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Why Employee Retention Is Important (And How To Improve)

By Di Doherty - Feb. 21, 2023
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Summary. Employee retention is the measure of how many of a business’s employees remain with them over a period of time. In most cases, it’s expressed as a percentage, such as having an 85% retention rate.

Sometimes the opposite side will be expressed instead. That would be called the turnover rate. Turnover has to do with how many people leave. So, for the above example, it would be a 15% turnover rate.

Key Takeaways:

  • Employee retention is how many employees an organization keeps over a period of time.

  • The better the salary, benefits, and culture of a workplace, the higher the retention rate it’s likely to have. In other words, the more positive things an employee gets out of their workplace, the more likely they are to stay.

  • Employee retention has several benefits, including lowering costs, limiting disruption, higher productivity, and less time and resources spent on training.

What Is Employee Retention?

Employee retention is how well an organization is able to keep its employees. In other words, if a business has a high retention rate, then very few of its employees leave for other opportunities. Of course, it’s impossible to have no turnover – people retire, move, or change careers – but the higher an organization’s retention rate, the better.

Retention is typically expressed as a percentage. For instance, a company may have a 75% retention rate over a five-year period. That means that 75% of the people that the company employs have stayed with the company over the past five years.

That wouldn’t be a very inspiring retention rate, as most experts consider a 90% retention rate or 10% turnover rate to be ideal.

Why Is Employee Retention Important?

Low turnover has a lot of benefits for the organization. And with the often mentioned Great Resignation and the worker pool shrinking due to the pandemic, it’s become even more important. The benefits of retaining employees include:

  • Lower cost. Hiring and training are expensive. The more often a company has to hire and train new people, the more money they’re spending that isn’t getting an immediate return. Employees are an investment, and not just in terms of their salary. And for a business to run in the black, it needs a good return.

  • Limited disruption. Both resignations and new hires are disruptive. In both cases, duties are reassigned, and the workload shifts. For a resignation, there are usually fewer people to do the same amount of work, not to mention the knowledge that’s walking out the door.

    Though new hires do end up reducing workload and upping productivity in the end, there’s a period where productivity drops. That’s due to how much time it takes to train a new employee, as well as slot them into the company hierarchy and culture.

  • Higher productivity. If someone stays with an organization for a long time, they get used to the way that things operate, as well as the best way to go about things. They also get to know the other people who work there, so they know who to go to when they hit a snag. All of this leads them to be more effective and productive with their time.

  • Less training time. Training takes a lot of time. And even when the official training period is over, it still takes a while for new employees to become fully familiar with the new work environment and be as productive as they can be. It also reduces the expense associated with training programs and the time other employees have to invest in it.

    Employees that an organization retains are usually already trained and gain more training along the way. However, it doesn’t need to be as condensed, and even if they end up needing training for a promotion or lateral shift, they don’t have to familiarize themselves with the company culture or operations.

Best Ways to Improve Employee Retention

Now that we’ve gone over the benefits of retaining employees, you may be wondering about the most effective way to achieve that. It’s important to note that different people value different things, but there are some strategies that work well across the board. If you can manage it, it’s best to select a combination of them to appeal to as many people as possible.

These include:

  • Competitive salaries and wages. The primary motivator for people to take a job is the pay. Offering a competitive salary is going to make your employees less inclined to jump to another opportunity. They’ll also feel like they’re properly valued and appreciated if you pay them a competitive wage.

  • Excellent benefits. Benefits are part of the package of compensation. But if you can’t offer a high salary, then giving excellent benefits can be another way to retain top talent. Health insurance is a major consideration for most workers, and if you can also offer vision, dental, and life insurance, then that adds.

    There are other varieties of benefits, as well. These include retirement accounts, paid time off, tuition assistance, disability insurance, paid parental leave, and severance packages. Also, in general, the more customizable the benefits, the more pleased employees are with them.

  • Career development. While an employee may like the compensation, culture, and even their coworkers, if they aren’t able to progress in their career, they’re going to feel stuck. This doesn’t have to relate directly to promotions, either. Most careers only really offer tracks into management, which not every worker wants to go into.

    If you offer further training and pay raises for whatever track your employees are on, that’ll allow them to look ahead. Everyone wants to advance in their career, and giving them the tools and opportunity to do so is going to encourage them to stay with your organization long-term.

  • Make rules and expectations clear. Having confusing, inconsistent, or labyrinthine policies is going to be irritating and off-putting to employees. Workers want to know what they’re supposed to do and what their expectations are.

    If you’re able to make that clear and take note when they exceed expectations, then that fosters a positive work relationship.

  • Offer telecommuting. While not everyone is on board with working from home, most younger workers prioritize it. The pandemic changed the way that a lot of offices operate, and telecommuting is here to stay. Offering the possibility to work from home on a regular basis is a benefit that catches a lot of people’s attention.

