High cost of employee resignation

by Ashvini on December 20, 2011 · 22 comments

in Managing Team effectively

Treating two employees with similar skill sets as same is not correct. The assumption behind such thinking is that one employee may replace another with ease or just minor difficulty.

In my opinion , this makes no sense. Employees are not parts of machine that can be replaced by another when the machine malfunctions. An employee takes up a job and brings in her attitude, traits and skills to it. Keeping aside the skills, the attitude of two employees cannot be compared.

Based on above thinking , it makes it very easy for the company to let go of the employees who are experienced and have put in some amount of work with the company. However the cost of losing an employee may far outweigh the cost of retaining her. Companies pay very less attention to employee retention strategies.

Here is why I think companies lose a lot when an experienced employee resign.

Your company lose on the experience of resigning employee

Your company had groomed the employee. It has paid for the training and helped her learn about the organization for years now. You have spent time and money to get her up the speed. She knows your process and work culture very well. It all goes away with her when she resigns.

The  employee may land a job with your competitor.

Competition may hire the best of your employee and often use them against your business. That could be troublesome because your employee often knows how your company works and within the legal boundaries may help the competitor to create trouble for your business.

The replacement employee will not fit-in for some time

The employee who resigned often has the knowledge and connection to make things happen while her replacement needs to start  from scratch. Often the external hires come from a different company and brings their own set of values which might be in contrast to those of the new company.

In any case it will take some time before the replacement whether internal or external completely takes command of the task.

Not retaining existing employee may cause discontent among other employees

If the outgoing employee performed well at her job and the company was not able to retain her, then it might lead to a feeling of  distrust among other employees of the company. Many employees would start questioning if  they are indeed valued. It might prompt some of them to look out for other jobs.

In total, it may lead to a chain reaction leading to more resignations on the way.

Customers may prefer dealing with the old employeee

If your customers have a comfort level dealing with the old employee, they will find it difficult to adjust with the new one. With the old one , they knew what they could expect.

With the new one however, they will have to change the strategy and do a reevaluation and it might not be good for both them and you. It is more troublesome when critical projects and deals depend on the outgoing employee.

Opportunity cost when an employee resign

Since the employee has resigned, it might be possible that the projects she was handling could not gain that much speed. Probably handover activities took considerable time or customer did not engage well with new employee. Sometimes new projects have to be shelved because the company cannot find a suitable employee to replace the outgoing one.

Resigning employee may attract other employees to join her

A resigning influential employee often takes with her employees she is connected to , effectively crippling the work. Unhappy with the working conditions, others may also eager to join her new workplace. This could become a huge issue for your company.

She may start a competing service

A employee may resign, form ventures with your competitor and may take on your company in the business. She knows the tricks of the trade and can utilize it against you.

While this does not mean that your company becomes a hostage to unreasonable demands of the employees, it makes sense to create policies that create the right environment.

I have not see employees leaving the companies where the workplace culture is favorable to growth. Most of the employees are aware of the realities of the job market and would be happy to work with you.

Retention of resigning employee thus must be the top priority of the company.

Let me know what are your thoughts on retaining employees and the cost associated with not doing that?

About The Author

{ 22 comments }

Daria Steigman December 24, 2011 at 12:24 am

Hi Ashvini,

It’s truly amazing how many companies discount the cost of losing an employee. Whether the person is going to the competition, becoming the competition, or just taking their knowledge with them–there’s always a cost. And it’s not just in the losing part, but also on the replacing side.

Great list, and you’re right about the opportunity cost” issue. It’s not just the challenge of finding someone to do the work, but the burden that’s put on employees who are left to take on “extra” work. Not something most people already working hard have the time, inclination, and/or appropriate skills sets to do.

Ashvini Kumar Saxena December 29, 2011 at 10:43 am

Hi Daria,

Thank you for your insightful comment. I agree with you that there are hidden costs when employees leave. I think your point of putting additional burden on other employees because one of the employee has resigned is true. I have seen this happen a lot .

I hope you had a great Christmas. Wish you a very happy new year

Aswani December 21, 2011 at 10:43 pm

Very rightly said. Resignations are getting very common today. Gone are those days when opportunities were limited but not today. Job hopping has seriously created a problem for the organizations where they have to deal with unexpected resignations. But anyways, it cannot be helped as I feel the ultimate authority lies in hands of an employee. And I believe this is one of the reasons why organizations have things like Bond Policy where employees just cannot leave at his/her will until the bond gets over. Well, Bond Policy seems to be a temporary solution to such problems. Much more thought has to be applied if employers are serious about employee retention and they must work on the same for the very same reasons/points as mentioned above in your article. Very valuable points..!!

