Can you afford a negative corporate culture?

Replacing unhappy employees can cost up to 400% of their annual salary. Shockingly, two-third of managers don’t see that as a big problem to their company. A poll by Right Management indicated that 68% of the managers are not actively engaged in their employees’ career development.

Corporate culture, often viewed as an abstract topic to most executives, has become one of the biggest topics in the business world today. Most executives agree that a better defined workplace culture tends to lead to a higher job satisfaction. A higher job satisfaction leads to employee retention. However, not every executive anticipates the importance of culture development and implementation. Failure to do so can lead to a poor culture.

How executives could ruin company culture?

Lack of executive involvement

Often executives think that culture development is time consuming. Motivosity surveyed over 350 companies, showing that 98% of CEOs would ignore annual employee engagement survey results. Most of them saw reviewing the survey result as HR’s responsibility. Apparently, many CEOs don’t understand the importance of having a positive corporate culture. Positive corporate culture drives their employees’ job satisfaction upward. Culture can be changed rapidly as the company structure changes. HR may not recognize the changes. CEOs need to review the culture periodically with employees and adjust the cultural gap.

Unclear culture definition within the company

Sometimes, even the executives don’t have a clear vision on certain components of the corporate culture. The graph below illustrates the approach to new employee assimilation on part of one of our clients. The 5 executives, illustrated below in blue, have a significant different understanding and expectation on the assimilation of their new employees. This could mean different departments have different integration approaches for new employees. When new employees are trained in different ways, company has a potential of becoming divided. Therefore, first things first, the CEO has to ensure each executive is on the same page when a company has more than one executive. Executives need to reach agreement before expecting their employees to have an alignment with them.

The outcome of poor culture

Without a clear insight of company culture, employees will be confused by different possible directions that company is approaching. It will be stressful for employees to try to figure out which is the best way to complete their jobs. Eventually, they will feel disengaged and unmotivated at work, yielding to problems including, but not limited to:

Higher Turnover Rate -> Higher Cost

Nobody would love to work at a place where you don’t feel engaged with anyone, where you can’t see a clear goal, where you aren’t motivated, or etc. Eventually, some of the unhappy employees will choose to leave the company. What’s next? The company has to hire new people and provide them training programs. The costs of losing knowledge, interviewing and assimilating a new employee among other chores the company has to make are significantly higher than that of retaining a happy employee. How much higher?

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  • For entry-level employees, it costs between 30-50 percent of their annual salary to replace them.
  • For mid-level employees, it costs upwards of 150 percent of their annual salary to replace them.
  • For high-level or highly specialized employees, you’re looking at 400 percent of their annual salary.

Company’s Focus Sidetracked

A company may start losing its focus as the team is spending more time and resources to make sure the new employee is trained properly and is clearly aligned with the team. A higher turnover rate increases the stress of remaining employees overtime because they have to fill in the gap more frequently until new employees are hired and trained. Ultimately, company’s goals will be distracted by the adjustments made to deal with employees’ turnovers.

The cost of having a bad culture can be overwhelming. However, building a positive corporate culture doesn’t have to be expensive. We will explore the low-cost tricks to improve a problematic corporate culture in the next blog. Stay tuned…

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