Replacing a Great Employee

Contractors who have been in the business for a while know only too well the value of a great employee. You know this individual! They show up on time, solve their own problems, and always have your best interests at heart. If you have ever lost a great one, you probably remember that pit in your stomach when you found out they were leaving. Why so?  Because you knew you would have to go through the very difficult process of finding a replacement. We want to examine this in terms of dollars. First we will look at a skilled craftsman. Then, we will look at a project manager or superintendent.

SKILLED CRAFTSMAN

Let us assume your great journeyman was being compensated at $72,000 per year. Let us further assume that management time to supervise this individual was minimal and compared to the average journeyman this individual consistently produced at a 20% higher rate. For some reason, they are leaving your company.

So, you could go to the union hall or place an ad in a trade journal for the replacement. The union hall is relatively inexpensive. The ad will cost you about $500. Not to bad on either count. You get 20 applications for the job. You have your staff run some background checks and narrow the list to 5 who you will interview. That took someone about 4 hours. It will take you another 4 hours to do the interviews. So far, so good.

You hire this individual and begin familiarizing them with your projects and the way you do business. Let's be conservative and say it takes 3 months to get them up to speed. We have to assume their productivity is less than normal at the outset (assume 75%) and that this person will probably produce at 100% at the end of 3 months. If we do the math, that ramp up cost you 1500 the first month, about $1,000 the second month, and about $500 the third month for a total of $3,000. Add to that your hiring expense of about $2,000 and the cost is a total of $5,000.

Now ask yourself what the likelihood is that your new employee will be around after the 3 months? You never really know who you have hired until they have been around for a while! The chances are between 2 and 3 to 1 they will stick. If we assume we have to hire 3 to get the one we want, your hiring expense is about $15,000 or about 20% of their annual salary. This does not take into account the fact that your great employee was producing about 20% more work. If we have to pay about the same for the replacement, your cost has now gone up about $1,200 per month; another $15,000 per year!

So, the pit in your stomach was not only the prospect of having to hire the replacement and all the time it was going to take, it was the cost you may not have realized it would take; a lot of money!

PROJECT MANAGER

It only gets worse when we have to hire new management people. The salaries are higher, the hiring costs are more, and the ramp up time is longer. Get used to the fact that the national average for this individual is about 80-100% of the annual salary. So, a project manager making $100K will cost about $80-100K to replace.

HIRING RISKS

Let's add another something to consider when we hire new folks; employee fraud and/or incompetence. You may not have had the pleasure of either of these, but then again you probably have. Here is a list of things you need to at least be aware of with regards to hiring construction workers:

1. Fraudulent workers comp claims that raise your work comp costs
2. Stealing materials and tools
3. Fraudulent time reporting
4. Hiring phantom employees and subs and pocketing the wages
5. Submitting phony supplier invoices and pocketing the cash (usually working with the suppliers employee)

This just adds to the potential misery. What's the answer? Figure out how to keep them around. See my article on motivating and keeping employees.

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