Today’s workers want more from their workplace, and they’re using the competitive landscape to exercise their choice. Though employee engagement and retention often fall on managers, finance leaders can especially bring their expertise to the table to design a competitive yet cost-effective retention strategy. A CFO can examine your employee retention rate and weigh the costs of a new compensation strategy, employee benefit vendor or investment in employee engagement.
For companies without the advisory of a full-time CFO, accessing and evaluating this information can be a challenge. However, businesses can tap into fractional finance leadership to consult with them on talent retention and how it fits into their company’s overall financial strategy.
The cost of employee turnover
The market is experiencing unprecedented levels of voluntary turnover. The Society for Human Resource Management (SHRM) charted 20 years of data depicting the volume of those who voluntarily left the workforce. In 2021, the U.S. saw the highest number of voluntary turnover in 20 years. As employees leave their positions, the number of job openings has increased dramatically, according to the Bureau of Labor Statistics (BLS).
And while the burgeoning freelance economy gives businesses wider access to quality talent, businesses must still retain key full-time talent to maintain stability and profitability. As employees leave, profitability decreases due to increased training and hiring costs and decreased productivity and revenues. In fact, research shows that the cost of turnover is roughly 1.5 to 2 times the employee’s salary. If turnover is a regular occurrence for your business, or if it is starting to trend that way, this cost can add up quickly and stifle growth.
Assess employee engagement: Calculate employee retention rate
How do you know if your company is retaining its talent at a healthy rate?
The employee retention rate measures the percentage of employees that stay with your company over a period of time. A rate of 90% employee retention is considered a good benchmark to evaluate your company, though different industries will have different average retention rates.
You can calculate your employee retention rate as follows:
ERR = (# of employees at end of period/# of employees at beginning of period) X 100
In order to paint an even greater picture of your talent retention, you may also calculate other retention and employee engagement metrics, including:
- Voluntary turnover rate: (# of employees who left / # of employees during the period) X 100
- Average tenure of employees: (# of employees per period x # of periods) / # of employees
These numbers can indicate how well you retain talent and, coupled with qualitative data and feedback surveys, can shine light on overall engagement levels.
Employee retention and employee engagement
While not synonymous, employee retention and employee engagement are intimately connected. Employees leave companies either by their choice (quitting) or yours (termination or layoff). While some factors are controllable, others are not.
The costs of an employee leaving are substantial. When people quit, there is an inherent lag between their departure and securing a replacement. This causes strain on the remaining staff until the new hire is found, hired, trained and brought up to speed. While the overtime may be easily quantified, the impact on morale and the increased potential for burnout are more subjective measures. The driving force behind how the remaining employee fares is their degree of engagement.
How can the finance department influence employee engagement?
Working in silos to increase engagement and retention is not as efficient as bringing operational and financial minds together to connect employee engagement with data and financial analysis. While CEOs and HR professionals understand turnover rates, tenure calculations and talent acquisition costs, adding finance leadership to the team to collect and analyze data can optimize the process and provide a valuable perspective that quantifies results and validates action plans.
The following areas of employee engagement offer various ways to be improved. A fractional CFO can perform cost-benefit analysis for any initiatives that come with a price tag to determine if the cost of change sufficiently covers the potential improvement in employee engagement metrics.
- Productivity and performance – Explore compensation strategy as it relates to performance targets and how it can incentivize employees in their roles.
- Work-life balance – Consider the costs and benefits of flexible schedules and remote workplace accommodations. Discuss the financial implications of addressing potential employee personal challenges.
- Health and wellbeing – Provide support and encouragement for stress relief and fitness. Consider a variety of options by covering the cost of phone apps, gym memberships and host-friendly, inclusive fitness challenges.
- Professional development – What is the cost of investing in your talent’s growth (e.g., ongoing training, tuition support, leadership development opportunities, etc.)? Determine if these investments can provide sufficient ROI.
Leverage finance to improve your employee retention rate
Today, attracting and retaining talent is everyone’s job. CEOs, HR and finance leaders must all sit at the table to produce and analyze metrics that aid in making decisions for their organization.
There are a number of ways that finance experts, such as a CFO, can directly assist in talent retention.
- Review and audit compensation strategy, including base pay, bonuses, incentives, promotions and more.
- Assist with analyzing and negotiating on various benefit options and vendor proposals.
- Aid in determining learning and development (L&D) program options.
- Create spreadsheets and dashboards for employee retention metrics and key performance indicators (KPIs) to streamline data collection and provide benchmarking against prior years or industry standards.
Other players in your finance department, such as an accountant, may also assess additional financial benefits, including tax credits. For example, eligible small businesses that start new retirement plans can receive tax credits from the Internal Revenue Service (IRS) to offset startup costs.
Collaborating with a financial expert to improve your employee retention rate will build efficiencies, unify your team and advance your organization toward its goal of reducing turnover.
Contact Paro to receive guidance from a highly vetted fractional expert who can help you design the right compensation strategy, benefits package or strategic vision that keeps your business both competitive and profitable. Learn how your business can improve its employee retention rate holistically, with finance at the table.