    You can offer this full-time or part-time. For instance, you can give people the option to work from home on Fridays. In most cases, the more time you can offer for people to work from home, the more attractive it’ll be.

    The pandemic also made people more skittish about going to work sick or working with others who are sick, which makes this option serve a dual purpose.

  • Embrace flexible schedules. If you can’t manage to offer full-time telecommuting, then a flexible schedule is the next best thing. The less rigid your business is about the standard nine-to-five schedule, the more your workers will appreciate it. This would push your model towards a results-driven assessment rather than a time-based one.

  • A comfortable office. If you can’t offer working from home – or even if you can – the more inviting your office is, the better. While a lovely office won’t make up for other important shortcomings, it makes going to work more pleasant.

    Remember that people spend a lot of their life working, and it helps to make it as positive an experience as you can.

  • Work-life balance. Being able to unplug from work is necessary. With the prevalence of constant communication – such as smartphones and email – it’s harder and harder to remove yourself from work. Management should set firm guidelines in terms of when it is and isn’t acceptable to reach out for work-related questions and such.

    This can also include offering paid parental leave and paid family leave. If a worker has a life-changing event, they’re going to need support. If you’re in a position to offer that, then that’ll help them through a difficult time, build loyalty, and allow them to return to work ready to do their job. It’s also just the right thing to do.

  • Acknowledge hard work. It’s important to make it clear that you value your employee’s contributions. Don’t go overboard and thank them daily or anything – that’ll sound insincere. But be sure to acknowledge when an employee does something especially well or puts extra effort into a project.

    While no one should require praise to do a good job, it can feel futile if they work hard and never receive any acknowledgment, praise, or encouragement. Employees can begin to suspect that management doesn’t care or takes them for granted, which leads to disengagement and resentment.

  • Encourage socialization. A not insignificant part of work is the people. The better the bonds between the members of a team, the more likely they are to be able to work together effectively. Also, if your employees like one another, they’ll be less willing to jump to another office where they may not get along as well with their new coworkers.

  • Refine your office culture. Culture has a huge impact on employee retention. Of course, many of the previous suggestions on this list can be a part of a culture, but culture also includes the way things are done and the way that people are treated. If the culture at your workplace isn’t welcoming or positive, it’s best to work to change it.

  • Offer unlimited vacation. This is technically a benefit, but unlimited vacation time is a major selling point. It means that your employees won’t have to track their sick time and vacation time or worry if they have enough time to cover the time they have to take off for an emergency.

    Another major selling point of this policy is that it implies that the employer trusts their employees to behave honestly and like adults. Abuse of this policy is rare, and if it does happen, it should be dealt with on a case-by-case basis. There isn’t much more infuriating than being punished for something someone else did.

  • Perks. While perks are hardly a make-or-break benefit, they do make working for your organization more appealing. These can range from having a game room in the office to free lunch on Wednesdays to any number of other things that don’t translate into direct compensation.

  • Don’t fight resignations. No matter how amazing your office environment is, people will still leave. While it’s perfectly acceptable and reasonable to express regret that they’re leaving, it’s counterproductive to try to prevent them from going. It’ll prevent honest communication and make people hide when they’re looking at other jobs.

    Of course, if they’re leaving for an opportunity with a higher salary, it’s perfectly acceptable to say you’ll match the offer – that may even be what they want. However, you have to accept graciously if you get turned down.

Employee Retention FAQ

  1. How do you calculate employee turnover?

    Employee turnover rate is calculated by dividing the total number of employees who leave by the average number of employees. That means that if you usually have 150 employees in your office, and 20 of them left last year, you’d divide the 20 by 150.

    20/150 = .1333

    In order to get a percentage, you’d multiply that number by 100. So:

    .1333 x 100 = 13.33

    Therefore, you’d have a 13% turnover rate for the past year.

  2. What determines employee retention?

    Employee retention is most often determined by a mix of compensation and whether or not they feel valued by their employer.

    Offering comprehensive benefits and a competitive salary are an excellent place to start. It’s also important to acknowledge their work and to be accommodating if they ever have a major life change – good or bad.

  3. Why does retention matter to HR?

    Retention is important to the HR department because high turnover has the dual negative effect of increasing spending on personnel and dropping the company’s collective morale. Spending extra on making sure that employees stay with the company ends up being much more cost-effective in the end.

  4. What is a good employee retention rate to have?

    Most experts consider 90% to be a good retention rate to have. That would be equivalent to a 10% turnover rate if you want to measure it from the opposite end.

References

  1. Harvard Business Review – It’s Time to Reimagine Employee Retention

Author

Di Doherty

Di has been a writer for more than half her life. Most of her writing so far has been fiction, and she’s gotten short stories published in online magazines Kzine and Silver Blade, as well as a flash fiction piece in the Bookends review. Di graduated from Mary Baldwin College (now University) with a degree in Psychology and Sociology.

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