Should I stay or should I go?

A recent BBC article highlighted a simple fact that’s been plaguing employers for years. Switch jobs after two or three years and you’ll ultimately earn more in the long run instead of remaining loyal to your employer. This fact has been amplified by an enormous cultural shift in attitudes towards the concept of a career. In the technology industry, the average career with one employer is approximately three years. It’s further supported by an incredibly buoyant employment market in the tech industry where there are clearly more jobs than there are skilled people to fill them, creating a safety net that mitigates the risk of ‘job hopping’.

For a long time, I was convinced the solution was simple. Pay people more, and be more generous when it comes time for pay rises. So let’s do the maths and see if that theory holds water. Over the next few scenarios, we’re going to focus on a typical five year period for a mid-level Software Developer that works in London, in full-time permanent employment.

Scenario 1 - Loyalty
You’ve been hired by a company as a mid-level developer with a base salary of £50k. You’re going to remain loyal to this company for the next five years.
The average inflation rate in the UK over the past couple of years hovered around 2.5% so we’re going to assume your employer will counteract that by providing you with a 5% salary increase each year.

Year 1: £50,000
Year 2: £52,500
Year 3: £55,125
Year 4: £57,900
Year 5: £60,800
Total salary increase over five years: £10,800

Scenario 2 - Job Hopping
This time, you’re going to leave your employer at the end of year two and find a new role with a different company, then after two years with that employer, you’re going to move again. The following figures are calculated based on my own experience having spent the past decade helping companies hire people just like this.

Year 1: £50,000
Year 2: £52,500
New Job
Year 3: £60,000
Year 4: £63,000
New Job
Year 5: £70,000
Total salary increase over five years: £20,000

Scenario 3 - Generous Employer
In this scenario, we’re going to assume that you’re doing an excellent job and you work for an employer who is going to give you a 10% raise each year, and as a result you are going to remain with this employer for the full five years.

Year 1: £50,000
Year 2: £55,000
Year 3: £60,500
Year 4: £66,500
Year 5: £73,200
Total salary increase over five years: £23,200

Return on Investment
It’s clear that an employer providing at least a 10% year-on-year salary increase can compete with the financial gains of moving to a different company, but now let’s consider a factor that most employers are reluctant to talk about:
The cost of replacing you if you do leave.

Working on the assumption that an employer is able to hire a mid-level software developer relatively quickly and without the use of recruitment agencies, considering the costs of advertising, referral fees, and time invested; the average cost per hire in London works out at approximately £5,000. Most employers tend to try to replace an exiting employee with someone of equitable skill level and experience. So now let’s look at Scenario 2 above but from the employers perspective.

Year 1: £50,000
Year 2: £52,500
New Employee - £5,000 cost to hire
Year 3: £60,000
Year 4: £63,000
New Job  - £5,000 cost to hire
Year 5: £70,000
Total cost over five years: £30,000

Look, this isn’t a peer-reviewed study or a white paper. These are very basic calculations based on one person’s experience helping companies replace exiting staff and reducing overall recruitment costs. Nonetheless, the solution appears to be quite straightforward:

Provide a minimum of a 10% salary increase each year to retain your valuable staff.

Aside from the obvious fact that this approach will save your business money in the long run, you also retain a staff member that holds an increasingly valuable amount of domain specific knowledge. Domain knowledge that simply can’t be bought by hiring another employee.

Removing the allure of getting better money by switching jobs is only one small part of the battle but arguably the easiest part of the battle to win. Once removed, you still have to ensure the employee is treated well, is continuously challenged, and is provided a suitable path for career progression. If your company is generous with pay rises yet your employees keep leaving after two or three years, it might be time to look at those additional factors.

Stevie Buckley is the co-founder of Honest Work.
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