With the dramatic changes in work affecting industries and organizations worldwide, there’s an increasing emphasis on employee retention. Understanding what employee retention is, what it means to an organization, the benefits it provides, how to boost retention, and how to measure it, are critical matters that leaders and managers in every organization must consider carefully today.
What is employee retention?
Employee retention is both a measure and a set of strategies. As a metric, employee retention is the number of employees who remain within your organization within a period of time. Typically measured annually, employee retention often is expressed as a ratio of all remaining employees to all employees employed during the timeframe.
Employee retention can be influenced by myriad factors. In some cases, you may have voluntary turnover, meaning employees leave the organization for better-paying jobs or better opportunities in another position.
Why do employees leave your organization? Here are the top reasons:
Lack of appreciation. Employees want to feel valued by their employers. Acknowledging the work employees do and the impact they have on the bottom line can go a long way. Failing to appreciate your employees leaves them feeling unwanted and more likely to jump ship.
Lack of recognition. Appreciation and recognition are closely linked. Recognizing good work does not need to be complex or expensive, but it’s critical. From manager praise to writeups in employee newsletters to programs where colleagues can recognize others’ great efforts, there are many ways to recognize work well done.
Lack of opportunities. Organizations, even smaller ones, need to establish growth opportunities that will let employees see opportunities for professional development. Professional growth can come in many forms. Employers can have well-defined processes for promotion, provide valued professional development opportunities or support continuing educational achievement. All of these opportunities lead to improved retention and loyalty.
Lack of flexibility. In today’s business climate, schedule flexibility is increasingly becoming an expectation. Workers want flexible schedules and hybrid remote work environments that allow them at least some opportunity to work from home. Not providing flexible scheduling, where appropriate, can lead to workers fleeing your organization.
Burnout. Work is harder today. Worker burnout is a very real concern and one that can lead to an employee exodus. You need to recognize and address burnt-out employees to help them recharge and stay with the business.
Why employee retention is important
Employee retention is an indicator of the overall health of an organization. With high employee retention rates, your organization will be more effective, productive, and profitable.
Here are some of the core reasons why employee retention is important.
Job satisfaction
When employees see colleagues who are staying in their jobs, they’re more likely to stay themselves. When employees are more engaged, they’re less likely to leave for other jobs.
Positive work environment
Teams rely on each other. When the team is stable, workers are more likely to be positive about their work and their workplace. Higher employee morale leads to higher levels of employee engagement.
Building a team takes time, trust, and hard work. You want the teams in your organization to be as cohesive and connected to each other as possible, coalescing into a strong, high-performing unit.
Improved efficiency
When teams remain strong and consistent, they are going to work more efficiently. The longer employees stay, the more skills and institutional memory your teams have available. Employees who have some tenure with the organization will know how to work smartly and effectively.
More business success
Successful employees mean successful businesses. Keeping your best employees lets you realize more business success—more revenue, more profits, and more opportunities.
Benefits of employee retention
There are several key benefits to raising your rates of employee retention. These include:
Higher satisfaction
Higher retention rates lead to higher rates of job satisfaction. Employees who feel better about their work are going to be better workers and generate more for the organization.
Deeper appreciation
When companies work at keeping employees and focus on the employee experience, there’s a deeper sense of appreciation towards the organization. Employees will see the work that goes into retaining talent, and will foster gratitude in the efforts the company makes.
Better employee engagement
Employee engagement, a measure of how connected employees are to their employer, is boosted by strong retention rates. Well-engaged employees are more likely to speak positively about their employer, encourage other talented people to apply for positions, and share company news on social media.
Improved customer service
Employees that stick around with an employer are going to deliver better experiences to customers. And those customers are also more likely to remain so with established relationships with your employees.
Costs and impact of high employee turnover
One of the major reasons to focus on employee retention is money. The cost of employee turnover is considerable and affects many areas of the business. Consider the steps necessary when an employee leaves:
Reassigning of job responsibilities, either temporarily or permanently
Conducting an exit interview
Reviewing and editing job description
Creating and posting a job advertisement
Forming a search committee
Reviewing resumes, conducting interviews, and conducting reference background checks
Making an offer
Onboarding and training a new employee
Those steps all take time and money. They take employees and managers away from other tasks.
Even for an entry-level employee, the Society for Human Resource Management estimates the cost of replacing an employee is 50 percent of the employee’s salary. For technical employees or leadership positions, the costs skyrocket, upwards of 200 percent of the salary.
