Everything You Need to Know About Employee Retention

Employee retention has become an even greater focus for workers and companies as a result of the COVID-19 pandemic. We’ve all heard a lot of talk about the “new normal,” and this applies not only to our personal lives but also to our experiences at work. As of last year in 2020, the national fill rate for jobs in the United States was 84%, meaning that 16% of all jobs posted remained unfilled. This has only been strained further by COVID-19 and an increase in the number of Baby Boomers retiring from the workforce. Today, it is especially critical to not just attract top-tier talent but also to retain them.

In this guide, we’ll explore several factors that can contribute to improved employee retention and lower levels of turnover. There are many dimensions to consider, and it’s important to rely on proven industry best practices and the latest innovative approaches to analyzing workplace data. Our workplaces today are as dynamic as ever and require a multi-faceted approach to employee retention. We’ll discuss:

Definition of Employee Retention

Manager talking to employee at desk

Employee retention refers to a company’s ability to keep employees satisfied and engaged with their work and prevent them from separating from the company to pursue other opportunities. Employee retention remains a challenge for so many companies due to shifting societal and cultural norms, and since individual workers often have very different expectations for workplace benefits and experiences. Managing employee retention involves the use of several tools and strategies to optimize workplace practices and cultivate a competent, satisfied, productive, and diverse workforce.

When creating a people strategy and implementing initiatives to boost employee retention, having access to accurate and quality data is essential to measure ongoing progress and understand the dynamics at play. Here are the five most important metrics to consider when analyzing employee retention:

  • Retention Rate. This core metric is necessary to establish a baseline of your retention efforts to date. It’s calculated by using the following equation: (# employees / # employees at the start of period) x 100. This metric is an excellent lagging indicator and should increase over time as you improve your approach.
  • Retention Rate Per Manager. This measurement uses the same formula as above but is focused on a subset of employees that make up a particular group, team, or department. Using segmented data helps you identify underlying factors that may be impacting employee retention.
  • Voluntary and Involuntary Turnover. To calculate your organization’s turnover rate, you can use the following equation: (# employees that left / average # employees) x 100. Voluntary turnover, or people who choose to leave the company, will help you understand the effect of your overall employee experience. Involuntary turnover, representing employees who are terminated, can give you information about the effectiveness of your recruiting and hiring practices. In some cases, involuntary turnover may also include employees who are laid off or furloughed.
  • High-Potential Employee Turnover. One of many HR professionals’ primary goals is to develop an effective talent funnel. This usually involves identifying high potential candidates for future positions, management opportunities, or highly specialized roles. High turnover among this group can indicate problems with factors like compensation, work culture, or your organization’s approach to learning and development.
  • Employee Satisfaction. It’s a logical assumption that genuinely satisfied employees are more willing to continue their employment with their current employer. The Net Promoter Score (NPS) is a popular metric for measuring customer satisfaction, but an alternate version, adapted to employee retention, is called the eNPS. A similar survey format is used to measure eNPS, which offers insight into how many of your employees are satisfied and enthusiastic about working at your company and how many are dissatisfied with the employee experience. The eNPS is a useful leading indicator for understanding employee retention dynamics.

One important takeaway for leaders to keep in mind is that these key HR data points are most impactful when enhanced with other types of data. Coupling employee retention metrics with objective insights from workplace analytics and subjective data from things like employee surveys gives companies the full picture they need to inform better employee retention strategies.

Why Employee Retention is Important

Coworkers meeting with manager around a table

One of the best ways to strengthen a business is to cultivate a positive and engaging work culture in which employees feel appreciated and are committed to their work. When people do leave, either voluntarily or involuntarily, it usually causes disruptions that can delay projects and impact results. There is also the added time, cost, and effort required to hire and train replacements for these roles. This is especially true if an employee leaves soon after joining a company and the whole process needs to be repeated again.

Understanding employee retention can help a company’s HR staff and leaders develop better employee work policies and procedures. Some amount of turnover is natural and should always be expected for any company. The key point is to try and retain the majority of your staff, especially team members who are particularly valuable and essential to the company’s mission. Said another way, you want to succeed in retaining the employees you are already trying so hard to keep.

Drivers of Employee Turnover

Large team meeting in a conference room

Employee retention is vital for business both in terms of financial impacts — Gallup reports that voluntary turnover costs businesses $1 trillion per year — as well as other costs and impacts on the organization. For example, the cost of replacing an employee ranges from about half to two times the employee’s salary. Additionally, losing top-tier employees means companies are losing the creativity and innovative mindsets they bring to the table, as well as their problem-solving skills. What’s more, employee turnover can break down team morale and can even result in the loss of customer relationships, potentially damage your brand reputation, and in the worst-case scenario, result in litigation.

Before diving deeper into employee retention best practices to implement strategies to improve it, it’s helpful to understand some of the primary drivers of employee turnover. Most of our understanding regarding the most common causes of employee separation comes from exit interviews and industry research using former employee feedback. The fact that these factors exist across countries and industries points to the challenges that many companies face when trying to create an effective people strategy. One thing we can all agree on is that it is never easy.

