What is Employee Retention?
Employee retention is a company’s ability to retain talented employees and prevent turnover. This includes strategies and processes to maintain talent, such as recognizing employees, fostering a positive work culture, offering competitive salaries, and promoting work-life balance.
When employees stay with a company for an extended period, it is a good indicator of employee retention. Some companies struggle to retain employees and must continuously seek new talent.
What are the Causes of Employee Turnover?
Employees leave their jobs for various reasons. Some are voluntary, such as moving to a new job, while others are involuntary, such as being laid off.
Employee retention strategies focus on voluntary turnover that harms the company. They also address avoidable turnover, such as an employee leaving due to relocation.
So what are the reasons that lead to increased turnover rates and why? Here are the main reasons employees may choose to leave their jobs:
Limited Growth Opportunities
Employees like to have opportunities for growth, especially when they come with better benefits, higher salaries, and chances to face challenges and acquire new skills. Giving top employees a chance to advance within the company and providing opportunities for career development helps retain them longer. Mikey Moran, CEO of Private Label, states that the key to retaining employees is preparing them for success by setting a plan for them, training them, and setting goals with each team member. Mikey provides jobs for experienced employees who wish to grow and move into positions of greater responsibility. The company also offers an additional compensation package for all employees who have been with the company for over a year.
Poor Management
Three in ten people say that leaders who do not care or inspire them were the main reason for their departure. Team members want to feel that they are part of an organization that helps employees perform at their best. It is frustrating when managers do not recognize the hard work or potential of an employee. They may feel unappreciated and look for a new work environment where their contributions are valued.
Inadequate Compensation
Low salary is a primary reason people resign from their jobs. More than a third of employees who left their jobs said their decision was due to inadequate compensation. Employees want to be fairly compensated for their work. Compensation does not mean just a competitive salary – employees want to have healthcare benefits and other incentives. When employees feel appreciated, they are more likely to stay with the organization rather than seek work elsewhere.
Work-Life Imbalance
Employees often prioritize their lives over their jobs. Ideally, they should not have to sacrifice one for the other. However, many companies struggle to find the right balance between productivity and work-life balance. Approximately 30% of those who resigned from their jobs cited unsustainable work expectations as the reason. High-pressure environments, multiple deadlines, and unreasonable workloads can lead to employees feeling overwhelmed.
Boredom
Some people leave their jobs simply because they do not enjoy the work. It may be tempting to keep a productive employee in the same role, but this often leads to their seeking new challenges elsewhere. Patrick Crane, CEO of Love Sew, says they have difficulty keeping employees engaged. Patrick states, “One of the biggest challenges I faced as a retailer is keeping my employees occupied for long periods. Due to the often dull and repetitive nature of the work, it is easy for employees to seek out other rewarding and exciting opportunities.” In fact, 59% of employees are dissatisfied enough to resign quietly, according to Gallup’s 2023 report on the state of the global labor market. This makes employee engagement more critical for retaining staff.
Failure
Sufficient Recognition
The organization’s ability to show appreciation and recognition for employees for their dedication is key to maintaining morale. When employees feel unappreciated, they are more likely to seek a workplace that values their contributions. To retain employees within the company, businesses should consider ways to demonstrate appreciation. This is especially true for long-term employees who possess valuable experience and knowledge that competitors could appreciate.
Limited Freedom
Employees want to feel that they are part of the bigger picture of the company. When they do not have a voice in decision-making, they may feel that their contributions do not matter to the company. To keep employees invested in long-term growth, it is important to give them a seat at the table. Micromanagement also limits employees’ autonomy and reduces their ability to contribute meaningfully.
Limited Flexibility
In the workplace after the COVID-19 pandemic, employees crave flexibility. The ability to choose where and when to work is a top priority. More than a quarter of employees leave their jobs due to a lack of workplace flexibility. Companies that do not allow employees any options in work hours, work location, and remote or hybrid work are at risk of losing them to businesses that do.
Lack of Support for Health and Well-being
Employees often leave their jobs due to health issues, whether personal or family-related. As an employer, losing employees due to external health issues is largely out of your control. You can have robust ways to prevent employees from leaving by offering health programs and health insurance. Ask yourself, are there any health initiatives you can implement? How can you ensure the well-being of full-time and part-time employees while working? For example, an employee may not leave their job if they have access to additional sick leave for unexpected health emergencies. This saves you long-term costs of replacing the new employee.
Why Employee Retention Matters?
Companies that prioritize employee retention enjoy significant rewards. Building a strong retention program can help you boost productivity levels and raise team morale. Additionally, it will reduce recruiting costs and help maintain knowledge and skills within the team as a whole.
4 Benefits of Employee Retention
There are numerous benefits for companies that make it a mission to retain their top talent. Each benefit gained from increased employee retention impacts net profits. To paint a picture, here are four of the top reasons to focus on employee retention:
1. Increased Productivity
Happy employees tend to be more productive. In fact, they can be up to 13% more productive, according to a study conducted by the University of Oxford. However, it requires companies to invest in their employees from the moment they join and beyond to increase their productivity.
2. Reduced Hiring Costs
The cost of replacing an employee is high. The best way to reduce hiring costs is to lower your turnover rate.
3. Improved Company Culture and Employee Engagement
Company culture and employee retention are intertwined. The more engaged employees are, the more likely they are to stay in their jobs longer. Low turnover rates help teams build relationships and trust, leading to a better work experience. The effects of this improvement directly impact company culture.
4. Improved Customer Experience
Similarly, happy employees lead to a better customer experience. It is not hard to see how this plays out in real time. For example, if you run a retail business, happy employees who take responsibility for checking out customers, answering questions, and picking up the phone will provide a great customer experience that leads to repeat business.
