Employees are inarguably the most indispensable part of an organization. So losing even one team member can create a hole that is both difficult and costly for an organization to replace.
Employee turnover – especially in large numbers or when high potential employees leave – can create an especially difficult chapter for the organization. That was the reality of many companies during and after the COVID-19 pandemic. Regardless of the industry or company size, this is always a major concern, not only for business leaders but for the Human Resources (HR) department, as well.
What is Employee Retention?
The definition of employee retention, in its’ simplest form, means keeping employees at one organization. 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. A 2021 Gallup poll highlighted the reason for employee attrition and found that the highest reason for employees quitting was “not seeing opportunities for development”. Employees want to feel valued, find purpose in their career, and continuously move forward by learning new skills.
Employee retention techniques aim to ensure that the most talented employees stay 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 development program – L&D. Because of the importance of offering employee development opportunities, enabling professional growth is a proven way to prevent talented employees from seeking positions that do offer L&D programs.
With more open positions than employees to fill at the moment, employee retention is critical, and it’s become a nightmare for HR. In Human Resource Executive’s annual “What’s Keeping HR Up at Night?” a recent survey found that 60% of respondents cited recruiting and retaining workers as one of their top two challenges.
The employee retention rate can be quantified by the formula below and should be an important metric to leadership and HR alike.
Why is Employee Retention Important?
Today, retaining employees for the long term forms the core area of strategic concern for HR managers in various companies across the globe. Reasons why it’s important include:
- Keeping Top Talent: Organizations lose potential employees by not focusing on retaining them, resulting in talent quitting for other companies. By focusing on end results only without regard to employee satisfaction or needs, organizations are setting themselves up for failure.
- Increased Employee Satisfaction: Employees stay at a company in large part due to the benefits and opportunities afforded through their tenure at the organization. Satisfying employee needs is critical in retaining employees.
- Increased Customer Satisfaction: As employees stay longer with the company, customers feel acquainted and satisfied with the people they work with. If customers are constantly being changed hands between new staff, not only does it reflect poorly on how the organization treats its employees, it’s frustrating to customers needing to basically re-start their relationship with the company and 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, and offering employees opportunities to grow and improve their skills is one of the top ways to show an organization 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 growth opportunities on a continuous basis will go far in keeping employees happy and your company reviews high.
Employee Retention Benefits
Retaining employees offers a plethora of benefits, besides creating lasting employee-employer relationships.
- Reduced Attrition Costs: Turnover brings with it huge costs related to recruitment and onboarding of new hires, training costs, severance pay, and more.
- Increased Productivity: When they stay at an organization that values them – and shows that through helping their growth – employees acquire new skills, expertise, and enhance their productivity.
- Better Customer Experience: As employees stay longer with a company, customers develop a rapport with the employees. This fosters a friendly and warm atmosphere, which works to the advantage of the organization.
- 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.
Employee Retention Models
Before embarking on the study of these models, it is essential to understand what causes employee turnover. Research suggests that direct replacement costs can reach as high as 50%-60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary.
Factors Resulting in Employee Turnover:
- Lack of growth prospects: This is the top reason for employees quitting different organizations. Employee growth, whether through mentorships, coaching, or training, is an essential part of the modern organization. It shouldn’t be a surprise if your employees leave due to a lack of growth opportunities.
- Personal reasons: Employees might leave the organizations due to personal causes such as those related to health, family, etc.
- Financial reasons: An employee may not be happy with the 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 looking for opportunities elsewhere.
- Stressful work: Often, employees quit companies due to a lack of work-life balance and lack of empathy, the most important soft skill for a manager,
- Lack of autonomy in work: The lack of decision-making authority might result in inexperienced employees leaving the organization.
Employee Retention Models:
During the course of their studies, HR researchers and practitioners investigated the above causes resulting in employee turnover. Based on their observations, these models were developed.
- 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 & 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.
- McClelland’s Human Motivation Theory: In continuation with Maslow’s Need Theory, David McClelland suggested a theory wherein 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 wherein two parameters namely: Motivators and Hygiene factors. Motivators refer to those who 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 scenario, 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, feedback, etc. 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
Organizations must adopt multiple retention strategies to bring down turnover levels. Here are seven employee retention ideas to help retain employees.
- Employee Engagement Surveys: Companies must utilize employee engagement or pulse surveys to elicit responses from employees on their overall experience. Pulse checks can prove to be a robust tool in retention strategies.
- Employee Development: Where coaching and mentoring has often been available only to a company’s top brass or employees being coached to become a leader, employee L&D can now be offered company-wide. With scalable L&D platforms available, organizations can keep employees engaged – and lengthen their stay at the company – by offering coaching and mentoring opportunities.
- Onboarding: New hire onboarding should be taken more seriously. Often, candidates leave the organization due to poor candidate experience during onboarding.
- Exit Interviews: Organizations must conduct exit interviews for the employees leaving and must investigate the causes in order to avoid them in the future.
- Analytics: With the advent of HCM software, organizations can extract reports on the data of employees. HR analysts must interpret the graphs and charts on turnover data and draw actionable insights to look into the possible causes.
- Use of Metrics: There are various employee turnover metrics that form a key element in fostering effective retention strategies.
- Industry Comparison: Organizations must conduct comparisons with market data on 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.
GrowthSpace’s L&D platform is transforming organizational L&D with a platform 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.