The dynamics and realities for the length at which an employee should remain (and are staying) with a single employer have shifted dramatically over the last decade. However, metrics determining performance and achievement have generally remained the same. As a result, both employers and employees are redefining their understanding of what tenure means and the impact it can have from a career and company advancement perspective. This multifaceted web of interactions between shifting standards for what constitutes “job-hopping”, determining at what point tenure becomes a liability, and focusing on mitigating turnover has complicated an already delicate balance between long-term employee value and organizational growth strategies.
By second-order effect, this phenomenon has affected how individuals should prepare for new jobs, and job searching, too. Understanding why employers care about tenure such that an individual can portray the proper information on a resume could be incentive to hire an executive resume writer or professional career coach, just to ensure tenure is taken off the table as a potential red flag at any point during the job search.
What Tenure Says About an Employee
Tenure has been, and justifiably so, a long-extolled barometer to evaluate both the value and fidelity of an employee to a company and its mission.
Employees with a long tenure are critical to an organization because once they reach a certain point, they are the organization. As critical stakeholders, tenured employees possess a unique insight into the policies and procedures of an organization, have adapted and advocated for the culture, likely possess functional expertise in both the job and industry, and are selling points to external candidates that value quality recruitment and retention. Furthermore, employees with a long history at a company often contribute to increased productivity over time and can provide integral mentorship that can quicken the onboarding process, ultimately enhancing productivity indirectly as well – building blocks for a sustainable human capital infrastructure.
Conversely, candidates and job seekers with a history of “job hopping” can signal to a potential employer that they may not be invested in the company long-term. Of course, there are a multitude of factors that can lead to a separation between an employer and an employee, especially during the past year. Some scenarios, like layoffs, can complicate the matter, especially in the wake of the COVID-19 pandemic. A Pew Research Center study composed of 13,200 U.S. adults in August 2020, found that overall, 25% of total adults reported that “they or someone in their household was laid off or lost their job because of the coronavirus outbreak.” Now, layoffs can’t be avoided, but for those who choose to routinely move by choice, it is a key consideration as hiring professionals determine the best candidate for a role.
So, how long does an employee stay at their job? According to an Economic News Release from the Bureau of Labor Statistics in 2020, the median number of years that wage and salary workers have worked for their current employer is currently 4.1 years. However, a key component to this is that longevity varies by age and occupation:
- The median tenure for workers age 25 to 34 is 3.2 years.
- The median tenure for employees age 65 and over is 10.3 years.
- Workers in management, professional, and related occupations had the highest median tenure (5.5 years).
- Workers in service occupations had the lowest median tenure (3.2 years).
This means that if a candidate was to change jobs every three to five years, they would be comfortable in the average for most professionals. Further, these transitions could result in higher compensation and a more diversified skillset that could impact the ability for upward mobility in a given industry. Due to the normalization of a more mobile workforce, companies are beginning to revisit their long-term strategy and vision for how to attract and retain talent.
Why Retention Matters
Employee retention has always been critical for a company to thrive, but with an increasingly mobile workforce and employees more willing to cycle through companies for additional benefits and increased salaries, having a strategy in place to safeguard retention is essential. While retention strategies vary from organization to organization, the advantages are clear: better employee engagement, increased team morale, and optimized cost margins.
Moreover, what is gained from a culture standpoint is often translated directly into business results. For example, Gallup found that companies with highly engaged employees outperform their peers in terms of customer loyalty (10% increase), productivity (20%), and profitability (21%).
Now, due to both internal and external forces, a high level of retention can still be difficult to achieve. This is often amplified also by the type of wage and industry for the role, but ultimately it is clear that a focus on retention should be paramount for any organization looking to achieve strong profit margins and enable long-term sustainability and growth. So, why isn’t it?
One reason is often that employers struggle with accurately quantifying the impact of bad hires of turnover. Next, we’ll walk through some of numbers and frameworks to better assess what the cost of turnover really looks like.
