Buying the market is
no longer working

Hiring, losing, hiring and losing workers again and again is an expensive and inefficient vicious circle that hurts employee morale, reduces productivity and can inadvertently increase recruitment costs by giving organisations the appearance of a poor brand.

Mind the gap

As workers test their new-found employment power and follow the best opportunities, open market recruitment is failing to fill the talent gap.Even though UK businesses remained optimistic as they entered Q4 2024, with 42% of surveyed organisations intending to hire, supporting a +27% net employment outlook, the hard facts remain unchanged: the UK talent shortage is still overwhelming and many employers are unable to find the talent and skills they need, or keep the skilled workers they already have.

As employee recruitment and retention intentions come under heavy pressure, UK businesses are left to pick up the costs:

UK average employee turnover – moving to another job – 2023: 26.9%

(Source: CIPD)

6% of employees left their jobs in 2022 because of a lack of hybrid working.

(Source: UK Gov)

6 – 9 million UK workers have a poor experience of work in 2023.

(Source: CIPD)

1,000,000 open vacancies in the UK since June 2021.

(Source: ONS)

1,000,000 open vacancies in the UK since June 2021.

(Source: ONS)

Average time to hire – UK June 2023: 44 days, a record high.

(Source: Personnel Today)

Average cost to recruit UK 2023 - £6,125 - £19,000.

(Source: CIPD)

Average total cost of employee turnover per worker UK 2023: £30,614.

(Source: Oxford Economics)

Even though the number of unemployed has come down from its record high, the majority of UK organisations are battling with high employee turnover and struggling to secure new talent with the right skill sets.Why is this?The UK’s talent shortage has existed for many years, but from the start of the pandemic in 2020 the problem has gone into overdrive.Now, as the world of work is continuing to evolve post-Covid, the employer/employee dynamic has changed – workers have the power and when they don’t get what they want, they are voting with their feet. This is impacting businesses with higher worker turnover, increased recruitment costs, loss of productivity, loss of knowledge and experience, reduced workforce morale, damaged EVP, bad reputations, and so on: a roster of issues that have a true cost to businesses that averages £30k per worker.

40%

Number of employers who say lack of skills biggest reason for entry level vacancies.

Source: McKinsey

The hidden costs of hiring

Time, money, effort – recruiting fresh talent to replace departing workers could be more expensive than many business leaders may think.Every time an employee leaves their job, they create a vacuum that is becoming increasingly difficult and expensive to fill. In reality, workforce attrition means more than an empty desk or workstation – it means the business is suddenly faced with a large cost that in some cases can make the difference between growth and decline.

£30,000

Average real cost of replacing a departing employee.

Source: Oxford Economics

Where the recruitment costs are – the unseen realityMany organisations may see employee turnover in the shape of direct replacement costs alone – the expense of advertising, hiring recruiters and undertaking background checks, etc. However, this is a false perspective. The true financial impact of employee turnover is much higher than many businesses may be aware of:

Direct recruitment costs

Depending on role, salary range, type of industry and recruitment agency fees, even these immediate costs can be anywhere from £6,125 to £19,000 per employee.

Long time-to-hire – caused by too much competition for workers

The current talent shortage is driving average time-to-hire to new highs, and the continuing vacuum hurts productivity, worker morale, innovation, planning, and can also elevate direct costs by the need to hire more expensive interim or agency workers.

Time-lag to effectiveness once hired

No employee hits the ground running. It takes time for workers to get up to speed with systems, products, culture and ‘the way things are done’. This unavoidable time-lag hurts operational effectiveness and hits the bottom line.

Loss of valuable experience – often to competitors

In many industries, a business’s best assets are its people, and when they leave, they often take valuable experience and proprietary information with them. Organisations that have spent time and money to build the skills and knowledge of the worker can only watch as the employee takes up a new role and that trove of information becomes a cost-free asset to a competing organisation.

Opportunity costs – lower productivity – missed revenues

All of the above can impact operational effectiveness, which may be revealed in lower sales and growth and can be measured in hard, financial terms.

