Employee retention has become a major focus for companies of all sizes and industries. With the labor landscape changing drastically in the past few years — the rise of remote work, prioritization of better work-life balance, and more — companies have realized the importance of not only attracting top talent, but keeping them engaged for the long term.
Here we'll go over everything employers should know about employee retention, including how to measure it, how to improve it, and more.
Let's dive in!
What is Employee Retention?
Employee retention refers to how well a company is able to keep top talent on board to mitigate turnover and reduce attrition.
It is imperative for every company to understand how to measure their employee retention rate and implement effective strategies to keep staff happy and motivated in their work, not only for morale purposes, but financial ones. On average, it costs employers 33% of an employee's annual salary to find a replacement due to headhunting and onboarding costs, training, and time sunk into the recruiting process.
The ultimate goal for any organization should be to implement a positive employee experience. This is achieved by ensuring that each staff member's career is progressing as they wish, they feel fulfilled in their work, and motivated to keep growing professionally.
How does employee retention fit into your employee experience strategy?
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Why is Employee Retention Important?
Having a high retention rate is a crucial part of any successful business. Having a proverbial revolving door for employees is a drain on resources and indicates deeper issues in the company that may be difficult to address.
Some common causes of a high turnover rate include:
- Toxic culture: If employees feel they are unsafe, unappreciated, or otherwise can't rely on effective communication, chances are they'll plan an escape sooner than later. Toxic work environments are one of the core reasons for employee turnover and are simultaneously one of the hardest to fix. Word of mouth spreads fast — we're sure that even hearing the phrase "toxic work culture" brings at least one company to mind, whether or not they've taken steps toward addressing the issue.
- Unchallenging work: One of the top reasons employees leave their positions is because they feel unchallenged. People yearn to learn and grow in their careers, and stagnation leads to boredom and lack of motivation. It's up to managers and leaders to ensure daily tasks are fulfilling and challenging for their employees.
- Poor communication: A retention report from TINYpulse revealed "employees that don’t feel comfortable giving upward feedback are 16% less likely to stay at their companies." This further solidifies the need for strong communication and feedback channels from the top down and vice versa. This could also be a side effect of toxic culture and other negative aspects of a business.
- Bad leadership: Also tied to workplace toxicity, bad leadership tends to drive talented employees away. You've probably heard the saying, "people don't quit jobs, they quit bosses" for a reason. Leadership and culture start at the top. Attitudes and habits trickle down, so if lack of direction and support is a consistent reason people leave your company, it's time for some introspection.
Benefits of a High Employee Retention Rate
The benefits of a high retention rate are often unseen until the retention rate lowers.
However, the most obvious benefit is saving time and money on recruiting and onboarding costs. Additionally, since sites like Glassdoor and Indeed have become so popular, word about employer practices travels fast. If you treat employees well, job seekers will likely want to work for you, making recruiting even easier. You may find top talent chomping at the bit just to get an interview.
Companies that have high retention rates also have improved employee morale and increased productivity.
Long-term employees that have had opportunities to grow, discover their potential, and hone their skills tend to be more engaged and productive in their work. It also decreases the chances of knowledge loss, since experienced staff members are sticking around for the long haul. One of the unseen detriments of losing seasoned teammates is losing the knowledge and skills they could have imparted on their colleagues.
How to Measure Employee Retention
To calculate employee retention, companies must first track all employee retention metrics. This can include, but is not limited to, employee satisfaction, turnover rate, attrition rate, voluntary vs involuntary turnover rates, absenteeism, and turnover costs.
Keep in mind that involuntary turnover (firing someone or laying them off) is far less threatening than voluntary turnover (staff quitting, retiring, etc.) since, in most cases, the former is a decision made by leadership, whereas the latter is more indicative of organizational issues.
Calculating Employee Retention Rates
The calculation for employee retention is relatively simple:
Take the number of employees who remained employed for the entire year (or other specified timeframe) and divide it by the company's number of employees at the beginning of the year. Take that number and multiply it by 100 and — viola! — you have your average employee retention rate.
You can modify this formula to measure other aspects related to retention, such as the voluntary turnover rate, absence rate, etc.
How to Improve Employee Retention
1. Measure Employee Feedback Through Satisfaction Surveys
You can't improve retention until you know what's causing it. To understand these root causes, you must gather as much information as possible from your employees. This is most easily done through anonymous employee satisfaction surveys that can be distributed regularly. Ask probing questions like "would you recommend this company to a friend?" and "are you challenged enough in your day-to-day tasks?"
2. Take Exit Interview Feedback to Heart
If you're not conducting exit interviews already, you're sorely missing out on quality feedback. Employees on their way out are more likely to give an unfiltered account of why they're quitting and are less reluctant to hold back details. Sometimes they can give hard truths about the company and how it treats its employees. But it's important to lend a listening ear and probe the reasons for their departure without letting emotions get the better of you. On occasion, disgruntled employees may just take issue due to incompatible personalities. However, if you start noticing common throughlines within multiple employees' testimonies, it's probably time to take steps toward addressing them.
3. Improve Onboarding
An estimated 40% of employees that receive poor onboarding are likely to leave within their first year of employment. Ensure new employees feel comfortable with their new environment and set training goals and milestones throughout the year. Avoid throwing employees into the lions' den as much as possible, giving them time to grasp concepts and adjust to the company's standard procedures. Answer questions enthusiastically, set clear expectations, and provide thorough on-the-job training.
4. Celebrate Your Team's Successes
When employees achieve a difficult goal, celebrate that success with the rest of the team. Make sure the employee feels acknowledged and empowered to keep striving for success. These achievements can be called out during team-wide or one-on-one meetings or via communication apps like Slack and Bonusly.
PepTalk Helps Increase Employee Engagement to Retain Employees
Improving employee retention is one of the most crucial ways any company can avoid unnecessary recruiting costs, keep employees engaged and motivated with their work, and create an inclusive workplace culture.
PepTalk's platform utilizes behavioral science to identify pain points within each organization's teams and provide action items that help employees stay engaged with their work for the long haul. If you're interested in implementing a strategy to improve employee retention today, get in touch to get started!