Human Resources – Misleading on the True Cost of Terminations?


When a manager approaches HR about terminating an employee (I’ve done this myself more than once) there is a discussion about cost impact charged to your labor budget.  In most companies the calculation is something like this for a 10 year employee.

  • @$104,000 (Salary)
    • Severance payments (2 to 4 weeks per years of service) = $40,000 to $80,000
    • Benefits adjustment (pension plan top ups etc.) = $50,000
    • Outplacement = $35,000
    • Recruiting Replacement (15%) = $15,600
    • Total Budget Cost = $180,600

It is however not the true cost. There are 2 far greater potential costs that HR is ill-equipped to assess.

  • Competitive Risk
  • Loss of  Asset

If you are an IT company or consulting firm, fierce competition is at the core of your business. How much will this person cost you when they take a position with a competitor?

When an employee walks out the door for the last time they left their PC behind but took with them something that is orders of magnitude more important; their ability to contribute to the benefit of your company. You as the current manager and HR may take a very narrow view of the employees value. Do they provide sufficient value in the position they are in today? The question that is not asked is: what is their potential value to this organization?

To answer that question two things must be true.

  • you must actually have an understanding of the current and envisioned roles within the entire enterprise
  • you must be able to assess from their skills, performance history and character attributes  and determine whether they are a viable candidate for those roles and what they could bring to that role that an external recruit could not. (both the positives and the negatives)

This is where most HR organizations massively fail their enterprises. It is ironic that the term HR Recruiting is so appropriate. Recruit is a military term (from the French recrue, from the verb recroître ‘to grow again’, i.e. replenish the ranks) that  is about replacing those resources that have been killed in battle. It is clearly the enterprise itself these days that is mostly responsible for the deaths, simply because they couldn’t figure out if their leader of the diminishing (to quote President Obama) “Fewer Horses and Bayonets” platoon, may also be a highly effective leader of a platoon now armed with M4 Carbines. In today’s enterprise, they just shoot him or her and consequently lose all of that battle experience and knowledge.

Business is dynamic and it is fact of life that strategies and roles will change. I strongly believe the enterprises that will be most successful will be the ones that develop the ability to assess the potential business value of a human resource within their complete business strategy and take steps to ensure they retain the ones that can make stunning contributions in alternate roles.

When I joined Microsoft in 2001 they sent me off to “Boot Camp” where a Senior Executive came in to address the troops. He raised his laptop in the air and asked “Is this a Corporate Asset?”. The group responded affirmatively and he dropped the laptop on the ground, shattering it. “No it is not”, he replied. “Smart people are our only assets, you build the software, sell it and support our customers. It’s all we have…It’s all we have”. There was at least one executive that got it.

The key is for the Senior Leadership in the enterprise to make it a pervasive management performance objective that high performance resources are retained within the Enterprise, even if they are not retained in a current role. If the manager does not exhaust every avenue for retention within the enterprise, then their annual performance review should go very poorly for them.

Perhaps you in a management or leadership role need to apply some of the energy and technology put into recruiting and apply it to “DEcruiting”. When that Asset is gone, it’s gone and for a consulting practice, that’s fatal.

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