37 ms·

How much does employee turnover really cost?

541 points by craigkerstiens 10y ago

ChuckMcM 10y ago
The article goes out of its way to mention 'regrettable employee turnover' which is a polite way to identify the group "people who left you wanted to stay" vs "people who left and you are happy with it." However, that requires that you also understand the impact of an employee on the organization. There are people who have been "let go" because their manager had no idea what they actually did, and that caused a huge impact on the organization overall. There are people who have been "retained" because their manager felt they were key to the success of the group/project but didn't realize the toxic impact they were having on the organization. These are the "inverted" cases where you really need to keep the person having high impact and manage out or move the person who is creating stress on the rest of the team.
muninn_ 10y ago
Not a very informative article. The costs are high, so try to minimize turnover. It's simple.
- bsilvereagle 10y ago
  I think you missed the forest for the trees - the author clearly states that a quantitative approach to understanding turnover is needed and that everyone knows "The costs are high, so try to minimize turnover. It's simple." but it's hard to take action on a qualitative indicator. He then presents what appears to be a reasonable equation to estimate how much turnover costs a company.
  - muninn_ 10y ago
    The "quantitative approach" here is hardly worth considering. Maybe I should write for Medium. I could just as easily throw a bunch of crap together and call it journalism and provide some random numbers and factors and call that an equation!
    - tokenizerrr 10y ago
      > Maybe I should write for Medium Considering this is a medium opinion piece, which are essentially blogs, you very well could.
    - innocentoldguy 10y ago
      I wouldn't consider Medium "journalism." I've written an article or two on the platform, but I don't recall anybody doing any fact-checking or editing on my work. Medium is just a place where people go to say stuff, and should be valued accordingly.
- dandandan 10y ago
  I don't think many orgs actually quantify the cost which is the point the article is trying to make. Figure out what it costs _you_.
  - muninn_ 10y ago
    Yeah everybody knows that, so what was the point of the article?
    - IanCal 10y ago
      If measuring the cost is important and not many organisations do it, then clearly some people might benefit from hearing this.
    - rbcgerard 10y ago
      If everyone know that, then why don't organizations prioritize this relative to the size of the potential cost?
      - muninn_ 10y ago
        Because they are doing other things
        deleted 10y ago
        [deleted]
vermontdevil 10y ago
Not hard to see the obvious. Look at Costco compared with Sam's Club. You can see the difference since Costco employees tend to stay longer there. https://hbr.org/2006/12/the-high-cost-of-low-wages https://hbr.org/2006/12/the-high-cost-of-low-wages
- kornish 10y ago
  Another example in this vein is Henry Ford's $5 work day – wages dramatically above then-market rates prompted outrageous enthusiasm and loyalty from workers. http://www.henryford150.com/5-a-day/ http://www.henryford150.com/5-a-day/
  - mywittyname 10y ago
    There's a lot more to it than that. >The $5-a-day rate was about half pay and half bonus. The bonus came with character requirements and was enforced by the Socialization Organization. This was a committee that would visit the employees' homes to ensure that they were doing things the "American way." They were supposed to avoid social ills such as gambling and drinking. They were to learn English, and many (primarily the recent immigrants) had to attend classes to become "Americanized." Women were not eligible for the bonus unless they were single and supporting the family. Also, men were not eligible if their wives worked outside the home. http://www.forbes.com/sites/timworstall/2012/03/04/the-story-of-henry-fords-5-a-day-wages-its-not-what-you-think/#3acd0e971c96 http://www.forbes.com/sites/timworstall/2012/03/04/the-story...
    - kornish 10y ago
      I didn't know that – thanks for sharing!
- battlebot 10y ago
  Costco pays $17/hr. vs. Sam's what? I don't even know. < $15/hr. Maybe $14/hr? Okay, it was in the article, $11.52!
mr_tristan 10y ago
While yes, it's important to quantify, I'm not sure the article is that actionable for most startups, or even businesses that don't have large HR departments. Most software development managers I know would just pull estimated values out of their ass, instead of actually creating a formal model for tracking things like "cost of onboarding and training". It sure would be nice to have some case studies, perhaps? Has anyone worked at a place that tried to calculate required onboarding costs for high-skill, salaried positions? I've only ever seen places just create random budgets for online programs like Linda.com, but these programs never seemed relevant to the positions that, well, were the most significant to the company, to put it nicely. I just suspect unless you had a quant in an HR department, this sort of thing just will never get calculated correctly.
- mooreds 10y ago
  I commented above, but I don't think you need to get this perfect. What you want is a baseline number, even if it is low. If that number is $X to replace this person (fully, including estimates of rampup time and lost productivity), and they want a raise of $Y, and $Y < $X, the rational employer will give the raise. Heck, the rational employer would give $X-1. Now, is the world full of rational employers? Nope.
nullnilvoid 10y ago
Many managers have the mindset that they can find replacements easily. If you don't do the job, there are 5 people lining up for this position. They don't realize the cost of turnover, partially because it is hard to quantify the cost. In the good old days, IBM and other blue chips would spend lots of money and send employees back to school and train them well. Nowadays, everyone is considered to be replaceable.
- mevile 10y ago
  In my experience, this is not true in San Francisco. I've never worked anywhere in the bay area where engineers were thought of as easily replaceable. Everyone knows how hard it is to hire competent engineers around here. Even if people were lined up to replace a lost employee, just the interview process for hiring people is expensive as it takes multiple people out of their role to sit and interview someone for a day. When you lose someone, you end up with an empty position for at least a month, as even if you do hire someone right away they have to quit their current job and leave notice.
  - Aqua_Geek 10y ago
    > I've never worked anywhere in the bay area where engineers were thought of as easily replaceable. They may not have been thought of that way, but I've very much seen them treated that way.
    - abraae 10y ago
      People are humans and human nature nearly always leads to political behaviour (i.e. behaviour not optimal for the organization as a whole) in any organization of more than a few people. Pressed on all sides, dealing with unreasonable demands from above, and with internal competitors and naysayers to fight off, even the most enlightened manager may sometimes behave in ways that treat people as easily replaceable. Even if intellectually they know they aren't.
  - Arizhel 10y ago
    There could be a disconnect between hiring managers and HR and upper management. The hiring managers you know probably do understand the cost of replacing a lost employee and how hard it is to hire. The HR department that's actually in control of this, and of salaries, doesn't, or just doesn't care. I have a theory that a lot of the terrible mismanagement we see with modern American corporations comes directly from HR. Didn't W. Edwards Deming say that companies would be better off just eliminating their HR departments altogether?
farberjd 10y ago
It depends on a lot of factors including but not limited to: age of company, industry, how much tribal knowledge this person possesses and estimated ramp time. As an example: a 2 year old tech company, an employee that's been around since inception and possesses a lot of quirks and random information in their head, it's going to cost the company a shit load of money.
- pixl97 10y ago
  That's a business documentation problem. No different than if they get hit by a bus.
dtnewman 10y ago
Two thoughts: * It's a good idea to try to quantify the cost of losing an employee. If you at least understand what basic costs you'll incur, such as cost of hiring, training, etc. it'll give you a basis for realizing the importance of minimizing turnover (perhaps you'll even conclude that turnover isn't a big deal in your case). But it's very hard to quantify some of the largest costs such as employee moral. I was once at a company where an entire (small) team slowly left after a single person departed. Perhaps any individual's departure could have been handled without too much of an issue, but the loss of entire team and all the institutional knowledge contained there was quite damaging to the company. * The article mentions some tips for retaining employees and I think they are spot on. But I don't think it emphasizes the importance of salary enough. A lot of employees jump ship because of the higher salaries they can get when they move around. Meanwhile, the original company they left will likely have to pay market rate to get someone with similar experience (and none of the institutional knowledge), so they would have been much better off if they would have just bumped their employee's pay to market rate in the first place. By the time it gets to a counter-offer stage, it's often too late. EDIT: The article briefly mentions the importance of paying market rate salary, but I missed this sentence when I read it over the first time. Updating my second bullet accordingly.