Quality costs – IP, safety, disruption/distraction

They also hurt in other ways; weakening the value and importance of an organisation’s intellectual properties, reducing workplace safety, creating disruption and distractions as the business attempts to fill the vacuum – adding even more fuel to the bonfire of productivity that impacts profitability.

What does all this add up to?

Depending on role and type of industry, every vacancy can end up costing anywhere from £20,113 to £35,307 to fill, with a national average of £30,000 per employee. How many UK businesses can realistically afford this kind of loss?

Think inside the box

Organisations must look within to keep the best workers they already have – but many businesses may struggle with this strategy.Retention initiatives are just as (or more) important than recruitment initiatives in any workforce strategy. When businesses keep their most productive workers, they keep the skills they need, whilst also having the opportunity to enhance those talents and still hire any new skills they require. This organic approach allows organisations to maintain a workforce balance that injects new blood as needed to prevent the business from becoming stale, but also promotes continuity and increased job satisfaction – (a major work attitude that has been shown to affect employee behaviour and reveals a strong relationship with other positive outcomes, such as learning motivation, low turnover rate and increased job performance).However, following a focused retention plan to achieve these kinds of results will typically require a change of workforce investment strategy and re-focusing the HR budget. In some cases, this may bump up against determined resistance to change, as managers move to sustain tradition and protect departmental budgets (even when it can be demonstrated that it’s cheaper to drive cultural change than try and recruit a new workforce that is not available and may not even exist).

Unfortunately, even if businesses can get past these common barriers, operating a strong retention strategy may still be difficult, because:

Businesses do not understand the skills they have

Many UK businesses do not have a current skills inventory and/or they fail to view their workforce from a skills perspective – often perceiving their employees as replaceable units defined by a specific job title, instead of highly prized and scarce business assets with a bag of transferrable skills.

Additionally, many businesses do not conduct talent mapping initiatives to track, enhance and reposition the skills of their best talent. They literally do not know where their most valuable skills are, or how to make best use of them.

Businesses fail to conduct meaningful exit strategies that could tell them why workers are leaving and give them a chance to address employee issues

Thorough exit interviews that discover the root cause of a worker’s decision to leave can uncover hidden fault lines and provide focus on issues that need rectifying.

Businesses failing to accurately forecast their mid- to long-term future talent needs

An organisation’s workforce strategy should support the long-term operational strategy – matching skills to business development.

However, many UK businesses do not have a long-term workforce plan and instead rely on ad-hoc recruitment to fill skills gaps as they are needed.

This creates a roadblock to proactive retention strategies, as businesses see no need to retain key workers because they have no roadmap to guide future skills demand.

Middle managers are the linchpin

Middle managers will play a central role in any retention strategy, but all too often they can be part of the problem instead of the solution.

39%

Of employee job satisfaction is generated by having good workplace relationships.

Source: McKinsey

Middle managers connect the upper echelons of leadership to the wider workforce and are typically at the very heart of the business and in a vital position to enforce employee retention by means of:Meaningful career conversationsConducting career conversations and developing good workplace relationships with colleagues can give managers a better understanding of employee needs and wishes, offering the organisation a chance to intercede in problem areas and provide the opportunities that valuable staff members are looking for.Underpinning the organisation’s employee development and training initiativesTraining initiatives are designed to support career growth and skills development of key employees. But to be successful, they require oversight, performance measurement and programme participant selection – alongside permission to take time out of the day job to complete them.As the closest members of leadership to the general workforce, middle managers must be responsible for these tasks.Talent promotionThe opportunity for career progression is a key demand of employees. Middle managers are responsible for scouting the organisation’s high-achievers and promoting them according to their growing value and experience.Unfortunately, even though talent management and development is one of the most valuable tasks that middle management can perform, lack of time, resources, incentives and HR training means that in many cases, instead of supporting employee careers, middle managers are blocking pathways to progress.

63%

Of UK employees say they only discuss career plans with their line manager once a year or less.

Source: Right Management

Blocking pathways to progressSome middle managers are talent hoarders who do not give individuals the pathways to progress they are seeking. This can drive workers to seek opportunities elsewhere. The reasons middle managers hoard talent can be as simple as wanting them on their team (a relationship hurdle), they cannot afford to replace them, or they do not have the time or training to help grow a replacement into the same position. Failing to promote the high-achieversMany middle managers say they lack the training and resources to conduct meaningful career conversations with employees, or to scout and select prime candidates for reskilling and upskilling programmes.

