Employee Retention

Workers are inarguably the most indispensable part of any business, making employee retention the biggest priority for human resources. A low employee retention rate – especially when high-potential people leave – can lead to significant repercussions for any organization. Although labor markets are finally settling down after the incredible surge of quits and firings of the COVID-19 pandemic, employee retention remains a major concern. 

What Is Employee Retention?

The definition of employee retention is “the ability of an organization to retain its employees and ensure sustainability”. Maximizing the rate of employee retention can be as simple as having satisfied employees who have good relationships with their managers and superiors, but there’s often more to it. Work Institute’s 2024 Retention Report states that career development is one of the most important factors in retention, and going nowhere in a job is a main reason for employee turnover. Employees want to feel valued, find purpose in their careers and continuously move forward by learning new skills

Employee retention techniques aim to ensure that the most talented employees stay over the long term for the good of the organization. One of the most important and increasingly popular employee retention techniques is an official employee growth and professional development program based on L&D. Because of the importance of offering career development opportunities, supporting professional growth is a proven way to prevent talented employees from seeking positions that offer L&D programs

The Current State of Employee Retention

Employee retention rates in the US were steadily dropping before COVID-19, and during the pandemic, they fell to historically low levels. In late 2023, retention rates returned to pre-COVID levels, but are still somewhat lower than a decade ago.   

Statistics also show that there is a significant gap between job openings and hires. This demonstrates that a large number of people have left the workforce and that there are many opportunities for employees who are not satisfied with their current jobs. In this situation, employee retention is critical, and it’s become a nightmare for HR. In the recent Human Resource Executive’s annual “What’s Keeping HR Up at Night?”, a survey found that 60% of respondents cited recruiting and retaining workers as one of their top two challenges.

How to Calculate the Employee Retention Rate

Understanding your level of employee turnover risk begins with the employee retention rate formula, an important metric for leadership and HR alike: 

Employee Retention Rate = ((Total number of employees – Total number of quits) / Total number of employees) x 100

Note: It is vital to set a time period for calculating the metric. For instance, if you want to know the retention rate for a year, you should use:

  • Total number of employees at the start of the year
  • Total number of quits over the course of the year 

Why Is Employee Retention Important?

Today, retaining employees forms a core area of strategic concern for HR managers in companies across the globe. Reasons why it’s important include:

  • Profitability: A high retention rate is either a sign that workers are satisfied with their job, or that they are facing a lack of alternative opportunities because the economy is poor. When the former is true, and workers have a generally positive employee experience, revenue and profit tend to increase. In this HBR survey, those employees in the top quartile with a positive experience deliver revenue and profit levels that are 53% and 44% higher (respectively) compared to employees in the bottom quartile. 
  • Long-term benefits: By concentrating only on financial results without regard to employee satisfaction or needs, organizations are setting themselves up for failure. Over time, they will lose the employees who have the top skills and best understand how the vital operations of the company function. Considering the time that it takes for new hires to understand their role, and the mistakes they make, constantly replacing employees who have quit is a very inefficient approach.  
  • Increased Employee Satisfaction: Satisfied employees are more reliable and likely to be candidates for promotion. Compare this to “Act Your Wage” and Quiet Quitting, which results from low satisfaction rates, and shows up as poor engagement, bad attitudes, and eventual turnover.  
  • Increased Customer Satisfaction: As employees stay longer with the company, the customers whom they interact with tend to feel more satisfied. Having a “friendly face” to deal with through someone who knows your purchase history and professional needs creates a vital connection. On the other hand, if customers are constantly made to deal with new staff members, this reflects poorly on how the organization treats its employees. In addition, it’s frustrating for customers to basically restart their relationship with their new support manager each time – which could easily lead to customer churn.
  • Employee Branding: A company’s reputation is strongly determined by how it treats its employees. Offering workers the opportunity to grow and improve their workplace skills is one of the top ways for an organization to demonstrate that it values its employees. Employees with a long tenure indicate an employee-friendly atmosphere which enhances the organizational brand. In an era where a negative Glassdoor review can turn off potential candidates, offering career growth opportunities on a continuous basis will go far in keeping employees happy and your company reviews very positively. 

Employee Retention Benefits

Retaining employees offers a plethora of benefits, besides creating lasting employee-employer relationships.

  • Increased Productivity: When they stay at an organization that values them, employees acquire new skills and expertise that lead to better productivity. Employees with high skill levels tend to have the easiest time when looking for a new job. The failure to retain them means a widening skills gap. 
  • Reduced Attrition Costs: Turnover brings with it significant costs related to recruitment and onboarding of new hires, training and development costs, severance pay, and more. According to SHRM, it costs an average of $4,700 to recruit an employee. But this does not include other expenses, such as the “soft costs,” like lost productivity, that can add up to 60% to this figure.   
  • Higher Revenue: Organizations achieve better revenue when customers are satisfied with employee performance, which boosts the company’s growth.
  • Improved Company Culture: As employees stay for longer periods in a company, they imbibe the organizational culture, which fosters productivity and performance.
  • Enhanced Morale: When employees leave, it hampers the morale of their fellow workers, too. On the flip side, employees who stay longer instill confidence in others and boost their morale.