- matwood 10y ago
  It mentions that market rate salaries are table stakes. So view market-rate compensation simply as table stakes, and spend your energy focused on the next level of Maslow’s hierarchy of employee happiness: opportunities for growth, the ability to have impact towards a purpose, and a caring environment that makes them feel valued.
  - salarycommenter 10y ago
    There is market rate and then there is market rate. Have you ever met a manager who didn't claim to pay market rate and pull out the old "salary data" yarn. Managers seem to think that just because they say something their employees believe it when the reality is the employee doesn't care and will just replace the faulty manager.
deleted 10y ago
[deleted]
patsplat 10y ago
Estimate the floor for replacement cost based on the average recruiting fee for the title.
- patsplat 10y ago
  The ceiling will be significantly higher. But it's an interesting floor given that most employers know and hate paying for recruiters.
cj 10y ago
> "Instead, focus on growth, impact, and care" Since a lot of tech companies employ young talent (relative to other industries), this video by Simon Sinek on "Millennials in the Workplace" can be enlightening: https://www.youtube.com/watch?v=hER0Qp6QJNU https://www.youtube.com/watch?v=hER0Qp6QJNU Forewarning, he goes off the deep end on a few points, but IMO the general ideas are valid.
- owenmarshall 10y ago
  Sinek relies on a healthy heaping of anecdotes and unfounded assertions to shake his fist at an ill-defined generation just like _every previous generation has done since the dawn of time_. O tempora! O mores! indeed.
- 2xlbuds 10y ago
  I've seen this talk before, and he makes a ton of assertions mostly backed by often-repeated cliches rather than data (e.g. participation trophies). This is a really good talk I've seen posted in response to this very video before, so I'll post it again. https://www.youtube.com/watch?v=-HFwok9SlQQ https://www.youtube.com/watch?v=-HFwok9SlQQ
michaelfeathers 10y ago
The cost of not having employee turnover can be substantial also. It would've been interesting to see this addressed. In some particularly bad cases, organizations atrophy and lose the ability to respond well.
Zigurd 10y ago
I've never heard of a manager being reprimanded for high turnover. I would guess that this metric has to bubble up to the level of investors' analytics to make a difference in management performance assessment. Perhaps Glassdoor sees a market for such a product. The stakes are high enough that it would move the needle at an organization like YC.
nodefortytwo 10y ago
In my business I do try to minimise turnover for almost purely emotional/moral reasons. It's good to have a team that as close to friends as possible. The technical cost of staff turnover is minimal because systems and processes should be designed in a way that anyone can leave without impact to the business for obvious reasons (illness, relocation, family circumstances)
rbcgerard 10y ago
The problem is that these costs don't explicitly show up anywhere or get improperly allocated. It's not like HR comes in and says to someone that has a P/L "we're allocating a whole bunch of expenses to you because of turnover"
euphoria83 10y ago
This article missed the fact that the cost to the company in trying to keep the employees who will leave every year might be greater than the cost of losing them. For e.g., in the example given in the article, the company loses 1.57 million due to employee turnover. However, who knows how much the company might have to spend to keep those employees from leaving. The cost would be high because the effort spent on employee retention is spread over all employees, even those who won't leave. Hence, even a small expense per employee, might end up costing more than the cost of losing certain percent of them.
- nine_k 10y ago
  Let's estimate. Assume that the company loses 10 employees and loses $1.57M as a result. This means that it would be better off if it spent less than $157k on each employee, on the average, to prevent the loss. $157k is a yearly salary of a senior developer, or maybe the entire yearly cost of a senior employee outside the hotbeds like SV or NYC. We can cautiously suppose that a company could retain the employees with measures less drastic than paying them twice as much for a year. OTOH paying them +20% for 5 years would be the same. So, if they can keep hiring cheaper developers, even while losing productivity due to onboarding issues, maybe they can actually save money!
  - euphoria83 10y ago
    The money that they can spend per employee is 1.57M / # total employees. Not, 1.57M / # of employees who left. They don't know who will leave. Their cost of good initiatives will be spread over all their employees.
- jackaltman 10y ago
  That's a valid point, that it could potentially be more expensive than it's worth. In other words, it is possible to spend too much on trying to make your employees happier. I wasn't trying to argue that the optimal amount to spend on employee turnover is infinite, but I do think most companies dedicate less than the rational/optimal amount of effort on it.
vinceguidry 10y ago
In my studies of history, I'm finding this current thrust of individuals as stores of wealth over firms and nations to be quite interesting. Back in the colonial period, everything revolved around national wealth. The crown alone sanctioned and funded expeditions, chartered corporations, and fought wars. Over the last few centuries, power gradually shifted to the firm, then to markets, and now finally to individuals. Used to be, you had to pick the right parents, pick the right industry, and hope the political winds don't shift against you to earn a decent, livable life. Now, all you need is intelligence and mental fluidity to weather hardships. No longer is a job loss catastrophic. Just about anyone born in a Western nation can, if he decides to, gain an education and make his way up the social ladder. This is completely unprecedented from a historical perspective. The ability of the not-well-off to earn and enjoy the benefits of education was far and away only the province of the extremely gifted, the John Rockefellers of the world. It's easier than ever for someone born dirt-poor to become a CEO or politician. Soon the world will turn completely on merit. It'll be fascinating to watch the way our societies go next. Certainly affluence will continue to push out into the developing world. But how will modern Western societies evolve? Will we conquer aging and produce scions of unimaginable ability? Death is the ultimate limiter of the power of individuals.
- CPLX 10y ago
  > Soon the world will turn completely on merit. lol
  - gm-conspiracy 10y ago
    I enjoyed reading Atlas Shrugged, but I understand it is a work of fiction.
- krapp 10y ago
  >Now, all you need is intelligence and mental fluidity to weather hardships. No longer is a job loss catastrophic. Just about anyone born in a Western nation can, if he decides to, gain an education and make his way up the social ladder. What Western nation do you live in? Because in the Western nation I live in, both job loss and education can be catastrophic for many people.
skylark 10y ago
I feel like the tighter your developers are with each other, the higher the impact of turnover. I personally know from experience that when my high performing friends move onto bigger and better things, they constantly encourage me to go with them or find something new myself. Entire teams can end up leaving through a sort of snowball effect.
mythrwy 10y ago
IDK. I've been at a few organizations where the cost of employee turnover almost certainly would have been negative.
makecheck 10y ago
Software development has some “special” traits that are not necessarily covered by this analysis. For one thing, you can’t just measure what a developer has done; you need some sense of how easy maintenance is going to be. Given two brilliant solutions that required an extraordinary developer to create, one may be an indecipherable mess and the other may have been built in a way that makes typical maintenance tasks very straightforward. From the outside they may look the same but the cost difference is huge. Some people are really good at writing solid code, and replacing them may mean introducing headaches that you didn’t have before. Also, a particularly weird bug may cost your team tremendous amounts of time (and possibly more), and you may not have the right people to deal with that quickly. Also, “cost of hiring” probably isn’t referring to the cost of having a really bad hiring staff. If those people are not doing a good job of filtering résumés or otherwise finding the right people, or if they leave good candidates dying on the vine due to slow response times, there is a big cost. It is extremely important for companies to look good from the outside to attract candidates.
- Bartweiss 10y ago
  Maintenance (and maintainability) are definitely key questions for software development. The first point, about keeping people who write maintainable code, I agree with 100%. The second one, about keeping codebase expertise, seems complicated. On one hand, we all know there are weird bugs and edge cases best handled by knowing the code intimately. What's 20 hours of QA and engineering for an unfamiliar team can be a 5 minute tweak for the guy who wrote the method, even with clear code and good tests. Weird bugs do happen, and just knowing that what it isn't can help with finding some awful probabilistic issue. On the other hand, I wonder if this is a "controlled burn" kind of issue. Everyone's heard of systems that work fine for 20 years and then explode as soon as the expert leaves. Normally that's a design and maintainability issue, but at some level we're talking about bus factor here. You're definitely trading fewer crises for worse crises, but I don't know the rate on the tradeoff. Obviously unplanned turnover is still a huge issue, but I do wonder what the right balance is on "just knows how to fix it" versus "institutional knowledge is safer than personal".