How to
Calculating Employee Retention Rate
Low employee retention rates can be costly, as can neglecting to calculate your current retention rate. Here’s how to calculate your current employee retention rate.
To begin, choose a specific time frame – for example, one year. Divide the number of employees on the last day of that period by the number of employees on the first day. Then multiply that number by 100 to get the percentage.
(Number of employees on the last day of the period / Number of employees on the first day) × 100
Typically, employers track retention on an annual basis. You can use shorter time frames, such as six months, if you are tracking for immediate retention initiatives. The percentage is used to show the stability of your workforce. However, it does not track the departure of those who joined and left during the period, which is your turnover rate.
For example, if you have five employees and two of them joined during the measurement period.
Your retention rate would be 60% using the following calculation:
Retention Rate = (3/5) × 100 = 60%
Good retention rates vary by industry. For instance, the average retention rate in the IT sector is 89%, and in natural resources, it’s 90%. If your retention rate is low, it indicates that your employees are having a poor experience with the company. Now you know your retention rate. Once you compare that to employee retention benchmarks, the process will become much easier.
6 Employee Retention Models
Retention models can help you find the best way to retain your employees according to your company’s needs.
Here are six examples to consider to help you determine the best step to take:
1. Stay Interview Model
Stay interviews are planned conversations that help leaders understand what engages and motivates employees. These interviews have become a popular way to enhance retention – in the United States, nearly 30% of HR managers reported using stay interviews to boost employee retention. The aim is to support career development and retain good employees. Stay interviews give leaders the opportunity to learn about:
- What employees like and dislike about their job
- What drives an employee to consider leaving
- What employees wish to achieve in their careers in the short and long-term
Stay interviews encourage the strengthening of the relationship between employees and leaders. The key to successful stay interviews is listening and taking action based on what team members say. When an employee shares their vision for their career, guide them towards projects and learning opportunities that help them get there.
2. Job Integration Theory
Job integration theory posits that employees are more likely to stay when they are more integrated within the organization. This theory considers three aspects of the employee-organization relationship:
- Fit: How well the employee fits their role in the job.
- Connections: Relationships between the employee and other team members and the larger organizational network.
- Sacrifice: What the employee will lose by leaving the job.
How to increase job integration:
- Encourage a sense of community among team members
- Hold individual feedback sessions
- Provide learning and development opportunities
3. Join, Stay, Leave Model
You can use the Join, Stay, Leave model to understand why employees choose to join, stay, or leave your organization. By knowing the real reasons behind each choice, you will be better able to address the underlying issues behind low retention rates.
Understanding why employees choose to join your company can help you improve your messaging when writing new job descriptions. Knowing why employees stay can inform you about what you offer in terms of a positive work environment and what you may be missing.
Do not overlook researching the reasons behind employees’ decisions to leave. Why are employees disengaged? What is not meeting their expectations? Is leadership the issue? Do they feel they are not getting a good work-life balance?
The more
The more you have knowledge about the stages of the employee lifecycle, the more prepared you will be to improve your retention rates.
4. Maslow’s Hierarchy of Needs
We cannot talk about employee retention models without mentioning Maslow’s Hierarchy of Needs. Although it was primarily designed to describe the basic survival needs of humans, it also applies to the workplace. Maslow outlines the needs as follows:
- Physiological needs
- Need for safety
- Need for love
- Need for esteem
- Need for self-actualization
By considering the workplace through Maslow’s Hierarchy of Needs, you can assess how you can meet employees’ needs to keep them motivated and committed.
For example, if you have employees in leadership positions who excessively control their subordinates and make them feel they cannot approach leadership regarding any issues, then the employees’ basic needs for psychological safety are not being met. To resolve this issue, address the situation and look for opportunities to improve the dynamics among employees.
5. Human Motivation Theory
The human motivation theory suggests that everyone is motivated by three general incentives: the need for achievement, the need for power, and the need for affiliation. This is especially true for individuals who achieve goals and accomplish objectives.
Once you understand this, you can apply it to your workplace. How can you meet your employees’ general need for achievement? How can you empower them to make decisions and take responsibility for specific projects and tasks?
Understanding what motivates your employees from a psychological perspective can take your workplace design to a higher level. How can you meet your employees’ needs from a psychological perspective instead of just providing free cake in the break room?
6. Job Characteristics Model
The Job Characteristics Model is a method for designing jobs that is divided into five sections:
- Skill variety: the number of different skills involved in the work of employees.
- Task identity: do employees complete their work in its entirety?
- Task significance: is there meaning in the work that employees do?
- Autonomy: the degree of control and agency employees have in their own work.
- Feedback: do employees receive constructive feedback?
If implemented correctly, these five characteristics positively affect employees’ psychological states, including:
- Finding meaning in their work
- Feeling responsible for the results
- Awareness of actual outcomes
When employees feel any combination of these three psychological states, they are more likely to feel satisfied with their job and motivated to work.
With the Job Characteristics Model, you can understand the outcomes of each job you will provide. You will also know how you can adjust it to yield the best possible result in your efforts to retain employees.
8 Strategies for Employee Retention
It is one thing to find employees with the potential to stay long-term. But it’s another to know how to retain them in the long run. Here are eight employee retention strategies you should consider:
1. Strong Recruitment, Training, and Orientation Programs
Increasing your employee retention rates starts with your recruitment process. For instance, if you use the join, stay, leave model and survey employees about why they joined, you can use that information to improve your future hiring process.
This is where you can refine your messaging and clarify what you want potential candidates to know. Consider that a survey found that up to 31% of new employees leave within six months because the job was not what they expected.
During the recruitment process, you should cover job descriptions that include essential points such as: can they expect training? What motivating factors should they have? What soft skills are you looking for?
And don’t forget the onboarding and training process. Poor onboarding and training are among the top reasons new employees leave.
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