This statistic will get your attention: according to the last Crowe Horwath LLP Financial Institutions Compensation and Benefits Survey, 2016 turnover rates in US banking for officers and non-officers alike are at a 10-year high. Moreover, alarmingly, only in 2014 they were at a ten-year low! Since then both rates have practically doubled.
Time to panic?
Here’s the thing: more than two-thirds of those leaving their jobs do so voluntarily. While panic never is a good companion you certainly should take a close look at your turnover rates and the underlying causes. To quote a recent article on Banking Exchange:
“With employee turnover rates in the banking industry at a ten-year high, banks must recognize the true costs of turnover, understand the underlying causes, and develop strategies to address the causes.”
In this first article of a two-part series, I will shed some light on the reasons for high turnover and the associated cost. In the second article later this month I will discuss what you can do about it.
Why they leave…
There are of course many possible reasons why people leave an organization. In the post-GFC (Global Financial Crisis) world, banks, whether commercial or investment, are still suffering the consequences of reputation damage.
While banks of all shapes and sizes find it hard to compete for talent with glitzy technology companies and hip startups, particularly when it comes to Millennials, it is all the more important for them to up their retention management game.
It helps to differentiate between early and later turnover. If someone leaves within the first year of joining a company, it often can be traced back to poor hiring decision. When you’re pressed to find someone and act out of desperation, you often pay the price further down the road.
Later turnover, i.e. people leaving after their first year, usually has to do with one or a combination of the following: lack of appreciation, wrong chemistry with the supervisor and/or team, a lack of promotional or professional growth opportunities, or non-competitive pay.
… and what it costs you
How big of a problem turnover is becomes apparent by looking at some metrics. Having someone jump ship simply costs you a lot of money.
In Brad Smart’s e-book “Topgrading Best Practices,” he estimates the average cost of a mis-hire for a sales rep earning $100,000 is $560,000 and for a manager, is $1.5 million. This is based on research in over 50 companies. Looking at banking employees, consider a BDO we are working with, who brought in new revenue to his bank of $509,000 in 2016. This opportunity cost alone is 4.4x his total annual compensation, and doesn’t even speak to the financial costs that would occur if customers leave the bank and follow this employee to his new home. When you consider this factor along with recruiting/hiring/onboarding costs, disruption costs, and other administrative costs, the multiplier can easily reach 8 to 10 or more times annual compensation.
In our industry, reputation matters
And the worst thing is that once you’re battling with significant turnover it may become a self-fulfilling prophecy and put you on a downward spiral.
In an industry that is extremely networking oriented, top talent can easily find out the “scoop” on key players and banks in their market. This is exacerbated by, you guessed it, the internet. Sites from LinkedIn, GlassDoor or Great Place to Work to Vault make it easy for candidates to do their research on people leaving certain banks and feedback from current/previous employees. If an employer has a pattern of high turnover, there will be a footprint somewhere on the Web.
Clearly, there are financial consequences but also other, more hidden cost of employee turnover. Paying attention to keeping your turnover rate low thus makes perfect business sense.
In my post in two weeks’ time, I will show you the most important steps to get you there.