  - humanrebar 10y ago
mtkd 10y ago
employee turnover is why enterprises rarely build any useful software and have to buy startups to more forward projects or operations with fragmented continuity because of turnover contribute near zero additional value and existing value decays quickly over time - each time a role is replaced more knowledge is lost - to the point the project is permanently on life support paying people more and more to stay isn't enough - you also have to remove all the oxygen stealing layers of bureaucracy to create a bearable working environment - but that isn't usually possible in an enterprise as everyone senior tries to avoid being responsible for anything which almost always leads to more management and compliance layers until someone soils the bed over cost I take my hat off to Microsoft over the last couple of years - what those guys (Scott Guthrie?) have done with .NET, SQL etc. appears, from the outside, to have reversed that trend
dpweb 10y ago
There should be some further study in this area. I'm skeptical of the quoted costs of replacing employees and missed productivity ie.. 213%. Not to mention replacing poor performers can often be a value gain not loss. About cost, we're talking managers' time - but maybe hiring is most valuable thing they can be spending time on, other than directly generating revenue.
- jackaltman 10y ago
  I agree with you -- I wrote this with regrettable turnover in mind. Parting ways with a low performer is definitely a valuable thing to do!
  - dpweb 10y ago
    I see now - we're talking only regrettable employee losses. Thanks.
- Mtinie 10y ago
  > Not to mention replacing poor performers can often be a value gain not loss. In the article's examples, I took the author's position as describing the situations concerning positive-value employees, not negative-value ones.
- lostcolony 10y ago
  I think this is predicated on the idea of replacing an employee who leaves of their own accord, that you would have preferred to hold onto. Not of one you let go, or are glad to see leave. Basically, just the employees who are worth the amount you are paying them, or more; not those who are worth less.
protomyth 10y ago
This is one of those areas that would be amazing for academic study, but I doubt any company that would tell an interesting story would allow it. I would love for someone who had started with studies of tribes with an oral tradition to go into a software company and study how they work. I get the feeling that several similarities will show through even in a company that expects good documentation.
- HarryHirsch 10y ago
  Karen Ho went to Wall Street for her dissertation: https://www.amazon.com/-/dp/0822345994 https://www.amazon.com/-/dp/0822345994 Anthropologists don't commonly live in mud huts, that's just a prejudice.
  - protomyth 10y ago
    > Anthropologists don't commonly live in mud huts, that's just a prejudice. Where the heck did that come from. I'm well aware of cultural anthropology and have worked with a couple on academic grants. I just think those more familiar with oral tradition of tribes would have an amazing time in a software company. Also, just for your information, not all tribes live in mud huts, that's just a prejudice.
    - HarryHirsch 10y ago
      The mud hut was intended as a sideswipe at the fairly large HN faction that believes that only the hard sciences are a worthwhile pursuit and that the arts and humanities are for penniless losers. Also, Nigel Barley's Notes from a Mud Hut. (Yes, now I realize how the previous comment can be misunderstood, sardonic groans don't translate into written text.)
      - protomyth 10y ago
        I probably wouldn't have taken quite the offense if I wasn't actually typing this from a reservation in the US. My first vision of tribal is a bit different.
mruniverse 10y ago
What are the ramifications if we learn that employee turnover is very cheap?
- pixl97 10y ago
  Lower wages
  - deleted 10y ago
    [deleted]
Inthenameofmine 10y ago
It's funny. The smart companies I know are all moving away from hiring full-time devs. They want a very small core team of highly skilled devs, all with relatively high equity, combined with tons of freelancers/consultants on a call-list. By far the biggest cost to software companies is employee turnover because the second greatest cost is employee education and training. We've measured developer productivity in multiple ways and time to full productivity within any new team/project generally is 3-6 months. Average empployment time at any single company in the tech industry is now 18-24 months. It makes more sense to pay 3-4x for most work, rather than have to deal with HR, education, and retention overhead.
- qaq 10y ago
  Do freelancers/consultants magically need no onboarding and become fully productive on day 1?
  - flukus 10y ago
    According to the job ads that need someone to "hit the ground running" they do.
  - whyileft 10y ago
    With freelancers you can just stop paying them after day 1 if they don't and try another. In some verticals of software development there is a ton of supply.
    - st3v3r 10y ago
      That tends to get you a reputation, which makes it harder to find more freelancers.
  - tedmiston 10y ago
    As a dev employee turned freelancer, the onboarding is still there but much different. Much more focused on learning just enough to work on specific tasks vs poking around for a week or two and figuring out the whole system. I'd say I spend 1/4 the time onboarding as a contractor vs as an employee.
shanemhansen 10y ago
I've often been shocked at how a theoretically rational profit seeking business will happily throw millions down the drain rather than compensate an individual based on value. Ultimately I've concluded that although they may be greedy, most businesses don't make rational profit seeking decisions. They make decisions that stroke their ego, and sometimes their ego can't accept the value that certain employees bring to the table. They are just coders right? /s Nowhere was this more apparent than at my first big job. The company's first full time engineer was still working there, and still extremely essential to the operation of the business. (It was actually bad that he was so essential, but that's another story). This company made several hundred million dollars a year. Online. And almost daily this individual used their tribal and historical knowledge to keep the site up. He left. I doubt he was paid a million dollars, but I have no doubt that paying a million dollars to keep him around would have been a cost saving measure.
- sputknick 10y ago
  It's not about what salary that engineer deserved, but what they could command. That engineer might have done $1 million worth of work a year, and deserved a $1 million salary; but he couldn't go to another company and proclaim he was worth $1 million. He could probably go elsewhere and get a slightly above average salary, your company knew that, and that is why they paid him that.
  - qntty 10y ago
    Is it rational for a a company to risk losing $1mm+ while training his replacement rather than pay him more? Assuming he would have stayed if they offered him more money. And if the same situation repeats itself with his replacements, maybe it's a matter of $1mm every (say) 6 years, which would justify paying $166k more per year (surely enough to keep him on indefinitely).
  - withdavidli 10y ago
    This comment isn't against you, because you are right that a lot of companies calculate this way. It is also undeniably short sighted. Because value in this case is literally in the eye of the beholder. If they were worth at least million and mission critical, market rate was 100k-200k. Pay 400k-500k. Guarantee employee knows they are valued and no other company would match because the person isn't worth as much to the competitor. There was an article a few years ago about a Google employee. Competitor interviewed, offered what they thought was a great package around 500k, found out candidate was making 3mil at Google. Failure on the recruiter part not getting that info beforehand, but can understand more senior folks not discussing till the end.
georgeecollins 10y ago
Here is a strange thing I have seen: Turnover is bad for a company overall, but good for H.R. HR teams are more important the more there is a need for recruitment. I have seen them be the part of the company that says "we are a team like a sports team, not a family," implying churn is OK. That is good for their productivity, particularly if their workload is on boarding and "culture" as well as recruiting.
- abraae 10y ago
  Turnover is not always bad by any means. Often a company accumulates (bad hires, acquisition, good apples going stale) people who would be better off gone for everyone's sake. There's good turnover and bad turnover.
  - jackaltman 10y ago
    Exactly. In this article I was focused on regrettable turnover (when you wish the employee didn't leave), as opposed to non-regrettable turnover, which is very healthy.
    - georgeecollins 10y ago
