Have you considered changing jobs recently? You’re not alone. The job market is hot right now and you’ve probably gotten more than a few phone calls from recruiters lately.
While this is a good thing for employees, high turnover is a problem for employers. And it’s especially bad for data and analytics teams.
Turnover disrupts the business ecosystem and the data and insights that come with it. It will impact both data and report quality, as well as team efficiency. Not to mention that any new employees will have to establish new relationships with stakeholders to learn the business needs. So what’s causing this high turnover? And how can employers prevent their people from leaving?
Why Do Most Employees Leave? – With Doug Washington
I recently interviewed Doug Washington. Doug is the Director of Recruiting Strategy for TriCom Technical Services, an IT staffing and recruiting firm. We talked about various topics relating to recruiting and retaining data professionals.
I asked him who had the most unrealistic expectations in this job market – employers or employees?
“Employers,” he said. “We’re definitely in a seller’s market when it comes to talent. We’ve had virtually ten years of economic expansion. And the demand for technology professionals that entire time? That’s only increased.”
And what was the most unrealistic expectation that employers had?
“Compensation,” he said. “Employers are still operating like we’re in a scarcity model from the 2009 recession.”
Salary Is the Biggest Reason a Person Quits a Job
“No matter what any candidate says about salary,” said Doug. “That’s not how they behave.”
He went on to tell me that salary (and location) were the biggest drivers in getting someone to switch jobs.
“Employees behave in ways that those two factors make the difference. Now I am by no means saying that those are the most important factors for every person. They’re not. But really the basics are usually going to apply.”
According to Payscale, 25% of people who quit a job are leaving for higher pay. That’s followed by 16% of people who are simply unhappy in their organization.
Gallup reported similar findings back in 2006 (see footnote for further details). They reported the two biggest reasons people quit were:
Lack of career advancement and growth opportunities (32%)
You might say that the first Gallup statistic proves wrong the assertion that money is the biggest reason people quit a job, but consider why employees value growth opportunities? It’s because they assume career advancement brings more money later.
This goes against the common reasons given for people leaving a job. You’ll hear things like poor cultural fit or lack of interesting work as reasons. You’ll also hear that it must’ve been a poor relationship with the boss (more on that later).
These things do matter and they both show up in Payscale and Gallup’s findings, but they’re simply not the biggest reason.
The Best Way to Reduce Turnover? Proactive Raises
Since salary is the biggest reason people leave a job, then you have to raise salaries to reduce the problem. It’s that simple.
According to Doug, employers don't necessarily like that solution though.
He continued, “One of the things when it comes to compensation that we hear from employers is ‘none of our other employees are getting paid that amount, so that's gonna put everything else out of whack with my current staff if we hire this person.’
“The reality of the situation is that if they don't level set the compensation of their existing people,” he said. “They're going to lose them eventually as well.”
It Sounds Expensive – But It’s Actually Cheaper to Give Proactive Raises
“It is far less expensive to retain an employee than it is to acquire an employee,” said Doug. “It’s sort of counter intuitive, but it's far less expensive to give that person a big raise.”
The reason it’s more expensive to fill a position is that it takes employees at least a year to get familiar with an organization. So their productivity won’t be on par with the person leaving, even if the new employee is a top performer.
Doug continued, “Clients always say ‘I want somebody that can hit the ground running.’ Well there is no such thing.”
(I’ve heard this phrase too and talk about the over reliance employers place on "self-starters" and "top-performers" in my upcoming book.)
“Everybody needs ramp up time,” said Doug. “It doesn't matter how experienced, how technologically in-depth somebody is. There's always a certain amount of ramp up time. But clients feel like if the applicant has the experience in these technologies, they'll be able to produce results right away.”
It costs an estimated 21% of an employee’s salary to re-hire a position. That’s regardless of whether they’re a self-starter, top-performer, or hit-the-ground-running-type of person.
Example Scenario of Why It’s Cheaper to Give a Raise
Imagine if an employee wants a $15,000 raise. They’re making $60,000 a year and 15k is no small amount.
Now 21% of $60,000 is $12,600. So if you could fill the position at $60,000, you would hypothetically be saving money letting the employee leave.
But consider this: the employee was asking for a raise of $15,000 to put them at the market rate of $75,000. That means to rehire a similarly skilled and experienced employee would cost $75,000.
