Overview | Reduced costs - increased profit | New markets | Employers of choice | Becoming more attractive to investors | Greater efficiency

Reduced costs - increased profit

	The cost of employing a new member of staff is between 160 and 180 per cent of salary (PriceWaterhouseCoopers, 2001) It can take up to 12 months to replace a senior employee and cost up to £200,000 (Karen Hoggard, Head of HR, Merrill Lynch - Personnel Today 27 February 2001) It is generally accepted that an average employee costs from £5,000 to £10,000 to replace.

Unnecessary overheads put businesses at a disadvantage in competitive markets by limiting their ability to invest and grow. Age diversity can eliminate some of these costs by helping a business to reduce employee turnover and create a stable and motivated workforce.

Turnover

Employee turnover is a variable cost borne by most businesses; employees who leave must be replaced at considerable expense, which is difficult to predict accurately in financial planning.

Where stagnation - or lack of turnover - is an issue, age diversity can inject new blood into a business, either by removing obstacles to the promotion of good people or by attracting new employees from a broader age range.

Smart companies - including members of the Employers Forum on Age - also recognise a clear link between the introduction of age-diversity policies and increased levels of employee satisfaction.

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Financial benefits of employee satisfaction

American retailer Sears, Roebuck & Co claims it can demonstrate the financial benefits of a happier, more motivated workforce. Sears commissioned statisticians to develop the following formula to measure the impact of more positive employee behaviour on its bottom line.

5 per cent increase in positive employee behaviour

1.3 per cent increase in customer retention

1 per cent increase in revenue

0.4 per cent increase in profit

The formula was developed by analysing such factors as employees' attitudes towards their jobs and their colleagues; when and why customers recommended Sears to others; and projected financial performance and revenue growth. Sears now measures the level of customer satisfaction generated and uses it to help determine the size of bonuses paid to employees.*

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Employee retention

	The CIPD 2001 labour survey found that the cost and rate of labour turnover had reached record levels. Respondents said one in four employees had left in the previous year. The average cost per leaver to companies was £3,933 - an 11 per cent increase on 2000. (People Management, 11 October 2001) Nine out of 10 HR professionals say they are concerned about the waste of time and money caused by unsuitable appointments. (Sanders & Sidney 1998)

An effective retention strategy will rely to a large extent on an efficient recruitment system (which succeeds in attracting the right people in the first place) and the removal of artificial selection criteria for promotion, redundancy and other employment policies.

Age diversity helps a business recruit the right people for the right jobs, whatever their age or background. This reduces employee turnover and consequently the need for expensive recruitment campaigns.

A company that selects employees from across the age spectrum is also less likely to appoint unsuitable candidates. Appointing the wrong people merely increases costs when unsatisfactory employees move on, or are replaced, and the recruitment process has to begin again.

Other factors

By contributing to a settled and motivated workforce, age diversity has a positive impact on other costs by limiting:

• Absenteeism - and resultant loss of productivity and need for temporary cover)
• Early retirement expenses - the real cost of early retirement schemes can remain hidden unless the long-term costs to the company pension fund are set against the long-term costs to the business
• Litigation resulting from age discrimination - after 2006
• Training - better employee retention minimises duplication of training for new recruits and improves return on investment for training of existing employee

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