      In my experience, almost every time someone leaves someone regrets it and someone doesn't. The manager who supervised the person will usually say it is for the best. I have worked with great managers who clean house and terrible managers who drive people away, or treat them as scapegoats. In either case it may be identified as healthy turnover.
  - flukus 10y ago
    But when turnover is high the good ones are much more likely to be leaving.
    - ArkyBeagle 10y ago
      "Good" and "bad" mean different things at different times to the same company.
aluhut 10y ago
Would love to post this internally so HR sees it, but I'm afraid to appear on their radar ;)
JustSomeNobody 10y ago
Managers, here me now. 1) Money is a factor because my job is difficult. 2) Up to date technology is important because I want to build interesting products. As a developer, these are my motivations.
- overcast 10y ago
  Money I'll give you, but the vast majority of software is not going to be "interesting" or progressive. There are tons of major corporations doing "boring" work.
  - Aeolun 10y ago
    Money works perfectly fine as compensation for boring work :)
- flukus 10y ago
  I'd add 0) don't have a shitty code base. Nothing hampers my productivity (and the businesses) like technical debt.
  - megablast 10y ago
    How does that help someone who has been there for 2,3,4,5 years, since they created that.
    - citizens 10y ago
      Well, it might help their job security (no one else knows how it runs).
      - ktRolster 10y ago
        There was a guy who tried that, he wrote code so bad that no one else could understand it. In the end, the company fired him and hired someone else to rewrite his code from scratch. It's not worth it, just write good code.
Axiverse 10y ago
I wonder if taking such a view can be short-sighted. While it is true that employee turn-over can be costly, perhaps that is also one of the ingredients that make tech successful. The valuable employees that you hire have gained their skills at a number of other companies and the employees that have left are contributing to other companies. While this isn't on your balance sheet, it is contributing to the tech community as well. I wonder how you would go about quantifying this. From my experiences, those in tech for the most part have come from the tech community and stayed in the tech community. Employee mobility is creates a mixture of ideas and also lets individuals to be trained in certain disciplines by those that are most capable at it. In return, companies get employees that were well trained by other companies thus increasing the value of tech companies as a whole. I wonder if this becomes a trend and companies try to close their borders tighter (somewhat reminiscent of U.S. politics right now, huh?) that companies will see short term gains, while the entire industry would suffer in the long run.
rorski 10y ago
What is the cost to companies of letting demoralized employees stick around to wait for options/RSU/bonuses to vest? I'm in the process of leaving a company now where I've been watching this happen for the better part of two years, and I keep wondering how much more productive and successful we could have been if those people had been let go and filled with some new, motivated recruits.
sytelus 10y ago
TLDR; Losing an employee has cost of 1.5X to 2.1X of his/her annual compensation. A surprise case study here should be Amazon which has turned this wisdom upside down on its head. There have been rumors of 40% to as much as 70% churn at Amazon and despite of that company thrives.
- Zigurd 10y ago
  I have more than one data point about that. Amazon burns people out at a furious pace. It seems like long term survivors strike a balance between not caring and careful career management. People find a way to live in such systems, and until they face a crisis, like attracting people after their explosive growth phase, companies can hold on to bad practices for a long time.
- don_draper 10y ago
  I don't know how Amazon succeeds if those rates are true. My experience has been that any company with a turnover like that is going to have a ton of tech debt.
IshKebab 10y ago
Hard to believe a graph when its author can't even type $13,000,000.
jack9 10y ago
Notice the article starts by talking about the mythical "superstar" instead of the more common "sub-performer" or "redundancy". Employee turnover FUD is all over, when existing dysfunction is ignored. I interview and hire in 3 days. I run through tens (if not hundreds) of interviews and the commensurately large resume pool. 1-2 hours every day, is barely a chore for the ability to hire someone smart and interesting to work with day to day who has the skillset we need. Employee turnover is expensive in tech, but not replacing specialized workers that are no longer useful, is worse for both sides.
- jackaltman 10y ago
  I agree completely with this. I was writing about turnover of high performing employees, which is crazy expensive. Turning over low performers is valuable and important for companies to do.
shawn-furyan 10y ago
If a 'mission that matters' is important enough to spend 3 paragraphs on, but salary only deserves a single dismissive paragraph, then why exactly do we never have enough teachers? If people really had such a great preference for mission over compensation, then the public sector, and non-profits could be 'selective'. I mean, the public and non-profit sector usually don't even have to do bullshit PR vanity projects (cough Microsoft-Google-Facebook-Amazon-Exxon-GE-BP) to convince people that they are not evil on balance. Still, it's the massively profitable companies that have the luxury of selectivity, not the ones with the best missions. Like so much in 'management methodology' literature, there is such a willingness in this article to prefer anything (like small ungeneralizeable psychology studies[1]) that confirm clearly absurd magical beliefs (e.g. there are easy cheap scalable alternatives to compensation for retaining employees) that it is impossible to take the advice therein remotely seriously. [1] that are being misinterpreted, to boot [edit: added the footnote, grammar]
kitwalker12 10y ago
> When a capable person on your team wants a role bigger than her past experience, do you give her a shot or do you simply hire someone with more experience? This spoke to me the most as I've seen this happen at multiple places. lack of growth seems to be the most common reasons for employees leaving (apart from stagnating salaries) and that's something a company can easily invest in
torpfactory 10y ago
Some other perspectives: - Salary is VERY important for most engineers - most of us are making incomes where making a little more money might be important. That said, consider the incentives that drive the decision makers (managers) who decide on salaries. The managers who say "Yes we can keep these people but no we don't have to pay them more" are much more likely to succeed than the ones who say "I need more money for the same headcount". Unless you've put serious institutional capital in the bank in the form of previous success, you won't win this argument with higher management. (By the way, I agree with the general premise that turnover is really expensive and most companies, including their upper management, don't take it seriously). - I think that this is another example of the "Hard to measure, easy to measure" divide in otherwise scientific management that defines most companies today. It is easy to measure salary. In fact, you are usually required to report it in most accounting schemes. Measuring cost of employee acquisition is easy for some parts only. On-boarding and training costs can be relatively well quantified. But what about lost productivity? What about lost innovation? Trying to measure "what isn't there" has never been easy. Managers will make decisions based on the hard data at hand. There is almost never enough hard data to justify greatly increasing their salary, and most managers won't go out on a limb (lacking hard data) to try and justify this. I can't say I'd do differently in their situation...
mightybyte 10y ago
Years ago I left a great job that I loved working at a Fortune 200 company because I had to make a family-related move. The company I worked for also had a significant presence in the city I was moving to. My boss gave me a referral to someone there with the logic that I was already known to be a reliable contributor, and at the very least it would be lower risk for the company to move me there rather than hire a new unknown person. I got several job offers in the new city including one from the same company. Problem was...the company was 20% lower than the best of my other offers! Apparently there was a company policy limiting how much of a raise could be given, so they straight-up couldn't compete. I got the distinct impression that I could have taken a job with another company, then come back 6-12 months later and gotten a much higher offer. Basically mandated turnover. Talk about an awful policy.
- collyw 10y ago
  One place I worked couldn't possibly give me the pay rise I asked for, yet they are now using 1 and a half employees to do my job (one full time, one part time).
solatic 10y ago
Reading this made me think - maybe the work to live / live to work personality divide isn't actually real. Maybe people are divided more into two categories of those who are pessimistic that work will help them achieve self-actualization, and those who are optimistic about achieving self-actualization at work, or perhaps have already found it at work. Does a work-to-live kind of person become a live-to-work kind of person if his workplace is genuinely happy? Does he forgo attempting to find happiness at work because he doesn't have the expectation of finding it, thus being more likely to accept poor work conditions in exchange for higher salary? Interesting questions.