What is 21% of $75,000? That’s $15,750.
Now let’s keep in mind – $15,750 is just the cost to replace an equally skilled employee and allow them to ramp up. That’s on top of the $15,000 raise the original employee expected.
So the cost to rehire is closer to $30,000. Doesn’t that make a $15,000 raise seem less expensive?
So it would cost you more to rehire. And keep this in mind – you have no guarantees that the new employee will perform at the same standards of the employee who left. Nor will this employee know your data architecture or business culture.
Don’t Be Fooled by the “Good Boss” Myth and Other Misconceptions About Reducing Turnover
Many employers will say that salary only matters to some applicants. They will list off many reasons people will choose their company, despite offering below market wages. Things like interesting projects, more meaningful work, and “better bosses.”
The best example of this is the oft repeated phrase “people don’t leave companies; they leave bosses!”
You probably have see this a lot on LinkedIn.
“We see people all the time love their boss and then leave their boss,” said Doug. “That’s a myth that ‘people don’t quit jobs; they quit bosses.’”
It’s not that people don’t leave bad bosses (they do). The myth part is that a good boss can fight the basic laws of economics using nothing but their sheer charisma.
“If they have a bad boss or a bad manager,” said Doug. “That’s absolutely a factor. But we see people all the time say ‘I love my job. Love it! Everything’s great. Don’t want to leave!’ Six weeks later, they’re in a new job and it’s not because anything changed with their boss.”
(Good) Training Is a Strategy for Paying Less – But It Has Its Limits
If you pay below market rates, you will have higher turnover. But you can still attract quality candidates (with less practical experience) by offering good training.
Remember that Gallup said 32% of employees will leave a company because they lack career advancement or growth. Training allows such career advancement and growth.
But you have to provide good training. (On-the-job experience does not count as good training).
For example, there's one Kansas City company that is known for paying low. But they always have a steady stream of applicants. Why? They’ve gotten really good at training. As a matter of fact, training is a big appeal for many applicants and the company treats training like a core part of their operation.
The result is that this company has become a place many people go to to start a career. They gain key skills and work experience and then they move on to higher pay elsewhere after a couple of years.
If you’re okay with the fact that many employees will leave you eventually, you can build a similar operation.
But you have to actually be good at training. Many people don’t understand what valuable training actually looks like.
Boot Camps Make Good Training Programs
If you don’t have the bandwidth to train employees (or you don’t have the necessary knowledge or skills to train), Doug has a simple suggestion.
“There was an applicant that had a lot of the precursor skills and experience for the technology the client wanted him to have,” he said. “We said ‘what if we send that person to a boot camp?’”
Coding boot camps or training companies, such as Centriq, offer a way for employers to attract quality applicants without paying higher salaries. If you pay for the training, that allows greater career advancement for applicants.
“He didn’t have the work experience they wanted,” said Doug. “But we sent him to the boot camp and the guy has worked at the company for a year now – and doing fantastically!”
The employer got a productive employee, but there was also another measurable benefit.
“The other advantage for the company,” continued Doug. “Was that his salary was much lower than what they were expecting to pay for somebody with that particular experience.”
But the key thing to remember is this: that employee will probably leave after a few years if you don’t raise their salary to the market rate. And that’s okay. That’s the trade off if you don’t want to pay market wages. You have to offer training and understand that employees move on eventually.
Want to Know More Tips for Reducing Turnover?
If you enjoyed this article and want to know more about reducing turnover on your analytics team, keep an eye out for my upcoming book, How to Manage a Successful Data Team.
This book will provide a roadmap to success for managers in the data and analytics space. I have three chapters covering hiring, retaining, and paying employees. The book will also feature more of my interview with Doug Washington (and many other talented professionals.)
You can subscribe to my blog below for updates on the book, as well as other content about the non-technical side of data analytics.
Gallup’s study claims that you can de-emphasize salary with other management strategies, such as employee engagement. However, even after following their advice, there’s still a significant impact on turnover from salary. These conclusions were also made in 2006 and were based on respondents earning $25,000 to $30,000. This is a far cry from today’s job market, where data analytics professionals are seeing $70k or higher salaries by changing jobs. While higher employee engagement will make an impact, I would still caution against ignoring salaries impact.