The hidden costs of job lag

Written by Tim Baker on 5 November 2014

In my previous blog I defined job lag as a new concept covering the indirect costs of employee turnover. In this blog I want to illustrate these costs via a model (see Figure 1 below) and to further consider the implications for our profession.

In Figure 1 you can see that the costs of job lag start at the time an employee receives or gives their notice of termination and extends to the time a replacement employee achieves optimal performance.

Until now, the indirect costs of employee turnover have mostly been calculated from the time a replacement employee starts to them reaching optimal productivity. Although direct costs such as advertising are considered, traditional calculations of the indirect costs of employee turnover have not usually taken into account the period prior to placing a new employee.

By the way, optimal productivity is defined as the point when an employee is fully contributing the level of output that is expected of an established worker in that role.

Let me explain why the indirect costs of employee turnover have until now been miscalculated and underestimated.

Voluntary or involuntary notice of employment termination will in most circumstances adversely affect the productivity levels of the departing employee. Some employees give notice for quitting their job quickly and impulsively, and thereby minimise a loss of productive performance. In practice, this may mean giving notice and leaving their place of employment immediately. Some may involuntarily leave their place of employment due to behaviour unrelated to their performance such as theft. In both cases, due to the immediacy of their departure, suboptimal performance may not adversely influence the job lag equation illustrated in Figure 1.

However, most employees go through, what Bryant and Allen refer to as “one or more steps of psychological or behavioural withdrawal"[i].  Bryant and Allen define these steps as thoughts of quitting, searching for alternatives, evaluating possible alternatives in relation to their current job, and developing intentions to quit as soon as another employment opportunity presents itself. All of these withdrawal factors are likely to divert attention away from the departing employee's current job performance and consequently should be factored in to the job lag equation.

In most cases, an employee whose employment is involuntarily terminated by the organisation will put significant energy into finding another job in another organisation immediately on receiving notice. This energy will most probably detract from the performance of their current role. Even in circumstances were the employee gives notice voluntarily, he or she would probably be focusing on 'greener pastures'. Either way, a holistic account of the costs of employee turnover needs to take into consideration the psychological or behavioural withdrawal of the outgoing employee. 

With this new concept in mind, I have calculated the cost of job lag to be 6 million dollars per annum for the Australian economy. This aggregate figure represents $38 833 or 51 per cent of the annual wage of the new employee.  The overall cost of job lag to the UK economy would inevitably be higher.

The broad answer to tackling this financial cost is for organisations to reduce their employee turnover by retaining and developing their employees. Employee turnover is highest within the first 90 days of employment. Therefore, the first day and induction and on-the-job support for a new employee are crucial to minimising this hidden cost.

 The quality of induction training and development a starting employee receives is critical for reducing the substantial hidden costs for employers of staff turnover. Trainers and L&D professionals involved in induction training may consider putting even more energy and effort into improving the induction programme when considering the costs and risks of a substandard on-boarding process.

 

[i] Bryant, P.C. & Allen, D.G. (2013). "Compensation, benefits and employee turnover: HR strategies for retaining top talent", Compensation & Benefits Review, 45, 3, 171-175.

 

About the author
Dr Tim Baker is an international consultant and author and a regular contributor to TJ http://www.winnersatwork.com.au

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