541 points by craigkerstiens 10y ago

The article goes out of its way to mention 'regrettable employee turnover' which is a polite way to identify the group "people who left you wanted to stay" vs "people who left and you are happy with it." However, that requires that you also understand the impact of an employee on the organization. There are people who have been "let go" because their manager had no idea what they actually did, and that caused a huge impact on the organization overall. There are people who have been "retained" because their manager felt they were key to the success of the group/project but didn't realize the toxic impact they were having on the organization. These are the "inverted" cases where you really need to keep the person having high impact and manage out or move the person who is creating stress on the rest of the team.

muninn_ 10y ago

Not a very informative article. The costs are high, so try to minimize turnover. It's simple.

bsilvereagle 10y ago
I think you missed the forest for the trees - the author clearly states that a quantitative approach to understanding turnover is needed and that everyone knows "The costs are high, so try to minimize turnover. It's simple." but it's hard to take action on a qualitative indicator. He then presents what appears to be a reasonable equation to estimate how much turnover costs a company.
- muninn_ 10y ago
  The "quantitative approach" here is hardly worth considering. Maybe I should write for Medium. I could just as easily throw a bunch of crap together and call it journalism and provide some random numbers and factors and call that an equation!
  - tokenizerrr 10y ago
    > Maybe I should write for Medium Considering this is a medium opinion piece, which are essentially blogs, you very well could.
  - innocentoldguy 10y ago
    I wouldn't consider Medium "journalism." I've written an article or two on the platform, but I don't recall anybody doing any fact-checking or editing on my work. Medium is just a place where people go to say stuff, and should be valued accordingly.
dandandan 10y ago
I don't think many orgs actually quantify the cost which is the point the article is trying to make. Figure out what it costs _you_.
- muninn_ 10y ago
  Yeah everybody knows that, so what was the point of the article?
  - IanCal 10y ago
    If measuring the cost is important and not many organisations do it, then clearly some people might benefit from hearing this.
  - rbcgerard 10y ago
    If everyone know that, then why don't organizations prioritize this relative to the size of the potential cost?
    - muninn_ 10y ago
      Because they are doing other things
      - deleted 10y ago
        [deleted]

vermontdevil 10y ago

Not hard to see the obvious. Look at Costco compared with Sam's Club. You can see the difference since Costco employees tend to stay longer there. https://hbr.org/2006/12/the-high-cost-of-low-wages https://hbr.org/2006/12/the-high-cost-of-low-wages

kornish 10y ago
Another example in this vein is Henry Ford's $5 work day – wages dramatically above then-market rates prompted outrageous enthusiasm and loyalty from workers. http://www.henryford150.com/5-a-day/ http://www.henryford150.com/5-a-day/
- mywittyname 10y ago
  There's a lot more to it than that. >The $5-a-day rate was about half pay and half bonus. The bonus came with character requirements and was enforced by the Socialization Organization. This was a committee that would visit the employees' homes to ensure that they were doing things the "American way." They were supposed to avoid social ills such as gambling and drinking. They were to learn English, and many (primarily the recent immigrants) had to attend classes to become "Americanized." Women were not eligible for the bonus unless they were single and supporting the family. Also, men were not eligible if their wives worked outside the home. http://www.forbes.com/sites/timworstall/2012/03/04/the-story-of-henry-fords-5-a-day-wages-its-not-what-you-think/#3acd0e971c96 http://www.forbes.com/sites/timworstall/2012/03/04/the-story...
  - kornish 10y ago
    I didn't know that – thanks for sharing!
battlebot 10y ago
Costco pays $17/hr. vs. Sam's what? I don't even know. < $15/hr. Maybe $14/hr? Okay, it was in the article, $11.52!

mr_tristan 10y ago

While yes, it's important to quantify, I'm not sure the article is that actionable for most startups, or even businesses that don't have large HR departments. Most software development managers I know would just pull estimated values out of their ass, instead of actually creating a formal model for tracking things like "cost of onboarding and training". It sure would be nice to have some case studies, perhaps? Has anyone worked at a place that tried to calculate required onboarding costs for high-skill, salaried positions? I've only ever seen places just create random budgets for online programs like Linda.com, but these programs never seemed relevant to the positions that, well, were the most significant to the company, to put it nicely. I just suspect unless you had a quant in an HR department, this sort of thing just will never get calculated correctly.

mooreds 10y ago
I commented above, but I don't think you need to get this perfect. What you want is a baseline number, even if it is low. If that number is $X to replace this person (fully, including estimates of rampup time and lost productivity), and they want a raise of $Y, and $Y < $X, the rational employer will give the raise. Heck, the rational employer would give $X-1. Now, is the world full of rational employers? Nope.

nullnilvoid 10y ago

Many managers have the mindset that they can find replacements easily. If you don't do the job, there are 5 people lining up for this position. They don't realize the cost of turnover, partially because it is hard to quantify the cost. In the good old days, IBM and other blue chips would spend lots of money and send employees back to school and train them well. Nowadays, everyone is considered to be replaceable.

mevile 10y ago
In my experience, this is not true in San Francisco. I've never worked anywhere in the bay area where engineers were thought of as easily replaceable. Everyone knows how hard it is to hire competent engineers around here. Even if people were lined up to replace a lost employee, just the interview process for hiring people is expensive as it takes multiple people out of their role to sit and interview someone for a day. When you lose someone, you end up with an empty position for at least a month, as even if you do hire someone right away they have to quit their current job and leave notice.
- Aqua_Geek 10y ago
  > I've never worked anywhere in the bay area where engineers were thought of as easily replaceable. They may not have been thought of that way, but I've very much seen them treated that way.
  - abraae 10y ago
    People are humans and human nature nearly always leads to political behaviour (i.e. behaviour not optimal for the organization as a whole) in any organization of more than a few people. Pressed on all sides, dealing with unreasonable demands from above, and with internal competitors and naysayers to fight off, even the most enlightened manager may sometimes behave in ways that treat people as easily replaceable. Even if intellectually they know they aren't.
- Arizhel 10y ago
  There could be a disconnect between hiring managers and HR and upper management. The hiring managers you know probably do understand the cost of replacing a lost employee and how hard it is to hire. The HR department that's actually in control of this, and of salaries, doesn't, or just doesn't care. I have a theory that a lot of the terrible mismanagement we see with modern American corporations comes directly from HR. Didn't W. Edwards Deming say that companies would be better off just eliminating their HR departments altogether?

farberjd 10y ago

It depends on a lot of factors including but not limited to: age of company, industry, how much tribal knowledge this person possesses and estimated ramp time. As an example: a 2 year old tech company, an employee that's been around since inception and possesses a lot of quirks and random information in their head, it's going to cost the company a shit load of money.

pixl97 10y ago
That's a business documentation problem. No different than if they get hit by a bus.

dtnewman 10y ago

Two thoughts: * It's a good idea to try to quantify the cost of losing an employee. If you at least understand what basic costs you'll incur, such as cost of hiring, training, etc. it'll give you a basis for realizing the importance of minimizing turnover (perhaps you'll even conclude that turnover isn't a big deal in your case). But it's very hard to quantify some of the largest costs such as employee moral. I was once at a company where an entire (small) team slowly left after a single person departed. Perhaps any individual's departure could have been handled without too much of an issue, but the loss of entire team and all the institutional knowledge contained there was quite damaging to the company. * The article mentions some tips for retaining employees and I think they are spot on. But I don't think it emphasizes the importance of salary enough. A lot of employees jump ship because of the higher salaries they can get when they move around. Meanwhile, the original company they left will likely have to pay market rate to get someone with similar experience (and none of the institutional knowledge), so they would have been much better off if they would have just bumped their employee's pay to market rate in the first place. By the time it gets to a counter-offer stage, it's often too late. EDIT: The article briefly mentions the importance of paying market rate salary, but I missed this sentence when I read it over the first time. Updating my second bullet accordingly.