50%

Of surveyed middle-managers say they devote less than 25% of their time to employee development.

Source: McKinsey

The emotional quotient

Even when businesses can overcome endemic hurdles to pursue a retention strategy, many will still face another major barrier – namely, giving workers what they want to stay.Many organisations view their labour turnover in transactional terms – salary, benefits, commuting costs, etc – when in fact, emotional reasons are the biggest cause of staff turnover. This includes businesses failing to meet employee values and expectations, not providing adequate career progression pathways or reskilling opportunities, and failing to provide sufficient employee recognition – better known as ‘appreciating a job well done’.

Businesses with high turnover may believe they can buy their way out of their attrition problem, but in reality, they probably can’t, because in most cases they are not giving workers what they really want to stay. This means job satisfaction – and it is critical to retention.However, according to CIPD, 6-9 million UK workers have a poor experience of work in 2023 – driven by easily fixable issues such as:Weak DEIB policiesTwo thirds of UK workers say workplace DEIB is important when deciding if they should stay or go. When organisations take little or no action to pursue gender parity, refute racial bias or protect workers from harassment, employees avoid those companies. This notion is even more pervasive with younger people. 78% of 18-to-24-year-old employees said DEIB is important to them, compared to 60% of those aged over 55. More tellingly, 70% of women and 65% of men said they are willing to offset some pay for a job that gives them strong DEIB, a physically healthy workplace and a good work-life balance.Workers seeking career opportunities that businesses are unwilling or unable to provideFor some employees, career progression is as important as pay, benefits and working conditions when it comes to deciding to stay with their current employer.Unfortunately, many workers believe that company loyalty is not helping them and that the only way to progress their career is to leave. 23% of UK workers intended to quit their job in 2023, and the number one reason for this exodus is a lack of career opportunities.

Power shift – workers seek better jobs

Retirement, sickness, a lack of ‘work-ready’ skills among college-leavers and a demographic timebomb have changed the dynamic between employer and employees. Workers hold the reins.The talent shortage has given more power to UK employees, and they can now be selective about the jobs they are prepared to do – creating a vacancy gap of 1 million unfilled roles that has existed since 2021. Today’s workers know they have control, and they are demanding a better work-life balance that includes:The option of hybrid working Flexible working hours – with the option to work remotely on a full – or part-time basis – has become a key demand of UK employees. According to recent research, 39% of surveyed employees had worked remotely either full-time or part-time in May 2023.

Monetary and wellbeing benefitsBeyond the salary, UK employees are seeking other benefits: Extra annual leave is desired by 87% of surveyed workers, with bonuses (87%), paid overtime (85%) and investment opportunities (83%) following closely behind.

Empathetic and transparent leadership Management that exercises transparency and has the empathy and vision to support their employees’ needs are key worker demands. Business leaders who hide behind spin or rhetoric and/or are blind to their workforce needs can make employees feel they are neglected or being taken for granted. When that happens, workers often head for the door.

6%

Of surveyed employees quit their job in the past year due to a lack of flexible working.

Source: CIPD

Why employees leave and what it takes to keep them at a glance

Why are UK workers quitting?

Career opportunity
Pay and conditions
Better work-life balance
Senior management issues
Change of work type
Better job satisfaction
Flexible hours
Management conflict
Increase job security
Harassment/bullying.

Source: CIPD

Most UK workers are seeking a ‘good job’. But what does that look like?

Opportunity for career growth
Fair pay and conditions
Flexible working
Meaningful work
Strong DEIB policies
Transparent management
Leadership shows empathy to worker needs.

Source: CIPD

Conclusion – what can businesses do to overcome the talent shortage and drive employee retention?Time and time again we have seen that caring employers, good career opportunities and a healthy work-life balance are key to keeping current workers happy and creating an employee value proposition that powers strong retention. Many workers are even prepared to forego some financial advantages to secure these elusive benefits. This means job satisfaction is the magic bullet for retention, and providing that begins with giving your employees the space and opportunity to grow.