From the December 2015 issue of HealthCare Business News magazine


Fortunately, there is an incredible amount of information available via studies from organizations and industries of every stripe that will help you to determine your employee’s value and your compensation packages, to determine if the two are compatible. In fact, in a decade-old survey of 610 CEOs by Harvard Business School, the cost of a new hire can often be substantially higher than retention. According to the report from that survey, the average typical mid-level manager takes about six months to reach their break-even point — that is, the point where the money a company invests in the employee is at the same value level as the return the employee is giving.

Smart companies get to that break-even point much faster by working to put processes into place to help the new hires get up to speed faster. Those smart companies would have also exhausted all other options that would have precluded requiring a new hire. If it was a question of a raise, for example, would bumping up the salary of the on-staff employee break the bank? If it takes roughly six months for a middle manager to hit the break-even, but the previous employee was at that point — or even worse, if they were strong drivers of profitability, then you may have lost six months of profit.


For specialties like health care, which require specific, focused skills and technical knowledge, the break-even point might be even further out. A number of studies on the cost of nurse turnover give estimates at (an admittedly wide-ranging) $22,000 to $64,000 per nurse. And losing two nurses goes beyond doubling that number if you keep in mind the previously mentioned problem of the additional workloads and stress on remaining staff.

To top all the troubles off, there’s no guarantee the situation won’t repeat itself after the new hire builds his or her value through the knowledge and skills they acquire while working for you.

However, the solution doesn’t need to be as extreme as that introduced by Gravity Payment’s CEO Dan Price, where he announced that the minimum wage of any employee at his 120-person company would be $70,000 (he took a pay cut from $1.1 million to that same $70,000 to help fund the change). But there does need to be a solution introduced. It’s just smart business.

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December 2015 Magazine

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