matwood 10y ago
It mentions that market rate salaries are table stakes. So view market-rate compensation simply as table stakes, and spend your energy focused on the next level of Maslow’s hierarchy of employee happiness: opportunities for growth, the ability to have impact towards a purpose, and a caring environment that makes them feel valued.
- salarycommenter 10y ago
  There is market rate and then there is market rate. Have you ever met a manager who didn't claim to pay market rate and pull out the old "salary data" yarn. Managers seem to think that just because they say something their employees believe it when the reality is the employee doesn't care and will just replace the faulty manager.

deleted 10y ago

[deleted]

patsplat 10y ago

Estimate the floor for replacement cost based on the average recruiting fee for the title.

patsplat 10y ago
The ceiling will be significantly higher. But it's an interesting floor given that most employers know and hate paying for recruiters.

cj 10y ago

> "Instead, focus on growth, impact, and care" Since a lot of tech companies employ young talent (relative to other industries), this video by Simon Sinek on "Millennials in the Workplace" can be enlightening: https://www.youtube.com/watch?v=hER0Qp6QJNU https://www.youtube.com/watch?v=hER0Qp6QJNU Forewarning, he goes off the deep end on a few points, but IMO the general ideas are valid.

owenmarshall 10y ago
Sinek relies on a healthy heaping of anecdotes and unfounded assertions to shake his fist at an ill-defined generation just like _every previous generation has done since the dawn of time_. O tempora! O mores! indeed.
2xlbuds 10y ago
I've seen this talk before, and he makes a ton of assertions mostly backed by often-repeated cliches rather than data (e.g. participation trophies). This is a really good talk I've seen posted in response to this very video before, so I'll post it again. https://www.youtube.com/watch?v=-HFwok9SlQQ https://www.youtube.com/watch?v=-HFwok9SlQQ

michaelfeathers 10y ago

The cost of not having employee turnover can be substantial also. It would've been interesting to see this addressed. In some particularly bad cases, organizations atrophy and lose the ability to respond well.

Zigurd 10y ago

I've never heard of a manager being reprimanded for high turnover. I would guess that this metric has to bubble up to the level of investors' analytics to make a difference in management performance assessment. Perhaps Glassdoor sees a market for such a product. The stakes are high enough that it would move the needle at an organization like YC.

nodefortytwo 10y ago

In my business I do try to minimise turnover for almost purely emotional/moral reasons. It's good to have a team that as close to friends as possible. The technical cost of staff turnover is minimal because systems and processes should be designed in a way that anyone can leave without impact to the business for obvious reasons (illness, relocation, family circumstances)

rbcgerard 10y ago

The problem is that these costs don't explicitly show up anywhere or get improperly allocated. It's not like HR comes in and says to someone that has a P/L "we're allocating a whole bunch of expenses to you because of turnover"

euphoria83 10y ago

This article missed the fact that the cost to the company in trying to keep the employees who will leave every year might be greater than the cost of losing them. For e.g., in the example given in the article, the company loses 1.57 million due to employee turnover. However, who knows how much the company might have to spend to keep those employees from leaving. The cost would be high because the effort spent on employee retention is spread over all employees, even those who won't leave. Hence, even a small expense per employee, might end up costing more than the cost of losing certain percent of them.

nine_k 10y ago
Let's estimate. Assume that the company loses 10 employees and loses $1.57M as a result. This means that it would be better off if it spent less than $157k on each employee, on the average, to prevent the loss. $157k is a yearly salary of a senior developer, or maybe the entire yearly cost of a senior employee outside the hotbeds like SV or NYC. We can cautiously suppose that a company could retain the employees with measures less drastic than paying them twice as much for a year. OTOH paying them +20% for 5 years would be the same. So, if they can keep hiring cheaper developers, even while losing productivity due to onboarding issues, maybe they can actually save money!
- euphoria83 10y ago
  The money that they can spend per employee is 1.57M / # total employees. Not, 1.57M / # of employees who left. They don't know who will leave. Their cost of good initiatives will be spread over all their employees.
jackaltman 10y ago
That's a valid point, that it could potentially be more expensive than it's worth. In other words, it is possible to spend too much on trying to make your employees happier. I wasn't trying to argue that the optimal amount to spend on employee turnover is infinite, but I do think most companies dedicate less than the rational/optimal amount of effort on it.

vinceguidry 10y ago

In my studies of history, I'm finding this current thrust of individuals as stores of wealth over firms and nations to be quite interesting. Back in the colonial period, everything revolved around national wealth. The crown alone sanctioned and funded expeditions, chartered corporations, and fought wars. Over the last few centuries, power gradually shifted to the firm, then to markets, and now finally to individuals. Used to be, you had to pick the right parents, pick the right industry, and hope the political winds don't shift against you to earn a decent, livable life. Now, all you need is intelligence and mental fluidity to weather hardships. No longer is a job loss catastrophic. Just about anyone born in a Western nation can, if he decides to, gain an education and make his way up the social ladder. This is completely unprecedented from a historical perspective. The ability of the not-well-off to earn and enjoy the benefits of education was far and away only the province of the extremely gifted, the John Rockefellers of the world. It's easier than ever for someone born dirt-poor to become a CEO or politician. Soon the world will turn completely on merit. It'll be fascinating to watch the way our societies go next. Certainly affluence will continue to push out into the developing world. But how will modern Western societies evolve? Will we conquer aging and produce scions of unimaginable ability? Death is the ultimate limiter of the power of individuals.

CPLX 10y ago
> Soon the world will turn completely on merit. lol
- gm-conspiracy 10y ago
  I enjoyed reading Atlas Shrugged, but I understand it is a work of fiction.
krapp 10y ago
>Now, all you need is intelligence and mental fluidity to weather hardships. No longer is a job loss catastrophic. Just about anyone born in a Western nation can, if he decides to, gain an education and make his way up the social ladder. What Western nation do you live in? Because in the Western nation I live in, both job loss and education can be catastrophic for many people.

skylark 10y ago

I feel like the tighter your developers are with each other, the higher the impact of turnover. I personally know from experience that when my high performing friends move onto bigger and better things, they constantly encourage me to go with them or find something new myself. Entire teams can end up leaving through a sort of snowball effect.

mythrwy 10y ago

IDK. I've been at a few organizations where the cost of employee turnover almost certainly would have been negative.

makecheck 10y ago

Software development has some “special” traits that are not necessarily covered by this analysis. For one thing, you can’t just measure what a developer has done; you need some sense of how easy maintenance is going to be. Given two brilliant solutions that required an extraordinary developer to create, one may be an indecipherable mess and the other may have been built in a way that makes typical maintenance tasks very straightforward. From the outside they may look the same but the cost difference is huge. Some people are really good at writing solid code, and replacing them may mean introducing headaches that you didn’t have before. Also, a particularly weird bug may cost your team tremendous amounts of time (and possibly more), and you may not have the right people to deal with that quickly. Also, “cost of hiring” probably isn’t referring to the cost of having a really bad hiring staff. If those people are not doing a good job of filtering résumés or otherwise finding the right people, or if they leave good candidates dying on the vine due to slow response times, there is a big cost. It is extremely important for companies to look good from the outside to attract candidates.

