The Employee Profit Chain

The Employee Profit Chain is a management framework that establishes a direct link between profitability and employee retention.  The principle states that the key to performance is employee engagement and retention, as maximizing property NOI and asset values requires being fully staffed with highly engaged on-site teams.  However, engagement, retention, staff shortages, challenges filling vacant positions, and economic worries continue to be significant issues facing the industry. 

The Chain explains how engagement impacts results: engaged employees stick with the company.  That of course reduces staff vacancies, which therefore minimizes hiring challenges.  All of this leads to the best possible service delivery, which naturally boosts resident satisfaction and minimizes costly move-outs – in addition, reputation and recruiting employees and residents is positively impacted – and all of this leads to NOI growth. 

The importance of the Chain is clear given the impact of employee disengagement and turnover – leading to:

·        18% lower productivity and 37% higher absenteeism (Gallup).

·        59% higher employee turnover (Forbes).

·      44% lower profitability for companies ranked in the bottom half of engagement (Gallup).

·        The painfully short tenure of multifamily onsite employees is well-known by all operators.

Employee turnover clearly has a negative impact on the bottom line.  How much does employee turnover cost?  The Society for Human Resource Development (SHRM) estimates the cost can range from 50% to 200% of their annual salary depending on their level¹: Entry-Level/Clerical 30% to 80% of their annual salary; Mid-Level/Professional 100% to 150% of their annual salary; Technical, Executive, or Highly Specialized up to 200% to 400% of their annual salary.  In addition, SHRM reports that experts emphasize that 60-70% of turnover costs are hidden (lost productivity, team disruption, loss of knowledge).

The implications of the Employee Profit Chain are quite clear.  Focusing on employee engagement will allow for maximizing NOI.

About the Author:

Doug Miller is Founder and CEO of RE/SRCH, a research and consulting services provider, as well as Partner and Chief Research Officer with Swift Bunny, where he oversees research programs.  Prior to this, Doug was Founder and CEO of ManagInc; its employee, resident, and service provider feedback system helped clients enhance their focus on stakeholders to improve employee retention, resident retention, and reputation. Before ManagInc, Doug was Founder and President of SatisFacts Research, the multifamily industry’s leading resident feedback program provider. Doug started his career in property management in the 1990’s, including as Director of Marketing for two NMHC Top 50 firms. Doug earned his BSBA from Washington University/St. Louis and MBA/Marketing from The American University.

1: Source: https://www.shrm.org/executive-network/insights/myth-replaceability-preparing-loss-key-employees