Here are the main categories of costs associated with adding a new employee after a departure:
Recruitment. Recruitment costs include advertising, screening, interviewing, and hiring an employee.
Lost productivity. What work doesn’t get done while waiting for a replacement employee? These indirect costs are very real and can be high, given the role needing to be replaced.
Engagement and morale. When an employee leaves, the impact on the team may be considerable. Employees, especially on teams with high turnover rates, can become disengaged and produce less.
Onboarding. Each new employee needs to be onboarded. The costs to train and orient an employee is considerable. In addition, it’s unlikely that new employees will be as productive or as efficient as the employees they replaced.
Training. Training programs, especially for highly technical positions, can be costly. Bringing a new employee up to speed safely on a procedure, equipment or software can take time and external resources to get them ready to do their new job.
Errors. New hires are more likely to make mistakes. In most cases, these errors are inconsequential. However, in some circumstances, mistakes can cost clients, customers, and money.
6 effective employee retention strategies
Despite the challenges that come from losing employees, there are many ways that employers can work proactively to boost retention rates and improve employee satisfaction.
Effective employee retention strategies are steps that organizations take to address retention while creating a quality employee experience that attracts top talent.
The key is to be intentional in measuring, evaluating, and reacting to the employee retention rate. This work is not just a “human resources problem.” It should involve leaders throughout the organization looking at the data and determining new courses of action.
Each of the strategies listed below is a proven approach that has resulted in improved employee retention.
1. Recognition and rewards for accomplishments
Recognition and rewards are a compelling way to encourage and celebrate employee success. There are several recognition programs employers can deploy, including:
Peer-to-peer recognition. Programs that let employees recognize each other can be particularly powerful. These programs allow employees, either anonymously or publicly, to recognize good work. There are apps available that allow team members to celebrate each other, such as Nectar and Kudos. Other approaches involve regular (monthly, quarterly, or annually) opportunities to nominate others for exceptional work.
Awards programs. Many companies have programs that reward employees for years of service. These programs honor those who’ve worked for 5,10, 25 years, or more. Often, these awards programs are held publicly, allowing coworkers to cheer for honorees and come with financial rewards or meaningful gifts. Other awards programs recognize work that aligns with company strategies, priorities, or values, such as exceptional customer service, sales success, or service to the profession.
Employee events. Events, such as holidays or annual parties, can be public ways to thank employees for their work. These events should celebrate the hard work and accomplishments of employees during the year. As importantly, they should be ways for employees to have fun, let their hair down, and enjoy.
2. Encourage work-life balance
Many companies talk about having a work-life balance. However, if your company talks about work-life balance but does not have programs in place that foster that balance, your words will appear hollow.
Many of the programs related to work-life balance come in the form of benefits that are available to employees. Before launching such programs, it’s important to understand where your employees are. That typically means surveying your employees to understand their pressure points.
Before implementing a program, be sure you know what your employees need to maintain a true work-life balance.
Also, be sure that there is buy-in for this work from all levels of leadership and management. Too often, work-life balance programs are available, but managers discourage or prevent employees from participating. To ensure compliance, be sure that issues such as time, deadlines, and productivity will be measured for employees using these programs.
These programs often require the development of policies that are clearly outlined, stating the purpose of the programs, eligibility, application processes, if applicable, and the impact on compensation, vacation or paid time off, or other benefits. Some organizations launch such programs as pilots and are explicit that the programs may be reassessed.
Here are some of the key opportunities to encourage a healthy work-life balance for your employees:
Flexible work hours and schedules
Hybrid work schedules that combine on-site and working from home
On-site child care
Emergency childcare help
On-site services, such as medical care, dry cleaning, or haircuts
Referral and employee assistance programs to services such as behavioral health, weight loss, or substance use
Parental and family leave that goes beyond the legal minimum
Leaves of absence
Beyond formal programs, organizations need to be clear about what “work” means. Are employees expected to respond to emails after-hours, on the weekend, or while on vacation? Can they be called into work on scheduled days off and how many hours beyond full-time are expected?
Establishing these expectations in writing is critical. Otherwise, you open the door for resentment and lower retention rates.
3. Create opportunities for advancement
Do your employees see a clear path forpromotions or raises within your organization? Even small companies can do so, showing employees what’s expected to grow within the organization.