Bartweiss 10y ago
Maintenance (and maintainability) are definitely key questions for software development. The first point, about keeping people who write maintainable code, I agree with 100%. The second one, about keeping codebase expertise, seems complicated. On one hand, we all know there are weird bugs and edge cases best handled by knowing the code intimately. What's 20 hours of QA and engineering for an unfamiliar team can be a 5 minute tweak for the guy who wrote the method, even with clear code and good tests. Weird bugs do happen, and just knowing that what it isn't can help with finding some awful probabilistic issue. On the other hand, I wonder if this is a "controlled burn" kind of issue. Everyone's heard of systems that work fine for 20 years and then explode as soon as the expert leaves. Normally that's a design and maintainability issue, but at some level we're talking about bus factor here. You're definitely trading fewer crises for worse crises, but I don't know the rate on the tradeoff. Obviously unplanned turnover is still a huge issue, but I do wonder what the right balance is on "just knows how to fix it" versus "institutional knowledge is safer than personal".
- humanrebar 10y ago

mtkd 10y ago

employee turnover is why enterprises rarely build any useful software and have to buy startups to more forward projects or operations with fragmented continuity because of turnover contribute near zero additional value and existing value decays quickly over time - each time a role is replaced more knowledge is lost - to the point the project is permanently on life support paying people more and more to stay isn't enough - you also have to remove all the oxygen stealing layers of bureaucracy to create a bearable working environment - but that isn't usually possible in an enterprise as everyone senior tries to avoid being responsible for anything which almost always leads to more management and compliance layers until someone soils the bed over cost I take my hat off to Microsoft over the last couple of years - what those guys (Scott Guthrie?) have done with .NET, SQL etc. appears, from the outside, to have reversed that trend

dpweb 10y ago

There should be some further study in this area. I'm skeptical of the quoted costs of replacing employees and missed productivity ie.. 213%. Not to mention replacing poor performers can often be a value gain not loss. About cost, we're talking managers' time - but maybe hiring is most valuable thing they can be spending time on, other than directly generating revenue.

jackaltman 10y ago
I agree with you -- I wrote this with regrettable turnover in mind. Parting ways with a low performer is definitely a valuable thing to do!
- dpweb 10y ago
  I see now - we're talking only regrettable employee losses. Thanks.
Mtinie 10y ago
> Not to mention replacing poor performers can often be a value gain not loss. In the article's examples, I took the author's position as describing the situations concerning positive-value employees, not negative-value ones.
lostcolony 10y ago
I think this is predicated on the idea of replacing an employee who leaves of their own accord, that you would have preferred to hold onto. Not of one you let go, or are glad to see leave. Basically, just the employees who are worth the amount you are paying them, or more; not those who are worth less.

protomyth 10y ago

This is one of those areas that would be amazing for academic study, but I doubt any company that would tell an interesting story would allow it. I would love for someone who had started with studies of tribes with an oral tradition to go into a software company and study how they work. I get the feeling that several similarities will show through even in a company that expects good documentation.

HarryHirsch 10y ago
Karen Ho went to Wall Street for her dissertation: https://www.amazon.com/-/dp/0822345994 https://www.amazon.com/-/dp/0822345994 Anthropologists don't commonly live in mud huts, that's just a prejudice.
- protomyth 10y ago
  > Anthropologists don't commonly live in mud huts, that's just a prejudice. Where the heck did that come from. I'm well aware of cultural anthropology and have worked with a couple on academic grants. I just think those more familiar with oral tradition of tribes would have an amazing time in a software company. Also, just for your information, not all tribes live in mud huts, that's just a prejudice.
  - HarryHirsch 10y ago
    The mud hut was intended as a sideswipe at the fairly large HN faction that believes that only the hard sciences are a worthwhile pursuit and that the arts and humanities are for penniless losers. Also, Nigel Barley's Notes from a Mud Hut. (Yes, now I realize how the previous comment can be misunderstood, sardonic groans don't translate into written text.)
    - protomyth 10y ago
      I probably wouldn't have taken quite the offense if I wasn't actually typing this from a reservation in the US. My first vision of tribal is a bit different.

mruniverse 10y ago

What are the ramifications if we learn that employee turnover is very cheap?

pixl97 10y ago
Lower wages
- deleted 10y ago
  [deleted]

Inthenameofmine 10y ago

It's funny. The smart companies I know are all moving away from hiring full-time devs. They want a very small core team of highly skilled devs, all with relatively high equity, combined with tons of freelancers/consultants on a call-list. By far the biggest cost to software companies is employee turnover because the second greatest cost is employee education and training. We've measured developer productivity in multiple ways and time to full productivity within any new team/project generally is 3-6 months. Average empployment time at any single company in the tech industry is now 18-24 months. It makes more sense to pay 3-4x for most work, rather than have to deal with HR, education, and retention overhead.

qaq 10y ago
Do freelancers/consultants magically need no onboarding and become fully productive on day 1?
- flukus 10y ago
  According to the job ads that need someone to "hit the ground running" they do.
- whyileft 10y ago
  With freelancers you can just stop paying them after day 1 if they don't and try another. In some verticals of software development there is a ton of supply.
  - st3v3r 10y ago
    That tends to get you a reputation, which makes it harder to find more freelancers.
- tedmiston 10y ago
  As a dev employee turned freelancer, the onboarding is still there but much different. Much more focused on learning just enough to work on specific tasks vs poking around for a week or two and figuring out the whole system. I'd say I spend 1/4 the time onboarding as a contractor vs as an employee.

shanemhansen 10y ago

I've often been shocked at how a theoretically rational profit seeking business will happily throw millions down the drain rather than compensate an individual based on value. Ultimately I've concluded that although they may be greedy, most businesses don't make rational profit seeking decisions. They make decisions that stroke their ego, and sometimes their ego can't accept the value that certain employees bring to the table. They are just coders right? /s Nowhere was this more apparent than at my first big job. The company's first full time engineer was still working there, and still extremely essential to the operation of the business. (It was actually bad that he was so essential, but that's another story). This company made several hundred million dollars a year. Online. And almost daily this individual used their tribal and historical knowledge to keep the site up. He left. I doubt he was paid a million dollars, but I have no doubt that paying a million dollars to keep him around would have been a cost saving measure.

sputknick 10y ago
It's not about what salary that engineer deserved, but what they could command. That engineer might have done $1 million worth of work a year, and deserved a $1 million salary; but he couldn't go to another company and proclaim he was worth $1 million. He could probably go elsewhere and get a slightly above average salary, your company knew that, and that is why they paid him that.
- qntty 10y ago
  Is it rational for a a company to risk losing $1mm+ while training his replacement rather than pay him more? Assuming he would have stayed if they offered him more money. And if the same situation repeats itself with his replacements, maybe it's a matter of $1mm every (say) 6 years, which would justify paying $166k more per year (surely enough to keep him on indefinitely).
- withdavidli 10y ago
  This comment isn't against you, because you are right that a lot of companies calculate this way. It is also undeniably short sighted. Because value in this case is literally in the eye of the beholder. If they were worth at least million and mission critical, market rate was 100k-200k. Pay 400k-500k. Guarantee employee knows they are valued and no other company would match because the person isn't worth as much to the competitor. There was an article a few years ago about a Google employee. Competitor interviewed, offered what they thought was a great package around 500k, found out candidate was making 3mil at Google. Failure on the recruiter part not getting that info beforehand, but can understand more senior folks not discussing till the end.

georgeecollins 10y ago

Here is a strange thing I have seen: Turnover is bad for a company overall, but good for H.R. HR teams are more important the more there is a need for recruitment. I have seen them be the part of the company that says "we are a team like a sports team, not a family," implying churn is OK. That is good for their productivity, particularly if their workload is on boarding and "culture" as well as recruiting.

