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Employee Turnover and Corporate Culture

General Business News

January, 2010

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Employee Turnover and Corporate Culture

With a high unemployment rate, you might think it's easy to find employees these days, but successful business owners know that finding the right person for a position is essential. They also know that corporate culture is almost as important to attract and retain a good workforce as the compensation offered.

The High Cost of Employee Turnover

Why does employee turnover matter? The short answer is simple: money – every employee requires an investment of management time, training costs and other factors that can make replacing the person very expensive.

When an employee leaves your business, some estimates show that the cost to you equals or exceeds 150 percent of that worker's annual salary. While that might sound high, consider the following and it begins to make sense.

  1. The extra time (and fatigue) of remaining employees performing the tasks of the employee who left;
  2. The overtime paid to continuing employees;
  3. Lost productivity while you are searching for a replacement;
  4. The time and expense of training;
  5. The cost of advertising (and management time) spent searching for a new employee.

Clearly, seeking new personnel can have a detrimental effect on your bottom line.

What's Culture Got to Do With It?

According to BusinessDictionary.com, corporate culture can be defined as the "pervasive, deep, largely subconscious and tacit code that gives the 'feel' of an organization and determines what is considered right or wrong, important or unimportant, workable or unworkable in it, and how it responds to the unexpected crises, jolts and sudden change." Corporate culture is essentially the tone of your business and is generally set by top management, though not always.

Ideally, the culture of a business inspires the best in all employees and contributes to its profitability. In practice, however, this is not always the case. Unless top management lives the values it desires, those down the line will not take them seriously. For example, part of a business' mission statement might be to create a team atmosphere. If the rewards of that business go only to the few (those adept at company politics), sooner or later the word team will become a joke and the business will surely suffer.

On the other hand, when management lives the values it professes, the company can excel. For example, Southwest Airlines' culture is based on its mission statement to employees.

We are committed to provide our employees a stable work environment with equal opportunity for learning and personal growth. Creativity and innovation are encouraged for improving the effectiveness of Southwest Airlines. Above all, employees will be provided the same concern, respect and caring attitude within the organization that they are expected to share externally with every Southwest customer.

Southwest management takes this mission statement seriously and in return, it has been able to excel as a low-cost airline in the midst of turbulent economic times. By all accounts, it has happy employees who work for the good of the company and not just for their own self-interest.

How Do You Build Corporate Culture?

There are four essential steps. The first one is the most important: determine what values matter to you. Take time to examine what you believe is important for creating business success. Look into management books and try what others say will work. Examine your personal values and determine how you are willing to live day to day. As your business' leader, you must have a clear vision of the following:

  1. How employees should be treated;
  2. How employees should treat you;
  3. How employees should treat each other;
  4. And how you and employees should treat customers and other business partners.

Once you have defined your own core values, your next step is to engender buy-in from company personnel. Soliciting input from your employees is an effective step in gaining their agreement with those values. Depending on the size of your business, you might circulate a proposed mission statement and seek input, hold small meetings with your staff or speak one-on-one with key employees. Whichever way you choose, it is important that the entire workforce sees the process as collaborative.

Part of any organization's success is hiring the right people, but it can be difficult to determine if a candidate is suitable in just one sitting. The task is further complicated by the questions you cannot ask during the interview process. Design your hiring process with this in mind, and whenever possible, assemble a team to evaluate potential employees. In many companies, managers will perform the initial interview, and then the candidate will spend some time with employees who will be their coworkers. This informal atmosphere might bring out the candidateÂ’s personality more readily than a formal interview setting.

Finally, reward the behaviors that align with your corporate goals. Recognition for a task well done or an innovative idea is powerful. Even more powerful is rewarding those who exhibit the behaviors you value. When employees see that there are both tangible and intangible results to living your businessÂ’ values, they are more likely to perform at their peak. The result is increased profitability.

Conclusion

Every business organization has a culture. One that inspires and rewards its workers will enhance employee retention. If you don't guide your business, others in the company will - and you might not like the results. Spend a little time this month to evaluate how your company's culture aligns with your core beliefs and how your employees fit in with the environment you want. Then, take steps to make any necessary changes.

We look forward to serving you in 2010 and wish you a happy and prosperous New Year!

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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