Here are a few ways to develop opportunities for advancement:
Publish career timelines. Establish career development plans for each position group. The timeline can indicate the typical career path for top performers – the roles they take on, the projects they lead, and the work they do. The timelines can also articulate how long employees last in certain roles before moving to new positions.
Provide development opportunities. Your company likely already provides training programs that allow employees to learn new skills and technologies. Formalizing those programs and allowing for cross-training are excellent ways to show employees you value their professional development. Job shadowing, cross-training, and attendance at conferences that foster networking are other ways to invest in your employees.
Create mentor programs. Connecting experienced staff with new employees early on in their tenure can have a powerful effect. For mentees, having someone to turn to and glean insights from can be a great way to connect and learn; note that mentors should ideally be someone outside of the employee’s chain of command. For mentors, these programs are a great way to share knowledge and perspective with new colleagues.
Promote from within. Take a close look at the promotion practices of your business. Do you promote employees from within the organization or go with external hires? Employees see those patterns and draw conclusions about their own chances at advancement within the business.
4. Focus on company culture
Corporate culture is about the “energy” your work practices give off to employees. Corporate culture can shape retention rates, good or bad. Here are some important ways to focus on company culture:
Develop or review core statements. You want to be sure you have clearly defined mission, vision, and values statements. Today, many companies also create diversity, equity, and inclusion statements, too.
Communicate regularly. Communication, via newsletters, statements from leadership, team meetings, and other methods, are important to share company progress, challenges, and opportunities.
Connect people to a purpose. People are more inclined to work for organizations that serve a purpose. Be sure that your employees see how their work matters, the people and communities it aids, and how their work makes an impact.
Be transparent. Is your company facing increased competition, seeing a drop in revenue, or entering a new high-growth market? Share the news and changes, both good and bad, with your employees so they can understand why the company is doing what it does.
5. Reexamine benefits packages and compensation
Compensation and employee benefits packages are a priority for every worker. Knowing they are compensated appropriately, within the industry and local economy, matters greatly. It’s important to regularly review and assess your compensation (including wages, salaries, bonuses, profit-sharing, and other pay programs) and benefits such as employer paid health insurance (in addition to factoring in some of the programs listed above) to keep employees feeling they are fairly compensated for their work.
6. Prioritize a flexible work environment
Flexible, remote, and hybrid scheduling is increasingly the norm among businesses across industries. It’s important to talk with business unit leaders and employees alike about how to develop programs that are fair and equitable while also allowing work to get done productively. The 9-5, Monday to Friday, in-office workforce is likely a thing of the past, and your organization needs to adapt and modify to remain competitive.
How to measure employee retention
Employee retention is the percentage of employees who stay at a company for a given period of time. Starting with a baseline measure, your organization can track progress year to year and make adjustments while evaluating the impact of new programs to improve the retention rate.
Here are a few of the key metrics to consider:
Measure why employees leave.Exit interviews can lead to both quantitative and qualitative measures of why employees leave. What drove your employees to quit? Think about the core reasons–more money, better title, culture, a specific manager—people leave and track why.
Calculate rates. Your overall employee retention rate is the number of employees who stayed during a time period divided by the number of employees at the start of the period, multiplied by 100. Your overall turnover rate is the number of employees who left during the same time period divided by the number of employees at the start of the period, multiplied by 100. These rates are the key measures to consider and examine.
Drill down. You can take the retention and turnover rates and apply them to each division, department, and manager in your organization to determine if there are patterns, strengths, or weaknesses in one segment of your company.
Correlate with performance. What are the retention and turnover rates for the highest- and lowest-performing segments of your employee base? In particular, you want to be sure that your best employees are sticking around and that you’ve got strategies in place to keep those rates high.
FAQs
What is a good employee retention rate?
Employee retention rates vary by industry. Some industries, such as food services, have low retention rates, while the state government and education have high retention rates. Understanding your industry norms and your own baseline can help you better gauge where your rate compares.
What determines employee retention?
Employee retention is based on several factors, including employee engagement, career opportunities, professional development, internal communication, and how valued employees feel. There is no one factor that shapes employee retention rates.
What is an employee retention program?
Employee retention programs are strategies organizations deploy to improve how long employees remain employed. The most effective programs recognize and acknowledge employees, provide benefits to employees that allow for better work-life balance, and assess compensation and benefits.
Employee retention is a critical indicator of success. Employers that measure, analyze and respond to retention and turnover rates with programs that are resonant and valuable to their employees are more likely to have more efficient and productive organizations.
