Take Our HR Skills Assessment to Get a Custom Learning Plan
There are many reasons employees contemplate leaving an organization, including lack of work-life balance, professional development or accountability; inadequate pay; and the feeling of being undervalued.
Let’s explore what employee retention is, why it is important, how to measure it, and how to start an employee retention program.
What is Employee Retention?
Employee retention is the ability of an organization to retain its employees. The opposite of retention is turnover, when employees leave and must be replaced.
How to Measure Employee Retention
The basic formula for calculating retention is: The number of individual employees who remained employed for the entire measurement period divided by the number of employees at the start of the measurement period x 100.
To calculate your retention rate, first determine the time period you wish to measure. This allows you to calculate the appropriate number of employees. Your measurement period can be annual, your fiscal year, quarterly, or monthly.
Next, note the number of employees who were working at the start of that period and the number of employees who remained at the end of the measurement period. Then use the formula above to calculate your employee retention rate.
An 86% retention rate represents a healthy employee retention rate; however, if the percent appears low, such as 50% or lower, evaluate the methods that your HR department uses to retain employees
Why Employee Retention Is so Important
The Society for Human Resource Professionals (SHRM) found direct replacement costs (recruiting and training) can reach as high as 50–60 percent of an employee’s annual salary, and the total cost of turnover can range from 90–200 percent of annual salary.
Why Employees Leave
There are many retention strategies organizations can implement—building a positive work culture, rewards programs, work-life balance, remote and hybrid work opportunities—but where do you begin?
First, figure out why your employees leave. There are two types of turnover: those you can control (e.g., wages, benefits, professional development, resources) and those you can’t (e.g., retirement, spousal transfers, moves). Your retention strategy should focus on those that you can control.
A SHRM study found that employees typically follow four primary paths to turnover, each of which has different implications for an organization. They are employee dissatisfaction, better alternatives, a predetermined plan to quit, and negative experiences.
Dissatisfaction is when an employee does not feel content with their job. This can be due to lack of advancement, poor management, limited work-life balance, and more. Utilize traditional retention strategies such as monitoring workplace attitudes through surveys, focus groups, etc. to discover and address areas of dissatisfaction.
Retain employees by ensuring that the organization is competitive in terms of rewards, developmental opportunities, and the quality of the work environment. Be prepared to deal with external offers for high-performing employees. For example, higher wages, unlimited PTO days, and a flexible work schedule.
Some employees decide in advance to quit (e.g., spouse becomes pregnant, job advancement opportunity, returning to school). You may consider increasing rewards tied to tenure or in response to employee needs. For example, if a company is seeing exits based on family-related plans, more generous parental leave and family-friendly policies may help reduce the impact.
The opposite of planned change is negative experience: employees who leave on impulse or as a result of difficult experiences (e.g., not being promoted or difficulties with a supervisor).
Review the types and frequencies of work-related issues that are driving employees to leave, and look for patterns. Provide training to minimize negative interactions (e.g., harassment, bullying, or unfair and inconsistent treatment) and provide support mechanisms to deal with those problems (e.g. conflict resolution or alternative work schedules).
We’ve looked at some of the reasons employees leave and how you can build a program to prevent or respond to those specific causes of turnover. Now let’s look at a more general overall approach to retention.
Four Arms of Retention Strategy
There are a few areas in your company that affect employee retention more than you might imagine. Powerful tools at your disposal include your brand, your selection process, how you onboard your employees, and how you engage them.
Your brand ultimately helps attract top talent by offering candidates an up-close look at what your company is all about. A strong brand enables candidates to self-assess for fit within your organization, increasing employee retention and engagement.
Brand also includes what your customers and previous employees say about you. Use employee reviews on job boards such as Indeed and Glassdoor as a resource, not an adversary. Reviewing them teaches you about issues within your organization so you can address and improve both employee engagement and retention. Employee satisfaction is a powerful indicator of how well your organization is performing.
Many employees turn to the internet to voice their views about their current and past employers—and many prospective employees use social media to learn about your company as well.
An effective selection process results in hiring employees who will boost company morale, add to your corporate culture, keep your retention rate high, and contribute to the bottom line.
An ineffective selection process results in a selection pool of poorly qualified candidates, hence, potentially increasing your organization’s retention rate.
Everyone at your company is part of the onboarding process, from the receptionist to team members and leaders.
SHRM defines onboarding as the process in which new hires are integrated into an organization. However, onboarding does not start and end with new hires, and is not to be confused with orientation. Onboarding should also include employees that have longer tenure by addressing their learning and development needs—also known as continuous onboarding.
Studies have found that after a few months in the company, people are often looking for ways to improve their existing skills and make sure they contribute to their team’s output.
Here is where continuous onboarding comes in. Have continued conversations about growth and development from their hire on. When you support employees to develop within your organization, it becomes an investment and employees are more likely to be engaged and stay.
Employee engagement is a key component of your retention strategy. Gallup defines engaged employees as those who are highly involved in and enthusiastic about their work and workplace. How do you move your employees from just showing up to work to being committed? You engage them.
Socialization has proven to be an effective tool of engagement. It helps newer employees become rooted within an organization and more likely to stay. Some examples are mentorship programs and informal activities that help employees get to know each other.
Training and development is another engagement tool that is highly effective. Simply put, employees that are not given opportunities to continually update their skills are more likely to leave.
Supervisors and managers also play a key role in increasing the employee retention ratio. Ensure that your managers are communicating clear expectations, providing frequent feedback, making the employee feel valued, integrating core values about people, and that the mission and vision of the organization enable people to align themselves with your organization.
Types of Employee Retention Strategies
Once you determine why your employees leave and their level of satisfaction through exit interviews and surveys, you can begin to develop your retention strategies.
This strategy is directed at the entire organization and focuses on general, ethical business principles to maintain a stable employment relationship. An example would be an across-the-board market-based salary increase. Benchmark surveys, retention research, and effective practices are great sources for implementing a broad-based retention strategy.
This strategy determines where a problem exists and allows the organization to develop and implement strategies that address the issue. Data is obtained from sources such as stay/exit interviews and employee resource groups. For example, an organization experiencing a high turnover in a particular department might seek out common reasons as to why the employees are exiting.
Questions You’ve Asked Us About
Other Related Terms
Want to contribute to our HR Encyclopedia?
Posts You Might Like
People management software sounds important, but what exactly does that mean? Does your business need it? What businesses benefit most? All these questions and more are answered as we dive into the fascinating world of people management software and determine what’s best for your company.
It’s no secret that people are complicated. No two people are alike and everyone has their own unique preferences. These differences can make people management challenging. However, when you learn to R.E.A.D. people, you’ll immediately become a better manager and you’ll earn the trust of your team.
When it comes to running a small business, we know that managing employees is often one of the most difficult tasks. People are complicated, and finding a way to keep your employees happy and productive can be challenging. This article shares specific advice for what you can do in the three phases of the employee lifecycle to get the most out of each employee.