Replacing a mid-level manager making $150,000 per year might cost a large company $225,000-$300,000 in direct and indirect costs.
Research suggests those indirect costs, which include lost productivity and a reduction in team morale, account for two-thirds of the total.
Replacing C-level positions costs upward of 213% their annual salary, according to Matthew O’Connell and Mei-Chuan Kung’s research paper, “Employee Turnover & Retention: Understanding the True Costs and Reducing them Through Improved Selection Processes.”
A typical small business, the business category with the highest churn rate, must dish out an estimated 20% of an average salary to replace a lost worker.
All of this adds up to an estimated $1 trillion annually in collective employee turnover costs for U.S. businesses alone.
The remedy: Job embeddedness.
Job embeddedness is defined as the collection of forces that influence employee retention. It’s essentially turnover’s opposite, as job embeddedness factors represent everything that keeps an employee at a job, rather than what makes them think about quitting.
The 3 key components of job embeddedness
Job embeddedness was introduced in the early 2000s as a better way to predict employee turnover by researchers looking to improve older prediction models that were focused primarily on job satisfaction, organization commitment, and individual employees’ perceptions of job alternatives. They found that many employees who leave jobs are mostly satisfied with their work, don’t search for alternative positions before leaving, and quit because of an unforeseen off-the-job event.
The newer, more-accurate job embeddedness models measure a person’s ties to both their community and the organization that employs them.
Job embeddedness has three major components, or dimensions:
- Fit — an employee’s compatibility or comfort level with the organization and surrounding environment, which looks at things like individual career goals and personal values, along with more work-specific factors like job knowledge and skills. Job embeddedness also measures non-job factors like location, political climate, weather, and entertainment options. When a person is a good fit for an organization, and the community in which they live, and their place within those two structures, they’re highly embedded and much less likely to leave.
- Links — simply the number of connections both formal and informal that a person has within their work organization and the community in which they live. Having many links correlates with being embedded in the organization.
- Sacrifice — the perceived cost financially and psychologically that may be lost from broken links due to leaving a job. At work, that might include the loss of job stability, advancement opportunities, or eligibility for a perk of some kind. At home, sacrifice may involve the loss of an attractive home in a desirable neighborhood, a pleasant commute, and non-work friends.
Ways for companies to increase embeddedness within their workforce
“Links” are simply meaningful relationships. Practical ways to increase links might include fostering an environment where workplace friendships are encouraged, assigning internal mentors rather than temporary onboarding helpers, and encouraging cross-departmental, cross-functional collaborative projects. Research specifically affirms that networks across many teams are a core pillar of job embeddedness and positively correlate with reducing turnover intentions.
Improving “Fit” for an employee is a nuanced idea and requires situational context, but basically, when we give continuous learning opportunities to our workers and give them autonomy to solve business challenges, we see boosts in organizational commitment. How that looks will vary from company to company.
And increasing “Sacrifice” requires making leaving your company costly. Offering vested options and benefits with longevity consistently deters exits. Rather than conducting standard exit interviews on the back end after losing another valuable team member, consider conducting “stay interviews” that help managers understand what is anchoring people to their company before it’s too late.
Ultimately, the question is: What do employees lose by leaving?
If we want to keep them, the answer should be something meaningful.