Measuring Turnover: The Key Impacts of Tenure on Organizational Performance
In today’s economy, retaining employees is both a challenging and essential component for an organization to realize success long-term. For some companies, they choose to design their roles to be easier to learn and adapt in an effort to make the onboarding and assimilation process quicker for new hires as a mitigation effort within higher turnover sectors. According to the Bureau of Labor Statistics, turnover is highest in industries such as trade and utilities, construction, education and health services, and leisure and hospitality.
For industries such as these listed, it may even seem beneficial to incorporate a strategy that allows new hires to be quickly onboarded into work with less responsibility and lower engagement. However, once you are able to quantify the impact of how turnover affects the bottom-line, the conclusion is clear: employee retention is far more cost effective.
Looking at a variety of sources can shed light on how costly it truly is to allow for a culture and workplace that accepts high-turnover rates as characteristic to the company and industry.
While it’s not always possible to produce the precise values, leveraging comparisons of relative, quantitative output can be useful to effectively articulate the ROI of employee retention. Maia Josebachvili, VP of People at Greenhouse, produced a case study where she argued that retaining a sales person for three years instead of two, along with better onboarding and management practices, yields a difference of $1.3 million in net value to the company over a three year period.
“The reality is that to be good at most jobs requires a level of mastery that only the requisite investment of time, energy, and focus can generate,” says Dennis Theodorou, Managing Director at Employment BOOST. “How much can you really learn in 12 months before jumping to another role? Will you really get good at a function, or learn an industry, if you’re switching positions every year?”
The case study walks through two scenarios, one in which a normal organization has average “People Practices” and a second organization which is slightly more optimized. Using the four inputs defined earlier in the study —onboarding, hiring, management and development, and management and culture— over the three-year period, the new hire under the organization with better practices will be fully ramped up approximately six months sooner, outperform the peer by 20% due to enhanced talent acquisition investments, improve performance through coaching and training, and maintain engagement for a longer period of time.
These factors, when compounded, cultivate a highly productive, engaged employee with room for growth that will likely continue contributing to the organization, whereas the average organization may lose their employee around the two-year mark. The result, assuming the established four months for onboarding and not including the sourcing and hiring process, produces the $1.3 million mentioned above—a 2.5x difference over time.
A more conservative estimate produced Josh Bersin of Deloitte calculates that the cost of losing an employee can range from tens of thousands of dollars to 1.5-2X annual salary. He attributes his “total cost” consideration to several factors including the costs of hiring, onboarding, lost productivity, lost engagement, decreased quality control, extra training, and cultural impact. He specifically mentions that it may take up to two years for a new hire to reach the same level of productivity as a former employee, and that the training cost and time investment alone over multiple years —he approximates nearly 10-20% of an employee’s salary— is effectively lost.
A final source of relevant data on the topic, a paper produced by the Center for American Progress, used 30 case studies taken from 11 research papers over a fifteen-year period on the costs of employee turnover found that “businesses spend about one-fifth of an employee’s annual salary to replace that worker.” The varying research papers analyzed a variety of turnover costs, both direct and indirect, and determined that while the impact is less severe for lower wage roles, the turnover costs of a highly skilled employee at the senior or executive levels can reach 213%.
Even with a thorough review of existing research and literature on these topics, there is still a gap in knowledge and a lack of data to be conclusive. However, the theme is clear: tenure and retention matter for both employees and employers.
Ultimately, not every company will approach the problem the same, and not every employee will be a great fit. But retention and tenure feed into one another, and their symbiotic relationship will only grow increasingly strained as the working space becomes more digital and the market more democratized for opportunity. For enduring organizations and first-rate candidates, the goal should be both to create highly engaged working environments predicated on common respect, reflected in opportunity for growth, competitive compensation and benefits, and long-term commitment from the employee.
Productivity and business results are better for companies when they provide a strong value proposition to employees that encourages them to stay and grow. Similarly, work is more engaging and rewarding when an employer makes clear they have invested in their personnel. This is why tenure and retention don’t have to be a balance but can be a partnership between companies and their talent.