The Causes of Poor Employee Retention

The employee experience has many dimensions, which naturally translates to many different reasons for turnover. In addition, HR needs to pay attention to behavior that is related to retention, such as employee engagement. It is often the same factors leading to a situation where a disengaged worker (perhaps at first) exhibits a “Quiet Quitting” attitude and then actually leaves. Here are the top factors causing employee turnover:

  • Lack of growth prospects: This is the top reason for employees quitting. Employee growth, whether through mentorship programs, coaching, or training, is an essential part of HR initiatives. It shouldn’t be a surprise if your employees leave due to a lack of growth opportunities. 
  • Personal reasons: Employees often leave due to personal causes such as those related to health, family, etc.
  • Financial reasons: An employee may not be happy with their compensation or benefits, causing them to look for a change.
  • Work relationships: In some cases, employees might find their co-workers or supervisors incompatible, and this might cause them to leave their current workplace.
  • Lack of recognition: Sometimes, lack of employee recognition results in them feeling demotivated and seeking opportunities elsewhere.
  • Stressful work: Often, employees quit due to a lack of work-life balance, which can lead to employee burnout. A related cause is a lack of empathy from leaders regarding an employee’s personal situation, schedule, or workplace challenges. (Empathy is a skill that every manager should exhibit, and ensuring that they do so is the responsibility of the HR department; of course, there are L&D courses that can help with this).  
  • Lack of autonomy in work: A lack of decision-making authority might result in inexperienced employees leaving the organization.

Employee Retention Models

The causes behind an employee quitting might be one or many of the above. There are a large number of variables that influence the decision to leave. For instance, there might be two employees with the same role, salary, and development opportunities. But one of them has a supervisor who is incompetent, and that motivates the employee to quit. 

In all, determining the reasons behind good vs. bad retention rates is extremely complicated. That’s why many employee retention models have been developed, often by renowned experts in psychology, operations management, and HR theory. We’ve outlined below the most popular models for simplifying the process of improving employee retention rates:

  • Maslow’s Hierarchy of Needs: Abraham Maslow’s theory applies in organizational settings as well, as it’s based on the priority of human needs. The bottom of the pyramid includes our basic needs, (food, clothing, and shelter), and moving up the pyramid includes safety and security, a sense of belongingness, self-esteem, and self-actualization. The non-fulfillment of any of these needs (but mostly focused on the top two levels) can result in work dissatisfaction. In organizations, the hierarchy of needs is called Aspiration Management, and goal actualization, including learning and development, is a major part of the hierarchy, as shown in the image. 
Maslow’s Hierarchy of Needs
  • McClelland’s Human Motivation Theory: In continuation of Maslow’s Need Theory, David McClelland suggested a theory of three factors – affiliation, achievement, and power. These were described as the major drivers of employee motivation. Affiliation refers to the need to be associated with people, while achievement relates to the sense of having accomplished something. Power refers to being the ultimate authority.
  • Herzberg’s Two-Factor Theory: Frederick Herzberg proposed the two-factor theory with two parameters, namely: motivators and hygiene. Motivators refer to those organizations that offer job satisfaction such as work recognition, autonomy, etc. On the flip side, hygiene factors include job security, pay, benefits, etc. In today’s work environment, motivators play a pivotal role in ensuring job satisfaction, thereby fostering the retention of employees.

Job Characteristics Model: Researchers Greg Oldham and Richard Hackman claimed that certain job characteristics, such as skill variety, job design, and feedback, are integral to deriving job satisfaction. Employees feel much more motivated and engaged when jobs take these attributes into consideration, and employees are able to do more of what they like. 

