Why Retention Is Always More Cost-Effective Than Recruitment

A blueprint for creating a people-centric work culture

How do we find time to focus on the big picture and the reason we love our profession? How do we reward, recognize, and retain our people? How do we create a working environment where instead of facing the same frustrations every day, employees (HR included) wake up inspired to go to work and feel rewarded, appreciated, and supported by leaders who take the time to develop and empower them when they get there?

In many organizations, HR is neglected. There’s often one HR person responsible for hundreds of employees, and as a result, employee engagement scores plummet. Employee turnover continues to rise and recruitment costs escalate.

Research from Oxford Economics found that the average cost of replacing a single employee is over £30,000. This includes loss of productivity, advertising, agency fees, HR, and management time. The cost goes up as we look at more technical and senior roles that take longer to recruit.

Even if you feel that this estimate is on the high side, there is no doubt that retaining your key employees is more cost-effective than replacing them on a regular basis. If hiring an extra HR person enables you to retain only two more people a year, they will have covered their cost, but the truth is that having a larger HR team with the capacity to focus on employees adds so much more value to the business. Not just to the people who may be thinking of leaving, but all your colleagues.

That’s not to say that employee turnover should be zero. There will always be some people who leave your organization for one reason or another, and having new people come in with fresh ideas and perspectives is healthy. But a lot of employee turnover, particularly from exceptional colleagues, can be avoided.

There is a wealth of research on the positive correlation between employee engagement and organizational turnover and growth. Leaders of successful organizations realize this and proactively invest in HR to look after and engage their people. The alternative is a working environment where people feel disengaged, disillusioned, and demotivated.

Investing in an HR function that has a strategic role as well as an operational one is a no-brainer. Entrepreneur and chief executive officer (CEO) of VaynerMedia, Gary Vaynerchuk, talks about the fact that in most organizations, the number-two role to the CEO is the chief financial officer, but in his organization, it is an HR role: the chief heart officer.

If you work in an organization where the CEO, like Gary Vaynerchuk, is already people-focused and sees HR as a vital function, then you’re in luck. But what if your CEO is more like Michael Scott of Dunder Mifflin Paper Company, the fictional organization from The Office: An American Workplace? Michael Scott hates the branch HR representative, Toby Flenderson. In one interview, Michael explains that because Toby works in HR, he technically works for corporate and therefore isn’t part of the Dunder Mifflin Scranton family.

Michael just wants a positive work environment where every day is fun and exciting, and everyone likes him. He thinks HR – in this case, Toby – sucks the fun out of work and ‘makes the office lame’.

Convincing this type of CEO that HR adds real value to the organization is going to be a challenge. It starts by demonstrating that we’re not stereotypical ‘traffic wardens’, but can help create an environment where people love to work, wake up every day inspired, and offer their blood, sweat, and tears because they buy into our mission.

This is no easy task. There’s a lot to do to achieve it, and although we can take the lead, HR teams can’t do it alone. We need the rest of the organization to come with us on the journey. As HR teams, we have so much on our plate already: recruitment, employment law, training and development, diversity and inclusion.

Some organizations have tried to rebrand HR, renaming roles to alternatives such as people manager, head of people operations, or, like VaynerMedia, chief heart officer, but we need more than just a new name. Many successful organizations, such as Netflix and Google, have discovered that a human-centric approach makes good business sense.

We often hear that HR, the people function, should be learning more about the business and commercial side of the organization and using data and technology. This is true, but it’s also time for the organization as a whole to start learning more about people.

We need to understand how essential and inspiring the world of HR can be. HR teams have the power to shift the direction of their organizations entirely, making work meaningful and productive for employees, and in doing so, contributing to the organization’s overall success.

Rameez Kaleem is the Founder and Managing Director at 3R Strategy, an independent reward consultancy dedicated to helping organizations build a culture of trust through pay transparency. He is the author of A Case of the Mondays.