The economics of staff retention - Part Two

If the direct costs can be high, the “knock-on” effects of high staff turnover are much more dangerous in terms of clients, risk, and people.

In general terms, client service is likely to suffer significantly – however you try to cover key client relationships there is only a limited pool of resource and talent so service and responsiveness may dip (at least in the short-term). Potentially more damaging is the loss of key clients. Relationships are personal and clients typically do not like change because new joiners may not understand their goals, operations, or business model. If numerous staff leave from the same team, the risks are multiplied because the departures are likely to be more visible and have more impact on the client. Finally, the reality is you are also likely to be creating a new potential “home” for the client wherever your key staff move to – they have the relationship and the knowledge to make a move seem attractive to the client.

When you lose staff, you are not simply losing their technical skills and knowledge which you may be able to replace, you are also losing irreplaceable corporate history. And it’s not just a matter of client relationships; it’s the accumulated experience of systems, processes, contracts, agreements, problems, solutions, risks and much more… When staff turnover reaches an extreme level, the loss of this accumulated knowledge, coupled with the inevitable focus on firefighting, can become an existential risk. At the very least, it’s likely to put your business close to the top of the regulator’s “Top 10 must visit” entities in your sector (which may sound attractive but is an additional distraction and challenge when you least need it...)

Throughout this article, I have assumed that an employer can replace leavers on a like-for-like basis. In practice, of course, in a tight labour market this is unlikely to be the case. Many of your more talented staff will leave earlier because their skills are highly transferable and externally recognized so they can attract a premium and have a choice of new homes. Plus, they are motivated to work in a successful environment. Much of the same logic applies to staff working in “hot spots” like Compliance and your team is likely to see most of the risks from staff turnover first hand. Replacing both numbers and talent is likely to be an expensive and long game even if you can keep the show on the road in the short term with internal transfers or contractors.

So, if the economics of staff turnover are compelling and the risks are dire, how do businesses get themselves into such a mess? It’s a combination of generic and specific factors, industry, environmental and company issues. As for how do you mitigate the risks and what are the early warning signs that is a whole article on its own…?