  • Poor Management. A study conducted by Gallup found that poor management is the most common reason employees leave their jobs. Poor management can influence many of the other drivers of turnover listed below, as well, from giving employees a sense that their input isn’t valued to creating a toxic work environment. In fact, Gallup found that managers account for as much as 70% of variations in employee engagement, making positive, effective management practices a key differentiator among companies with high employee retention rates.
  • Lack of Decision-Making Input. People want their voices to be heard and feel like they are contributing to growth and success. A lack of input into the decision-making process is a frequently cited reason for employees deciding to leave a company. If it’s not possible to contribute ideas and make a difference, they will often seek out a business that promotes greater teamwork and collaboration.
  • A Toxic Work Culture. When employee turnover increases or remains at elevated levels for some time, it could indicate significant issues with the work culture. A company’s work culture is often a central reason why employees stay or leave. If the environment is toxic and isolating, it can be hard for anyone to assimilate and feel like part of a team.
  • Lack of Professional Growth. Most employees, especially the most driven and career-minded people, place a high priority on professional growth and development. Employee development is not only essential for refining important skills but also allows employees to contribute their talents throughout the organization. In order to avoid turnover, your offerings should be diverse, high quality, and tailored to the working and learning styles of the workforce.
  • Overwork and Burnout. All companies go through major periods of business growth and decline. This constant change can be exciting at times but can also lead to burnout if time and effort are not well managed. Individual employees and managers at all levels are usually trying to do their best work and may not recognize how much they are stressed. That’s why it’s important for managers and HR professionals to stay in tune with employees by getting regular feedback.

These are just a few of the many factors that can contribute to employee turnover. Since nothing happens in a vacuum, significant changes in turnover rates may indicate issues in many or all of these areas. Addressing these factors and doing more to collect and utilize employee feedback can have a major and positive impact on retention efforts.

Drivers of Employee Retention

Employees having a casual chat in the office

Now we can look at the other side of this discussion and summarize some of the main reasons why employees stay with a company. Regardless of the business or individual, a strong working relationship is always built upon trust and loyalty. These are some of the most important drivers that can influence employee retention.

  • Strong Engagement. Employee engagement has been mentioned several times already in this post, as it can often determine whether an employee remains with a company. Engagement refers to the complex relationship between an employee, leadership, co-workers, and work activities.
  • Employee Recognition. Everyone likes to be recognized for a job well done, but it’s also important to recognize that we are all human. This may sound obvious, but it’s amazing how often employees refer to being treated as “just a number” or an insignificant part of the company. Showing employees that you respect them takes a personalized approach and one that celebrates the strengths of each person and their personal style of communication.
  • Trust and Respect. It takes significant effort and trust from both parties to build any relationship. When employees feel respected as individuals and as people, they are much more likely to welcome challenging work opportunities. Even an employee that enjoys their work may consider leaving if they cannot trust their peers and company leadership to make decisions that are in their best interest.

Similar to the factors presented for turnover, these are just a short selection from a very long list of potential reasons why employees choose to remain with an employer. It’s important for companies to review the factors that employees rate as positive and reinforce them while taking steps to eliminate or reduce negative aspects. Retaining employees requires a constant cycle of listening, understanding, learning, and improvement.

Employee Retention Strategies

One-on-one meeting between manager and employee

When managers and executive leadership are developing plans to improve employee retention, it’s helpful to focus on a few core fundamentals. An effective strategy addresses people management, learning and development, and workplace management. These three components are critical to influencing a work culture and providing your employees with tools and services to help them do their jobs more effectively and achieve a healthy work-life balance.

People Management

Especially with today’s hybrid workplaces and work-from-home arrangements, the way companies manage their employees is evolving. It’s possible to construct an employee retention strategy that takes into account perspectives from throughout the organization by using advanced workforce analytics. Classic strategies like performance management can be developed in real-time, and it’s become easier than ever to streamline work arrangements and the ways teams engage across online platforms.

Learning and Development

Another core component of an employee retention strategy are learning and development practices. This includes leadership development, training, and access to corporate learning resources and teaching tools. Many companies spend significant effort creating their internal training programs and bringing in outside experts to expand knowledge across the company. A strong learning and development platform can be a valued resource for all employees.

Workplace Management

While a lot of effort is often focused on managing individuals, it’s crucial to remember that most companies operate with several layers of teams and departments. Some businesses also utilize formal “matrixed” corporate structures that can expand influence but reduce clarity and feelings of transparency for many of the individuals involved. A strong workplace strategy should address work-life balance, HRIS systems, benefits, and unique perks such as access to on-site daycare, reserved parking, and bonuses. Smart companies allow employees to direct how their workplaces evolve.

In order for an employee retention strategy to be successful, it requires a top-down commitment of all managers and leaders within the organization. If a company’s own leadership team does not buy in to the approaches outlined in your strategy, they will almost certainly fail. Mid-level managers are especially vital as they are a key communication pathway between front-line workers and senior management. Regardless of the approach, a good strategy should also be transparent, with very clear parameters for how decisions are made and when feedback is used.

