How to retain your best employees—and even encourage them to recruit others like themselves.

Have you ever totaled the dollars you spend to advertise job openings? Or, calculated the time human resources and other management personnel spend to interview candidates—and then multiply that by their hourly rates? Have you considered the time it takes a new person to get up to speed and be efficient, accurate and fully productive—in terms of dollars?

Analysts estimate that replacing an employee can cost anywhere from four to seven times the annual salary of either the incoming or the outgoing employee. You would no doubt agree that the money could be better spent on other areas of your business.

A certain amount of turnover is healthy for companies. New people can bring new thoughts, ideas and approaches that can help your company evolve and succeed. But a lot of turnover is needless—and preventable. Here are some ways to keep your current excellent employees happy, productive and looking forward to coming to work every day.

Include Your Current Employees

Think about the excellent employees you currently have. They do a quality job, arrive on time, don’t take excessive breaks, leave on time, and if they’re exempt from overtime earnings, they often work during evenings and weekends—their brains don’t just stop because they aren’t in the office. They’re quite often thinking about improvements to implement, new projects or clients to pursue and hitting deadlines. Their work ethic makes them want to improve and succeed, which in turn helps the company improve and succeed.

You would probably like to have more employees like that, right? Where do you find them, and how would you know whether a person has a work ethic and personality that fit in with the rest of the group, plus the skills and experience to do the job?

You already have access to one source, and you probably don’t even realize it. Your current employees are a potential wealth of referrals for positions that you may have open. Not only do they know the company and what you are probably looking for, they will feel valued if you include them in the search.

So, do you have an employee referral program, where your employees recommend their friends and family (if your company allows family members)? When you interview people, are you more eager to speak with people who were referred by someone you already know and trust, or are you just fine with a complete unknown? You call references, right? Are those people you know, or are they strangers, whose word you might not be able to trust?

Rewarding your current employees to help bring in people who are like-minded and a good fit not only makes the employee feel good (they helped the company and got a monetary reward to boot!), but it can help keep recruiting costs down because you may end up filling the position based on word-of-mouth alone. (If your company is a government contractor, has a union presence, or other requirement that open jobs be advertised, you will not totally escape this expense, but you can possibly lower it when you have the assistance of current staff.)

Including current employees will show them you value and trust them, which can foster their loyalty to your company.

Career Path

Do you give your employees a career path to follow? Or, do you think people don’t want to advance in their careers and should be happy to stay in the same job for years on end, earning only the minimal increase each year and never being allowed to progress up the ladder? (There are people who don’t want to change jobs and want to be left alone to do what you hired them to do—that is fine for some, but not for everyone). When you started out in the workplace, did you have dreams of doing something bigger than what you were first hired to do? Were you loyal to the company that gave you the opportunity to try different jobs, expanded your knowledge base and possibly helped with the costs of a formal education that put you in a position for your next job?

Creating the succession plan, largely from within, makes sense on so many levels. You already know these people, how they fit into the organization, and their work ethic and values. If they are contributing to the vision you have for your company, you likely want to keep these people happy, right? As you assess the needs of the organization and compare them to the abilities of your current staff, begin drafting an outline of career paths for your employees. Determine what additional training, experience and/or education they might need to be ready for their next step when the time is right. When you communicate these plans to your employees, the result will be resoundingly positive, and they’ll want to know when they can start.

Change can take people out of their comfort zone and make them nervous. However, when the change is benefiting them, and they can understand the reason why the change is taking place, they tend to embrace it. People don’t necessarily want to leave your company, but they typically do so to gain a promotion, experience a new challenge, interact with or report to other people and, yes, sometimes for more money.

Don’t Be Stingy With Pay

How much is any particular job worth to your company? What is the standard annual increase you budget for—is it 3 percent? 5 percent? Is it based on what other companies pay for similar positions? Do you use professional salary surveys to gauge the appropriate ranges, or do you just pick a number?

If your current employees were to leave and you had to look outside the company for a replacement, would you offer the same amount that your current employee was paid, or would you accept the possibility that you might need to pay more to get a qualified person to accept the job? If you’re willing to pay that much more to a stranger, why would you not pay that to a good employee you already know and might have future plans for?

Being stingy with salaries has other hidden costs. In addition to likely paying the new person more, what does that new person’s inability to be autonomous do to productivity or group dynamics? Does a new person come in and disrupt the flow and synergy, sometimes putting projects at risk?

Let’s be optimistic and say the new person is a great fit and causes zero disruption. How long does it take that person to get up to speed and perform at the predecessor’s level? All of these can be translated into dollars, but employers don’t always take them into consideration when deciding a current employee’s salary increase.

Some turnover is good, but it comes with a cost. Is there a better way to spend your company’s money than having a high turnover rate? Why not reward your current employees in the first place?