The High Cost of Software Engineer Turnover
Updated: Oct 23, 2019
Recently, I had lunch with and old friend. I worked for him some years ago. He is a top executive in the technology sector, having led several companies as CEO. He is an outstanding leader who has enjoyed the consistent respect of those who worked under his leadership. I’ve learned much from him.
As we were catching up with each other’s lives, he asked what I was doing these days. I explained that I am helping companies improve and preserve their organizational health, since positive work culture is becoming increasingly important for their competitive advantage.
Immediately, he made the connection and said, “this is vital for the technology sector – do you know how hard it is to recruit and keep good software developers these days?” I was intrigued. This is someone who has hired hundreds of software engineers for the companies he has led. I was interested to know more.
He told me that software engineers in the major tech hubs (e.g. Silicon Valley, Chicago, Washington DC, New York, Boston, Atlanta, and others) are shifting around from company to company, and it is becoming a real challenge for the tech sector. He emphasized that tech companies must find ways to attract and retain good software engineers if they are going to remain competitive.
I cited research that has estimated the cost of replacing an employee at anywhere between 30%-200% of that employee’s salary. And the percentage-of-salary-to-replace rises as the salary increases.
We did the math.
Using a conservative figure of $80,000 for a good software engineer with five years of experience and a conservative replacement cost of 50% of salary, we estimated a $40,000 hit to a company every time a software engineer must be replaced. (In reality, it’s probably much more.)
Even more concerning, software companies have some of the highest turnover rates at an average rate of 13.2%. And some software positions (like user experience engineers, data analysts, and embedded software engineers) see turnover rates up to 23%.
The next logical question then was “why are they leaving?”
It turns out that software engineers are leaving companies for several major reasons, according to a LinkedIn survey of over 10,000 people:
Lack of opportunities for advancement – 45%
Leadership of senior management – 41%
Work environment and culture – 36%
Desire for more challenging work – 36%
Compensation and benefits – 34%
Lack of rewards and recognition for contributions – 32%
(Note that several of these reasons have much to do with elements of organizational health.)
Furthermore, younger generations (especially Millennials and younger) want to know that their employer cares about their mental health and wellbeing. These younger workers also care much about personal development. They want to understand how to lead better, how to resolve conflict, how to become more aware of who they are, and how to find space to be involved with things that give their lives meaning.
In fact, a 2018 workplace learning report revealed that an overwhelming majority of executives, managers, and talent developers identified ‘training for soft skills’ as the #1 priority for talent development.
“In the age of automation, maintaining technical fluency across roles will be critical, but the pace of change is fueling demand for adaptable, critical thinkers, communicators, and leaders. As technology accelerates, soft skills are in high demand to fuel people and business growth.”
All of this has to do with what I call relational and emotional health. Emotional health refers to everything that impacts the wellbeing of the individuals in the company (e.g. mental health, stress, family life, a sense of purpose, etc.). And relational health refers to the way employees interact (e.g. things like leadership, teamwork, conflict management, etc.). Relational and emotional health is like the oil in an organization’s engine. If it’s bad, the engine runs inefficiently and even breaks down.
It’s important to note that these things were less important to the Boomer generation (according to the studies cited above). But considering that 75% of the global workforce will be Millennials by 2025, tech companies must pay attention to this trend. Interestingly, my CEO friend (who is a Boomer) had initially commented that the importance of focusing on employee relational and emotional health had not been a major focus for him as a leader.
But he is a savvy executive.
And as we talked, he immediately saw how critical relational and emotional health is becoming in a competitive marketplace. As I mentioned, he is the one who identified how important this is for recruiting and keeping software engineers.
As an experienced tech company CEO who quickly identified the relationship between organizational health and the retention of software engineers, he urged me to communicate this point to other tech executives like him. This article is a start.
Founder and President, Remedium Solutions LLC