Employee Retention Best Practices

Three employees offering feedback to management in a meeting

There are many great HR practices that can be used to develop a more inclusive work culture and increase employee retention. Having a strong exit interview process and conducting regular surveys with existing employees can help prioritize which actions to take. It’s important to implement a balanced approach that addresses the most urgent issues while providing an excellent overall employee experience. Here are a few best practices to get you started.

Leverage Technology

With access to large amounts of data, today’s HRIS systems and other platforms can provide a tremendous amount of insight. Consider offerings that utilize AI and automation to help streamline existing procedures. Employees dislike being burdened with confusing systems to perform routine tasks. It’s also essential to provide a comprehensive set of communication tools for employees.

Prioritize Wellness

The world is focused on socially and environmentally responsible products and services. People are also thinking about opportunities to improve their lives and the health of their families. A highly visible and meaningful wellness program can add a lot of value for employees.

Provide Mentorship Opportunities

When employees get frustrated, they may not have an outlet to explain their opinions, but it’s highly important that they too feel they have a voice and platform. This can be due to fear of criticism or simply not having anyone they trust well enough to explore real solutions with. A mentorship program can provide excellent growth opportunities, job satisfaction, and meaningful connections both for individual employees and mentors.

Develop Flexible Work Arrangements

The COVID-19 pandemic has taught us all how to adapt the way we work. While not all positions and roles are suitable for truly flexible work arrangements, it’s always a worthwhile goal to strive for as much employee flexibility and autonomy as possible. Understanding what helps different groups succeed can help you tailor and inform the best workplace design or remote work strategies for your people.

Streamline Benefits

A strong benefits package can often be a major factor for a job candidate when choosing whether or not to join a company. It also influences retention. Taking a good look at your benefits package and finding ways to improve the best parts and eliminate things that are not valued can help you develop a unique and competitive offering.

How Workforce Analytics Can Help Improve Employee Retention

Team meeting with HR professional looking at workforce analytics on laptop

We’ve mentioned that data plays an essential role in improving employee retention. Workforce analytics is a valuable tool for keeping your workforce productive and engaged, not only in the physical office environment but also in remote and hybrid work settings. For instance, collaboration may suffer in remote work environments, leaving employees feeling disconnected from the team and resulting in decreased engagement if leaders don’t take steps to address it. Work-life balance can also be a potential issue when employees are working remotely, but data indicating that employees are working 12-hour days instead of 8-hour days doesn’t necessarily paint the full picture.

Assessing Work-Life Balance, Engagement, and Satisfaction

For example, one multinational technology company found that its employees worked across a longer span of the day on average after shifting to remote work during the COVID-19 pandemic. This data led to concerns that employees may be losing a sense of work-life balance or worse, suffering burnout from working extended hours. However, further analysis revealed that while some employees were working concerning hours and required further support, most groups were simply working more flexibly across a longer span of the day. In many cases, employees were taking breaks between blocks of meetings or work to take care of personal matters or spend time with their families. By stretching their work across a wider portion of the day, they were actually achieving better work-life balance and increased productivity without decreasing engagement levels.

In another example, employees at Citigroup were beginning to feel the effects of burnout due to the abundance of videoconferences held while working remotely. After listening to employee feedback, the company took steps to eliminate “Zoom fatigue” by implementing “Zoom-free Fridays,” allowing employees at least one full day each week with no Zoom meetings. This decision increased work-life balance and employee satisfaction by introducing a new end-of-week tradition that employees could look forward to, much like they once looked forward to Friday happy hours and dress-down days in the pre-COVID-19 era.

Establishing Internal Benchmarks to Track Effectiveness

Workforce analytics solutions like Humanyze help companies establish internal benchmarks to track where they stand and how they’re trending with factors like collaboration, employee engagement, and employee satisfaction. By tracking your company’s progress over time, you can assess what employee retention strategies are working and what strategies are not working, as well as leverage data-driven insights to develop retention strategies that target the unique needs of your workforce.

For example, one automotive manufacturer conducted a company-wide survey and found that while employees felt mostly positive about the company’s plans to shift to a more flexible work culture, many had concerns about their ability to remain connected to their colleagues and maintain a healthy work-life balance. While surveys offer insight on how things are going at a single point in time, coupling subjective survey data with objective analytics from your corporate data provides a more comprehensive analysis of what’s happening overall on a continuous basis.

By leveraging the Humanyze Organizational Health Platform™, the company measured the impact of remote work on organizational effectiveness and understand the pre-transition and post-transition impacts of their initiatives. Armed with these insights, the company was able to identify declines in productivity and engagement and isolate specific areas for intervention. By proactively addressing the negative impacts experienced by employees following the transition to primarily remote work, the company took steps to ensure that employees felt supported and satisfied and ensure the long-term success of the shift in work culture.

Wrapping Up

There are no simple answers when it comes to employee retention. While it can be a difficult challenge to replace an employee, it’s also a learning opportunity. Taking a step back and actually listening to what employees say can help management better understand the situation. These insights can then be combined with a review of key metrics and corporate data to develop winning people plans. The best companies recognize this and create specific strategies and programs that can help them understand more about individual employee needs and how their teams and departments interact.

Last Updated 26 May 2021