Ashvini Kumar Saxena December 22, 2011 at 3:45 pm

Hey Aswani,
I think job hopping is here to stay and people who do a lot of it will never do good in their career.
I am also of the opinion that employers really don’t make a lot of effort to keep people or their attempts are really half hearted. TO build a great workforce, they have to make more effort than usual :)
Thanks for your comments bro :)

Aswani December 22, 2011 at 4:16 pm

Welcome :-)

Anna December 21, 2011 at 7:23 pm

It is true that customers are used to certain employee. And we must think a lot before loosing it, because after all we are loosing money:(

Ashvini Kumar Saxena December 22, 2011 at 3:47 pm

Hi Anna,
Customers really get unhappy when one morning they see an unfamiliar face. They too will have to change the way they work with the new person. Old employees who have been there and created great relationships need be retained

Eugene December 21, 2011 at 12:52 pm

Hi Ashvini
I absolutely agree with you – you can’t treat all the employees in the same way. The more experienced employee is the more important he or she is for the company. That’s why companies should hang on such employees

Ashvini Kumar Saxena December 22, 2011 at 3:47 pm

Thanks Eugene for your inputs :)

Carolyn@The Wonder of Tech December 21, 2011 at 2:23 am

Wonderful insights, Ashvini! You’re absolutely right. Too often experienced employees are under-appreciated because they are more highly compensated than inexperienced ones. One question: would you, as a customer, rather deal with someone who has been on the job a while and who knows the job inside and out or deal with someone who is new to the job?

Instead of laying off veteran employees, companies should figure out a way to retain them. In the long run the bottom line will suffer more if the vets are not retained.

More great advice, Ashvini. Thanks!

Ashvini Kumar Saxena December 22, 2011 at 3:50 pm

Hey Carolyn,
Thanks for agreeing to the points. I feel employees who stay at least in India have two paths. Either they suck up to manager and continue rising in the company or on the other side , they may become stagnant because they are taken for granted.
I would prefer to keep old employee provided he is good at performance and whose resignation is going to cause me business loss. In only rare cases I would go in for a new employee.

Adrienne December 20, 2011 at 11:42 pm

Hey Ashvini,

To me it depends on so many different factors. The employee may not be holding their own so although other employees and customers won’t be happy with that one being let go, there is always that chance someone else can come in and do a better job. I’ve been in so many different environments where the employees weren’t let go because the company was afraid that there would be some type of discrimination claim. They were so small of a company they didn’t want to take that chance.

I wish more companies had rules and regulations that are presented to the employees upon their hiring and a friendlier work environment. I think that would make a huge difference for a lot of people. Going to work should be enjoyable, not a nightmare.

Just my take on that and thank goodness I’m not longer in the corporate world. It’s horrible the way most companies are run today.

Ashvini Kumar Saxena December 22, 2011 at 3:57 pm

Hey Adrienne,

Oh sure, I am all for getting the best employee, new or old. But then resignations often happen because people were not satisfied in their present job one way or the other. There were instance where employees who were dissatisfied not only resigned but took a few other good employees with them too. Of course management had a fault. They never cared about the senior employee and they had to pay the price.

Letting go of the good employee may cause losses that are probably not visible . I think companies should consider all alternatives before they let them go.

Thank you for adding to the discussion here :)

Max M December 20, 2011 at 6:36 pm

If you are an employer and you ahve so really precious workers, you should do your best to gain them and in fact to satisfy all their needs, but you should know the limits and some restictions when we talk about the staff as they should remember their responsibilites as well.

farouk December 20, 2011 at 5:30 pm

wish i could have sent this to my previous employer , they used to treat people really bad even the ones who had been working for them for years
thanks for the post : )

Ashvini Kumar Saxena December 22, 2011 at 4:01 pm

Haha!! sure, you can send link anonymously to them :) I hope they will learn from it

Rohit Batra December 20, 2011 at 12:37 pm

Retaining an employee is not an easy work though but yeah your points were quite straight that in world we live imitation is prevalent when one leaves a company others also start thinking to get in a better position, so it surely decreases the growth of the company..

secondly also when a employee is handling some particular project & his interaction with the client is good if you replace it with someone else whose interaction skills are not that good then your work will suffer and this can happen to turn into a failure also..

Ashvini Kumar Saxena December 22, 2011 at 4:00 pm

Hey Rohit,
I have seen many of such situations that you described in second para. Client is often troubled by the thoughts that they will have to readjust with the new guy. Even though the new guy may be better but the comfort level with him comes very late.
So there is nothing wrong with trying to keep an employee who has performed and then resigned due to some reason

Nishant December 20, 2011 at 12:23 pm

Hi Ashvini,
Another excellent article :). Being an entrepreneur myself and having an office with number of employees, I can definitely relate to a lot of your points here. Most interesting point was “one resignation gives a chance to think to other employees” and you never know if you see an entire bunch resigning together.

Ashvini Kumar Saxena December 20, 2011 at 12:29 pm

Hey Nishant,

Thanks for the appreciation. Your example gives strength to my point. I have often seen companies merrily letting employees go as if they are winning the game. More often than not , both sides lose in this scenario.
Like customer retention, employee retention should be top on the agenda of any company :)

sureshpeters December 20, 2011 at 12:46 pm

Agreed with Nishant, Even after the group resignations, they can have startup and they understood the employees need and all. So there is a chance the startup people work towards satisfying employees. When the employees satisfied,seriously they do work from their heart .Miracles can happens there on :) . Since those kind of people don’t need much training they get into battle right from the day 1 .

Ashvini Kumar Saxena December 22, 2011 at 3:58 pm

That is a big threat isn’t it . But if someone has such smart employees, I think they can start another stream of business and keep them happy :)

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