abraae 10y ago
Turnover is not always bad by any means. Often a company accumulates (bad hires, acquisition, good apples going stale) people who would be better off gone for everyone's sake. There's good turnover and bad turnover.
- jackaltman 10y ago
  Exactly. In this article I was focused on regrettable turnover (when you wish the employee didn't leave), as opposed to non-regrettable turnover, which is very healthy.
  - georgeecollins 10y ago
    In my experience, almost every time someone leaves someone regrets it and someone doesn't. The manager who supervised the person will usually say it is for the best. I have worked with great managers who clean house and terrible managers who drive people away, or treat them as scapegoats. In either case it may be identified as healthy turnover.
- flukus 10y ago
  But when turnover is high the good ones are much more likely to be leaving.
  - ArkyBeagle 10y ago
    "Good" and "bad" mean different things at different times to the same company.

aluhut 10y ago

Would love to post this internally so HR sees it, but I'm afraid to appear on their radar ;)

JustSomeNobody 10y ago

Managers, here me now. 1) Money is a factor because my job is difficult. 2) Up to date technology is important because I want to build interesting products. As a developer, these are my motivations.

overcast 10y ago
Money I'll give you, but the vast majority of software is not going to be "interesting" or progressive. There are tons of major corporations doing "boring" work.
- Aeolun 10y ago
  Money works perfectly fine as compensation for boring work :)
flukus 10y ago
I'd add 0) don't have a shitty code base. Nothing hampers my productivity (and the businesses) like technical debt.
- megablast 10y ago
  How does that help someone who has been there for 2,3,4,5 years, since they created that.
  - citizens 10y ago
    Well, it might help their job security (no one else knows how it runs).
    - ktRolster 10y ago
      There was a guy who tried that, he wrote code so bad that no one else could understand it. In the end, the company fired him and hired someone else to rewrite his code from scratch. It's not worth it, just write good code.

Axiverse 10y ago

I wonder if taking such a view can be short-sighted. While it is true that employee turn-over can be costly, perhaps that is also one of the ingredients that make tech successful. The valuable employees that you hire have gained their skills at a number of other companies and the employees that have left are contributing to other companies. While this isn't on your balance sheet, it is contributing to the tech community as well. I wonder how you would go about quantifying this. From my experiences, those in tech for the most part have come from the tech community and stayed in the tech community. Employee mobility is creates a mixture of ideas and also lets individuals to be trained in certain disciplines by those that are most capable at it. In return, companies get employees that were well trained by other companies thus increasing the value of tech companies as a whole. I wonder if this becomes a trend and companies try to close their borders tighter (somewhat reminiscent of U.S. politics right now, huh?) that companies will see short term gains, while the entire industry would suffer in the long run.

rorski 10y ago

What is the cost to companies of letting demoralized employees stick around to wait for options/RSU/bonuses to vest? I'm in the process of leaving a company now where I've been watching this happen for the better part of two years, and I keep wondering how much more productive and successful we could have been if those people had been let go and filled with some new, motivated recruits.

sytelus 10y ago

TLDR; Losing an employee has cost of 1.5X to 2.1X of his/her annual compensation. A surprise case study here should be Amazon which has turned this wisdom upside down on its head. There have been rumors of 40% to as much as 70% churn at Amazon and despite of that company thrives.

Zigurd 10y ago
I have more than one data point about that. Amazon burns people out at a furious pace. It seems like long term survivors strike a balance between not caring and careful career management. People find a way to live in such systems, and until they face a crisis, like attracting people after their explosive growth phase, companies can hold on to bad practices for a long time.
don_draper 10y ago
I don't know how Amazon succeeds if those rates are true. My experience has been that any company with a turnover like that is going to have a ton of tech debt.

IshKebab 10y ago

Hard to believe a graph when its author can't even type $13,000,000.

jack9 10y ago

Notice the article starts by talking about the mythical "superstar" instead of the more common "sub-performer" or "redundancy". Employee turnover FUD is all over, when existing dysfunction is ignored. I interview and hire in 3 days. I run through tens (if not hundreds) of interviews and the commensurately large resume pool. 1-2 hours every day, is barely a chore for the ability to hire someone smart and interesting to work with day to day who has the skillset we need. Employee turnover is expensive in tech, but not replacing specialized workers that are no longer useful, is worse for both sides.

jackaltman 10y ago
I agree completely with this. I was writing about turnover of high performing employees, which is crazy expensive. Turning over low performers is valuable and important for companies to do.

shawn-furyan 10y ago

If a 'mission that matters' is important enough to spend 3 paragraphs on, but salary only deserves a single dismissive paragraph, then why exactly do we never have enough teachers? If people really had such a great preference for mission over compensation, then the public sector, and non-profits could be 'selective'. I mean, the public and non-profit sector usually don't even have to do bullshit PR vanity projects (cough Microsoft-Google-Facebook-Amazon-Exxon-GE-BP) to convince people that they are not evil on balance. Still, it's the massively profitable companies that have the luxury of selectivity, not the ones with the best missions. Like so much in 'management methodology' literature, there is such a willingness in this article to prefer anything (like small ungeneralizeable psychology studies[1]) that confirm clearly absurd magical beliefs (e.g. there are easy cheap scalable alternatives to compensation for retaining employees) that it is impossible to take the advice therein remotely seriously. [1] that are being misinterpreted, to boot [edit: added the footnote, grammar]

kitwalker12 10y ago

> When a capable person on your team wants a role bigger than her past experience, do you give her a shot or do you simply hire someone with more experience? This spoke to me the most as I've seen this happen at multiple places. lack of growth seems to be the most common reasons for employees leaving (apart from stagnating salaries) and that's something a company can easily invest in

torpfactory 10y ago

Some other perspectives: - Salary is VERY important for most engineers - most of us are making incomes where making a little more money might be important. That said, consider the incentives that drive the decision makers (managers) who decide on salaries. The managers who say "Yes we can keep these people but no we don't have to pay them more" are much more likely to succeed than the ones who say "I need more money for the same headcount". Unless you've put serious institutional capital in the bank in the form of previous success, you won't win this argument with higher management. (By the way, I agree with the general premise that turnover is really expensive and most companies, including their upper management, don't take it seriously). - I think that this is another example of the "Hard to measure, easy to measure" divide in otherwise scientific management that defines most companies today. It is easy to measure salary. In fact, you are usually required to report it in most accounting schemes. Measuring cost of employee acquisition is easy for some parts only. On-boarding and training costs can be relatively well quantified. But what about lost productivity? What about lost innovation? Trying to measure "what isn't there" has never been easy. Managers will make decisions based on the hard data at hand. There is almost never enough hard data to justify greatly increasing their salary, and most managers won't go out on a limb (lacking hard data) to try and justify this. I can't say I'd do differently in their situation...

mightybyte 10y ago

Years ago I left a great job that I loved working at a Fortune 200 company because I had to make a family-related move. The company I worked for also had a significant presence in the city I was moving to. My boss gave me a referral to someone there with the logic that I was already known to be a reliable contributor, and at the very least it would be lower risk for the company to move me there rather than hire a new unknown person. I got several job offers in the new city including one from the same company. Problem was...the company was 20% lower than the best of my other offers! Apparently there was a company policy limiting how much of a raise could be given, so they straight-up couldn't compete. I got the distinct impression that I could have taken a job with another company, then come back 6-12 months later and gotten a much higher offer. Basically mandated turnover. Talk about an awful policy.

collyw 10y ago
One place I worked couldn't possibly give me the pay rise I asked for, yet they are now using 1 and a half employees to do my job (one full time, one part time).

solatic 10y ago

Reading this made me think - maybe the work to live / live to work personality divide isn't actually real. Maybe people are divided more into two categories of those who are pessimistic that work will help them achieve self-actualization, and those who are optimistic about achieving self-actualization at work, or perhaps have already found it at work. Does a work-to-live kind of person become a live-to-work kind of person if his workplace is genuinely happy? Does he forgo attempting to find happiness at work because he doesn't have the expectation of finding it, thus being more likely to accept poor work conditions in exchange for higher salary? Interesting questions.