Costco, Wal-Mart and Turnover
I liked Costco's approach - they hire for frontline positions, promove from within and are a pay-level leader in their industry. For a company that chooses the other way around, or to pay average or below average, investing in career development means higher risk. At Wal-Mart, for instance, they estimate a cost of $2,500 per new employee in tests, interviews and training. With a workforce ot 1.36 million people in the U.S., and a turnover rate about 40% to 45%, Wal-Mart expenses with attrition are humongous (See Is Wal-Mart Too Powerful?, Wal-Mart At A Glance, and Wal-Mart Stores Inc).
Let's estimate it...
1.36 million employees
40% turnover = 544,000 employees
Cost per new employee = $2,500
Total turnover cost = $1,360,000,000
Yes, I am also impressed. 1,3 billion dollars per year is real money. How much would Wal-Mart save by paying better and retaining more employees? Suppose it had a turnover rate close to Costco's: 6% - or let's say, 10%. The total turnover cost would be $340,000,000, or about 1 billion less. The problem is: with a workforce of 1.36 million employees, 1 additional billion in the payroll wouldn't make that difference.
But with higher payment that allowed lower turnover, wouldn't the productivity also be higher and less employees needed? That seems to be the working formula for Costco...