost enough to hire another programmer. Now consider some of the indirect costs:

Loss of project memory
Increased stress on project to pick up the extra work
Increased likelihood of new errors in the product
Loss of morale in the project
Danger of missing project deadlines or product release date

You can see that the list goes on - it's impossible to quantify these intangible costs, but if you could assign a dollar value, the worst case might be three times the engineer's salary or higher. Here's the most important thing to remember:

"Losing a senior engineer is really, really costly so it's worth investing significant resources to keep your senior staff happy and engaged, so they don't start looking outside the company for their career path."

So why don't managers and executives spend more time and energy in preventing turnover in their senior staff? Partly, they consider employee satisfaction to be the role of the Human Resources department, not their own. Also, the costs are largely hidden - the cost of recruiting and interviewing is part of the HR budget, and the cost of lost productivity don't show up on any one's balance sheet, so it's easy to pretend that the loss of an engineer is a schedule inconvenience, but doesn't cost real money.

And keeping your best talent in the company doesn't have to be expensive. Usually they are already making a good salary, so you don't need to put them in "golden handcuffs." Instead, offer them any of these:

A planned career path that takes them to their dream job within your company.
Mentoring and professional coaching to help them grow in their careers.
Time and resources for learning and technical development.
Regular appreciation and recognition.

All of these actions are either free or very inexpensive, and studies show that they are very effective at retaining employees and making them more likely to hang up the phone when headhunters call.

About the Author

Bruce Taylor is the Owner and Principle of ManagingProgrammers.com, and provides corporate and executive coaching programmers, managers, and others in the software development and IT business. Mr Taylor has extensive background in Psychology, Human Resources, and Software Engineering. He holds a Masters degree in Computer Science, a Masters in Psychology, and a Certificate in Job Stress and Healthy Workplace Design.