The cost of Employee Turnover in Tech
It is well known that the tech talent shortage is a big issue impacting businesses of all sizes, but it is sometimes overlooked the cost of high voluntary employee turnover. Even if a company finds and hires the talent they need, which, by itself, is a difficult task, there is no guarantee the employees will stick around for long. Even top market cap companies like Google and Amazon with all their employee perks, including free food and massages, still suffer from a median employee tenure of just about 1 year.
High employee churn rate
Retaining talent can be even harder than hiring it, especially considering that Technology is the industry with the highest turnover! Tech companies have on average an employee churn rate of 13.2%, which can be as high as 21.7% for embedded software engineers.
Employee Turnover per Industry including Technology at 13.2%.
Employee Turnover in Tech Sectors including Computer Software, Internet and IT
Employee attrition has a huge financial impact on startups. For each employee lost, the cost to the company could be up to 250% of the annual salary. It also impacts morale, decreases focus, and drains out your senior staff energy as they need to get back to the dreaded hiring mode. More importantly, startups also lose key knowledge from the people that left, which more often than not implies significant rework of product or processes.
Rising Salaries
LinkedIn points out strong evidence suggesting that the trouble with retaining tech talent is high-demand and rising compensation within the industry. As employers and offers get more competitive, top talent is more eager to jump on new opportunities.
The obvious solution to retain talent is paying a bigger salary. And sure enough, in competitive U.S. tech hubs, compensation has increased dramatically. In San Francisco, tech top salaries can be several times higher than the country average. For example, it is reported that Snap Inc pays their Engineering Manager $461,000, which is 5.8 times more than the $79,500 US national average for the same position.
Tech Salaries of Engineering Manager, Chief Architect and Software Engineers in San Francisco
If we were to build a sort of fantasy tech dream team, with the highest-paid software engineers in San Francisco, it would cost something like $2M per year for a 6-person team. Considering that the average seed funding round in 2019 was $1.1 million, early-stage startups would burn through its entire funding in only 6 months. We aren’t even taking into consideration office space, operations and marketing costs. It becomes painfully clear that most smaller startups can’t compete in these markets and with this level of compensation.
Fantasy Tech Dream Team in San Francisco
Big Tech companies driving these high wages still suffer from voluntary turnover, proving once again that money is hardly the only motivator. Hiring Managers should always benchmark the industry and ensure they pay their tech team accordingly, after all, no one likes to be underpaid, but that’s not all and a big salary alone is not enough to retain top skilled and talented individuals.
Top-Notch Perks and Culture
A good work environment and company culture are as important, if not more, as the salary. Top tech startups go out of their way to create an appealing work environment, from ping-pong tables and nap pods, to beer on tap and onsite chefs, everything goes when it comes to turning the company into a place that the employees do not want to leave. But again that alone is not a solution, rather a turnover risk mitigation. You don't have to, neither should you, turn your startup into a five-star resort. If you want to attract, and most importantly retain your staff, you should create a space where your employees want to be in, driven by the mission, not the perks.
A flexible working schedule is also very important. Options that allow employees to work partly remote or put in flexible hours help to improve work-life balance, a top priority for many workers today. 90% of Millennials surveyed by GlassDoor claimed that they would prefer new or additional benefits and perks over a pay raise.
The modern-day office has to be more than a desk for your staff to work on, it should be a place where your employees can thrive, not just professionally, but socially and personally. For that to happen a great culture is essential, today's tech professionals want to work for companies with purpose and with an inclusive, diverse and empathetic culture.
Culture, Happy Workplace, Diversity
Why Do They Still Leave? Managers can often do better
Even with top salaries and great workplaces, chances are, some of your employees will still leave. Look at Google, famous for its benefits and facilities, yet the average tenure for Googlers is just 1.1 years. And it's not just Google, Amazon’s tech employees are out in just a year. Apple does a bit better, but still just a median employee tenure of 24 months.
In a survey of tech professionals who’d recently left jobs, almost two-thirds of leavers would have stayed had their employer taken steps to create a more positive and respectful work environment. 52% of employees exiting voluntarily say their manager or organization could have done something to prevent them from leaving their job.
Unsurprisingly, tech companies have been putting an extra effort into selecting great managers so that people don’t leave because of them. However, a survey by the People Analytics team at Facebook shows that just having a nice boss is not enough, the work itself also needs to be engaging. At Facebook, people left when their job wasn’t enjoyable, their strengths weren’t being used, or they weren’t growing in their careers. If you want to keep your talent, you need to use their unique skills and define the job description around them.
How to reduce voluntary turnover effectively
There isn’t a magic bullet to solve employee turnover. We are talking about people and everyone is different, has a different story, concerns, and motivations. Throwing money, in the form of compensation, is just a costly way to mitigate the problem. Instead, look at the full package you offer your employees and improve each of the following topics:
Ensure a competitive compensation
Have just the right amount of perks
Provide work flexibility and autonomy
Have a strong, inclusive culture
Make the mission statement clear
Create an enjoyable work environment
Develop your employee’s skills
In case you can’t provide a strong proposition on all the points above, maybe that’s a sign you should be looking into a less competitive hub for hiring your team. The increasing technological support for distributed teams means that having the entire team on-site is no longer necessary for creating a successful startup. Furthermore, offering someone from other locations the chance to work in top startups with great product and culture is more exciting for those that typically can't have access to those companies.
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That is exactly why we believe you need to seriously consider growing your startup by hiring in Portugal. It is much easier to drive employee loyalty in a less competitive market, with the added bonus of a lower burn-rate. Portugal provides a strategic location bridging US and EU markets and offers the best cost-benefit. With our strong know-how and local presence, we at BRIDGE IN will help you evaluate options.
