Why is building human capital so important?
The effects of employee turnover can be significant. That’s why it’s important for companies to keep their human capital, which is more than simply “employees.” Human capital is the pool of skills, talents, experiences and knowledge employees bring to the table. Human capital equates to productivity, revenues and bottom line profits. So when you consider the impact of turnover, it is best to think of it in terms of the loss of human capital.
In general, reducing employee turnover saves money. Money saved from not having to find and train replacement workers can be used elsewhere, including the bottom line of the company’s profit statement. The U.S. Dept. of Labor estimates that it costs about 33 percent of a new recruit’s salary to replace a lost employee. In other words, it could cost $11,000 in direct training expenses and lost productivity to replace an experienced employee making $33,000/year. Private industry estimates for highly skilled jobs deem turnover losses at a much higher level, up to 150 percent of the position’s annual salary.
Some research studies have found that turnover from transient workers has lasting effects on loyal employees who stay with a company, also. One study tested productivity among workers who were exposed to a management- planted person who quit in the middle of a task, citing dissatisfaction with the job and the company. A second group of employees worked with another planted person who had to leave the task because of illness. The group exposed to the employee who quit had lower productivity levels than the group exposed to the ill employee. The employees apparently took the complainer’s statements to heart while the ill employee had nothing bad to say about the company.
This demonstrates that turnover can lead to lower productivity and morale in certain situations.
Source: Reference for Business, Encyclopedia of Business, 2nd Ed.