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Employee Development

Employee Development and Retention: How to Invest in People and Boost Your ROI

Create an Employee Development Plan that Motivates Your Workforce and Decreases Turnover

In the current economy, where the pandemic has led to significant changes in workforce environments and attitudes, employee retention is increasingly important.  Creating an employee development and training program not only improves employee performance but also makes the employee feel more engaged in their place of employment. As billionaire Richard Branson states: “Train people well enough so they can leave; treat them well enough so they don’t want to.”

Investing in people through training and employee development will help your business grow and become more valuable. An analogy: If you put a powerful new engine in your car, that engine will generate more power when you drive. If you ever sell the car, the new engine will increase the car’s market value. In the meantime, the car’s current performance improves. As a business owner, you don’t have a literal engine for generating value—you have employees. Always look for ways to improve their work power in ways that pay off now and when you decide to sell your business.

Retraining New Employees is More Expensive

Did you know: every time a business replaces a salaried employee, it costs six to nine months of salary to recruit and retrain a new employee? For an employee making less than $30,000 per year, turnover can cost over $3,300. For an employee making $50,000 per year, the cost can exceed $8,000. And for an executive making more than $100,000? The cost can be double their annual salary.

Turnover has a greater impact on your business than recruitment costs. It forces current employees to take on extra work to make up for the loss in manpower, leading to burnout and poorer results. It causes current employees to question their own job security or disengage from their work. Recruiting and onboarding also takes time and focus away from meeting other business objectives.

Career development is often cited as a reason that people leave their jobs. Employees want to grow, learn and continue to feel valuable to a company. It is much more effective and financially sustainable to provide additional development opportunities to current employees than it is to frequently rehire and start from the beginning. Training those who already have an understanding of the job will cost thousands of dollars less in comparison.

Ways to Invest in Your Employees

The classic way to invest in your employees is through additional training. This is still very important today, but businesses can now accomplish this more cheaply and more efficiently than they used to. Strong and innovative companies leverage technology, knowledge and creativity in their training programs.

Effective Employee Development Training Methods

  • Use Online Courses: Many companies offer affordable online courses in areas such as Marketing, IT, Human Resources and Excel.
  • Develop Your Own E-Guides: Rather than complex manuals or web pages, focus knowledge into customized company e-guides that are always accessible.
  • Highlight Good Employees: Your best performers are often the best trainers, even if new employees only observe. If possible, offer incentives to good employees for training others.
  • Encourage Self-Training: Not all employees love to learn. Try to create a culture of learning and innovation. Reward new skills and try to identify employee interests.
  • Use Networking: Help you talent invest in the right relationships by providing support, insight, information and feedback to reinforce that you care about who works with you.

Cultivating a Culture of Pride

Your investments are more likely to stick—and more likely to keep growing stronger—if you can cultivate a culture of pride among your employees. This is directly related to the concept of worker empowerment, which means trusting your staff with enough power to make them feel like they have some skin in the game. You want them to have a sense of ownership, control and personal investment in the company.

These aren’t just HR tricks. Studies consistently show that motivated and confident employees are more productive. Businesses that engage their employees quadruple their earnings-per-share growth compared to competitors, improve productivity, have better retention and have 21% higher profitability. Investments in employee capital should grow business equity. If you combine a trained, motivated workforce with good networking systems, you should be able to sell your business at a higher premium.

Employees with enough pride and empowerment might be willing to “buy” the company through an Employee Stock Ownership Plan (ESOP), which offers shares of the company to its workforce. This motivates employees to have and own an interest in the company, thereby motivating them and ensuring your company’s continued growth even after a sale.

When Investing in People Makes Sense

Workforce investments are not a panacea. Avoid making decisions without considering their prospects for success, as well as the opportunity costs involved. To take an extreme example, you wouldn’t commit 100% of next quarter’s revenue to new training programs. Instead, you want a good return on investment (ROI) from your employee investments.

Measuring ROI of Employee Development and Training

With training programs, you can utilize work logs or other qualitative assessments. Programs that don’t generate enough improvement should be adjusted or shuttled in favor of better ones. These are probably the easiest investments to identify cause-and-effect relationships.

With networking, culture of pride and empowerment investments, measurement is trickier. You may have to rely on observations, self-assessments, team reviews, etc. Emphasize communication between coworkers, managers and executives. Each employee has very specific and localized knowledge about what makes their job better or worse, and they should know if an investment shows promise.

Fortunately, industry associations and other peer network groups probably include owners or managers who have already tried these techniques. Use your professional network (or even the internet) to search out investments with proven track records.

Considerations for Employee Retention

Pay attention to workforce demographics. Succession planning means, in part, making sure that all the key people aren’t lost or growing old at the same time. Much like an apprenticeship system, more experienced workers should impart knowledge to greener workers. Your investment in people gets re-invested this way.

Workers with higher skills command higher wages, on average, than workers with lower skills. Ideally, an investment in an employee means more revenue for the business. This leaves room for higher wages down the road. It doesn’t always work this smoothly, however, and you shouldn’t encourage development that will ultimately push your talent to higher paying competitors.

When the Current Approach is Not Working

Training is often expensive, especially in traditional formats. It can take months for a new employee to possess the skills to break even on their salary. (Indeed, a potential buyer may be extremely reluctant to acquire your business if he/she fears having to train all new staff.)

If your business (or industry) experiences a very high turnover rate—think retail, restaurants or construction—new investments in people may quickly be lost for some other employer to capitalize on. These types of businesses should be very selective about their workforce investments.

Even if you identify the best employee development systems, whether networking or training or any other, you still need the capacity and skill to implement it. If there is a good chance that nobody in your business has the necessary prowess, look to a third party. Otherwise, it might be best to find another system.


[Editors’ Note: To learn more about this and related topics, you may want to attend the following webinars: Welcome to the Team! Recruiting and Hiring, Including Restrictive Covenants and ESOPS 101. This is an updated version of an article originally published on July 17, 2019.]

©All Rights Reserved. August, 2021.  DailyDACTM, LLC d/b/a/ Financial PoiseTM

About Michele Schechter

Michele has been a director with Financial Poise since 2012.

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