ACG - Agency Consulting Group

The PIPELINE

A national monthly newsletter for agency principals dedicated to agency management topic

HOW TO REDUCE TURNOVER --- BY TERMINATING EMPLOYEES

You read correctly. It is NOT an oxymoron like ‘Jumbo Shrimp’ or ‘Invisible Ink’ are.

The first rule of managing turnover is by hiring right. That also sounds quite simplistic, but I won’t count how many agents I’ve encountered who have interviewed, tested with negative results and STILL hired the individual. When asked why, they all stretched to identify some traits that ‘just might’ make the difference between a misfit in a job and a success. Everyone knows people with faults that have ‘made it’.

The agents in question always have the need for an employee. They claim that they will be selective in their selection process, but too many still give prospective employees the chance even though they don’t fit the position. When I’ve asked about this, the agents have told me that they thought the person ‘might’ work, that they had a ‘good feeling’ about them and that there would be no harm giving them a chance.

Here are some statistics that might sway your next hiring decision when the person might not seem to fit:

1. The probationary period is usually 90 days.

2. Most failed employees are with the company in excess of a year before termination.

3. The additional tangible costs of having an employee is often 20% of compensation or more (payroll taxes, benefits, perks, etc).

4. The intangible costs associated with a poor employee are immeasurably high in terms of the effect on your other employees, on you as you struggle to bring the employee to acceptable levels and to your clients, who must deal with that employee on a daily basis.

A $40,000/year employee will cost you $12,000 during his/her probationary period and $50,000 or more in cash outlay in the first year. If that employee doesn’t pick up the job and perform after the breaking-in period, it will deteriorate productive time of the related employees by 15% or more. For another $40,000 employee who is training and mentoring the new employee that will cost you another $6,000 of productivity.

The sad reality is that most employers recognize mediocrity within the first 30 days and certainly within the first 90 days. Failure to terminate will cost an up to $50,000 if the employee lasts a year, plus the impact on the owner, manager, employees and clients from the actions or inactions of the terminated employee --- all because we wanted to give someone a chance who didn’t seem to fit but had promise.

How to avoid this expense and still hire people?

1. Hire well. Better to have an empty seat than the wrong person in it.

2. If you are biased or not objective, use others to interview and test and don’t even interview those who don’t pass the interviews and tests with flying colors. I recommend that you use others in similar positions or the direct manager of the position for the first interview. Testing is done after the successful first interview but before the owner gets to speak to the candidate.

3. IF you hire, lay out a VERY DISTINCT training schedule and expectations for building competence.

4. Measure the employee’s performance against the success track that you have created on a weekly basis with feedback sessions to tell you and the employee whether the person is working out as expected.

5. TERMINATE QUICKLY when you see problems. Repetitive training needs, friction or lack of comprehension during the first 90 days. I know it sounds unkind, but keeping someone beyond the probationary period who you know is not working out (usually in the hope that time will make their performance better) is even more cruel. You are building their confidence while their performance doesn’t justify it and you are putting a greater burden on yourself and the other employees who have to take up the slack.

How does this advice ‘reduce turnover’ as promised in the article title?

Retaining mediocre new employees brings the morale of your existing employees down. Loyalty diminishes when they are working harder and more effectively than the ‘new kid on the block’, yet the old employee only gets to repair what the inadequate employee has done. Eventually, this wears them down and you lose the people you can least afford - your existing, competent employees, while those incompetent ‘newbies’ will hang on forever. Worse yet, when other employees note that errors and reduced work ethic is not punished, their work may slip as well, further complicating your life and business.

When we lose employees, good or bad, and when our growth requires more employees, we must select them as carefully as we do our spouses. And while the divorce statistics prove that many of us aren’t wildly successful in that venture either, we fail to realize that the selection of a poor employee is as expensive as selecting a poor life-partner. The only difference is that we have a mechanism for eliminating the poor performer in our businesses in a short period if the results don’t warrant retention.