How to Improve Employee Retention – Traditional Methods

Organizations must adopt multiple employee retention strategies to bring down turnover levels. Here are five of the best employee retention ideas to help retain employees:

  1. Employee Development: Career issues are a main component of employee attitudes, and so development opportunities are critical for allowing workers to advance. L&D programs deliver the skills needed for employees to replace others, move up the corporate ladder, and even be competent in their current roles.  
  2. Employee Surveys: Companies can utilize surveys to gauge individual employee experiences and turnover risk rates. For example, employee engagement surveys deal specifically with levels of motivation and satisfaction. In contrast, pulse surveys are issued periodically to understand a range of workplace issues, and HR might include a few retention-related questions on the form.  
  3. Onboarding: An effective onboarding process allows employees to get off to a good start at a new job. It familiarizes them with essential tasks and how the organization functions. It also allows them to meet their peers and supervisors. For reasons such as these, it is estimated that 69% of employees stay with a company for at least three years if they undergo a quality onboarding process.
  4. Exit Interviews: Organizations should conduct exit interviews with the employees who are leaving and investigate the causes in order to avoid them in the future.
  5. Industry Comparison: Organizations must conduct comparisons using market data about compensation, benefits, and other factors. To retain employees, companies must set – and try to exceed – the benchmarks in these areas in order to not only retain employees but create a competitive advantage that can help with recruitment as well. 

Technology as Part of Employee Retention Strategies

Even for the traditional methods listed above, technology can provide valuable benefits. For instance, in a large organization, and with changes in HR staffing over time, keeping track of employee experience records can be difficult. Making sure that consistent retention monitoring methods for surveys, interviews, and other processes are followed is a challenge. By using the same platform throughout a company, and ensuring that contributors follow correct practices, the value of retention data will be optimized. 

Nowhere is the application of technology more beneficial than for learning and development. The access to opportunities for advancement, which is vital for retention efforts, depends significantly on L&D and the skills that such programs provide. But, because each employee has differing levels of skill, it is essential to personalize the courses that they take. Any other approach is a waste of resources for the company and of time and effort for the employee. Plus, when a company faces a crisis and needs to upskill in a hurry, it is often vital for L&D programs to be as efficient as possible. In other words, the “one size fits all” approach to workplace skills is not effective, and can also be a strategic weakness.  

This is particularly true for large companies. In such organizations, there are often thousands of employees, each with their own career goals, talents, and challenges. They might operate in different branches, physical locations, languages, and time zones. Technology enables customized L&D for these employees through innovations such as: 

  • Matching algorithms, which link individual employee training needs with experts (trainers, coaches, and mentors) who specialize in those areas 
  • A unified talent development platform that provides company-wide access to various aspects of L&D programs such as course schedules, feedback records, reviews of experts, test results, and communication methods
  • L&D expert sourcing allows HR practitioners to find and communicate with experts who might have very specific areas of training, various engagement requirements, certain language abilities, and differing availability schedules  

Technology is also essential in order to understand the “big picture” of retention efforts. A basic example of this is employee turnover metrics. In addition to the employee retention rate formula, there is a wide range of other figures that can help to provide more information about who is quitting and why. HR departments might want to understand more about the kind of employee who is leaving and contributing factors such as satisfaction rates, engagement scores, and tenure. 

Beyond these calculations is a more sophisticated form of research based on human capital management (HCM) software. As part of other innovations such as workforce analytics and workforce planning, HCM allows HR to see important trends in a variety of employee-related areas by applying AI and predictive analytics. With HCM, the HR department can learn about potential crises before they happen.  

Company Culture and Employee Retention

Although company culture has always been a high-priority HR issue, it greatly increased in importance during the “Great Resignation”. At the time, Professor Donald Sull reported that a poor organizational culture was the top predictor of employee attrition. This was during a time of drastic change in the workplace, but still, the concept of culture must always be considered when designing an employee retention plan. Here are a few ways in which organizations can improve company culture and boost retention efforts:

  • Increase Rates of Internal Recruitment: Promotion is an obvious factor for maximizing employee retention. It’s always easier for a talented worker to take advantage of the conditions of a role higher up in the organization than to search for a new job elsewhere. But even lateral moves are an attractive plus. According to MIT Sloan, when employees are given the opportunity to take on new roles at the same organizational level, they are 12 times more likely to stay at that company even when compared to employees who receive a promotion.  
  • Provide Remote Work and WFH Programs: Another vestige of COVID-19 is the remote work culture. Employees who are allowed more leeway with the place and time of their work have more chances to take care of personal issues and spend less time traveling. As far as retention goes, 75% of employees who are offered the ability to work at home are less likely to quit. 
  • Recognize Achievement: Another finding from MIT Sloan was that retention rates were lower in companies with higher levels of innovation. This makes sense when considering how highly productive employees who don’t receive recognition for their efforts are more likely to feel resentful and start looking elsewhere. For this reason, companies should provide high-achievers with faster promotions and better terms of employment. In addition, by doing things like mentioning them in company newsletters, HR can increase the motivation of other employees to follow the example of the most productive workers.   

About Growthspace 

Growthspace’s precision skill development platform is transforming organizational L&D with a technology built for one-on-one employee growth, scalable for your employees and their needs. If you are interested in streamlining your L&D strategy, we’d be happy to hear from you! 

Contact us today and learn how Growthspace can be a great fit for your employee retention strategy. 

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