Staff-related costs are the single largest expense category for credit unions, representing over 50% of the industry’s total operating expenses. In 2005, the industry spent a total of $11 billion in salaries and benefits on approximately 220,000 employees.
Given the current business environment marked by low growth and tight margins, it is an imperative for credit unions to control their operating costs in general and staff-related expenses in particular. While the income statement captures the cost of active credit union employees, quantifying the cost of staff turnover is more difficult. Yet the cost to credit unions is significant.
Key Cost Components of Staff Turnover
There are five key components in calculating the cost of staff turnover at credit unions:
- Termination Costs – the costs associated with severance packages, administrative functions related to the termination, etc.
- Replacement Costs – the costs associated with advertising, interviewing candidates, pre-employment administrative expenses, travel/moving costs, etc.
- Vacancy Costs – the costs associated with overtime expenses, temporary help, etc.
- Learning Curve Costs – the costs associated with training staff, the new hire’s lack of productivity for the first 6-12 months, etc.
- Intangible Costs – costs such as the impact to staff morale, customer service disruption, burnout/absenteeism among remaining employees, and the loss of institutional knowledge
Calculating the Cost to Credit Unions
The American Management Association estimates that employee turnover costs can range from 25 percent to almost 200 percent of annual compensation depending on the job function and title. Applying the conservative estimate (25%) to average credit union employee compensation ($49,500), we estimate that it costs the average credit union approximately $12,300 to replace each open position.
According to CUNA’s 2005-2006 Complete Credit Union Staff Salary Survey,* although staff turnover varies significantly by job position, the industry average in 2004 was 12 percent. Therefore, the credit union industry as a whole spent nearly $330 million on staff turnover!
A credit union’s biggest asset is its people. To learn more about how credit unions can better address the staff turnover issue, please join our webinar, Successful Staff Retention Strategies, brought to you by Callahan & Associates.
* CUNA’s 2005-2006 Complete Credit Unions Staff Salary Survey