Having an experienced, high-performing workforce is vital to the quality of an organization’s products and services, as well as its client relations. As such, losing great employees due to voluntary turnover negatively impacts bottom lines. Employers who want to stay competitive need to understand what causes turnover and proactively make employee retention part of their overall business strategy.
Table of Contents
What is employee retention?
Retention describes an organization’s efforts to retain the employees they want working for them. The key components are as follows:
- Analyzing the reasons why people choose to stay or leave their employer.
- Determining whether the organization can realistically influence the outcome.
- Developing an effective action plan that aligns with business strategy.
Why are workers leaving or staying?
Retention is primarily influenced by three factors – the market, the organization and the employee.
How the market and economy affect retention
In a good economy, job growth increases and unemployment rates decline. As a result, workers have more opportunities to change jobs and feel more comfortable joining new organizations. During economic uncertainty, however, employees tend to stay with their existing employer longer because there are fewer available jobs in the market.
How organizations affect retention
What it’s like to work for an organization day in and day out is a significant factor in employee tenure. Workplace culture, compensation and benefits, relationships between managers and colleagues, opportunities for growth, and the work itself can make a difference in how employees view their careers over time.
How employees affect retention
Many personal reasons may cause an employee to leave an organization – physical relocations, career changes, going back to school, traveling the world, etc. Demographics are also relevant. Employees who are new to the workforce or still finding their way generally change jobs more frequently than those who have settled down in their careers and personal relationships.
How to calculate employee retention rate
Retention is the inverse of turnover. To calculate turnover rate, divide the total number of separations by the total number of employees for a given period. Then, convert the result to a percentage and subtract it from one hundred. The result is retention rate.
Retention rate calculation example
An organization has 420 employees at the beginning of February and 10 leave throughout the month. What is the retention rate during that time?
- 10 / 420 = 0.02
- 0.02 x 100 = 2% turnover rate
- 100% - 2% = 98% retention rate
Employee retention strategies for job satisfaction
Successful retention strategies generally include an analysis of why people leave or stay. To that end, employers must determine what is causing unwanted turnover and whether it can be fixed. If there is a reasonable solution, they create strategies focusing on what makes employees remain loyal to the organization.
Discovering the causes of turnover
Having accurate data and a comprehensive picture of what is happening in the market, in the organization and with employees is the first step to creating an effective retention strategy. Common questions to ask at this stage include:
- Has there been a significant organizational disruption, such as a merger, acquisition or change in leadership?
- Are there economic conditions, either broad or specific to a particular market, that may be impacting employee decisions?
- Have there been significant changes in internal policies or procedures that might influence an employee’s work environment?
- How do employees feel about the organization and their role in it?
- Are employees experiencing challenges or opportunities outside of work?
In seeking answers to these questions, employers can rely on employee engagement data, exit surveys and reasons given by new hires when they decide to accept an offer. It’s also helpful to understand what people are saying externally about the organization and what competitors may be doing differently.
Ways to address retention issues
- Determine if retention challenges can be addressed
Some retention challenges are beyond the organization’s current ability to influence. For example, if an organization goes through a merger, higher turnover is natural and expected as people get used to new leadership and changes in processes. When an organization has limited influence over the circumstances, it’s essential to focus on what can and should be changed.
- Ensure solutions align with business strategy
Enhancing employee retention is an opportunity to reinforce organizational strategy. Creating a positive brand image, for instance, can help simultaneously improve market share and employee engagement. The key is to find and amplify synergistic opportunities for both employees and the business.
- Don’t be afraid to experiment
The world of work, including the labor market, has shifted significantly over the last several years. Organizations may need to rethink or alter their policies, processes and programs to stay competitive. By experimenting this way, employers will learn what works best for them and their people over time.
- Improve employee-manager relations
Valuing each employee’s unique contributions is one of the most impactful retention strategies a business can deploy. Organizations that create a culture of high attention between employees and their managers often accelerate engagement and limit turnover.
How to measure employee retention
Improving employee retention cannot be done based on turnover rates alone. To see the complete picture, employers must track other metrics, such as:
- Tenure rates
- Flight risk predictions
- Engagement data
- Diversity, equity and inclusion (DE&I)
- Absence rates
- Pay equity
- Time to promotion
These data sets can be segmented by office location, division, department or employee group to provide insights into how different employees are experiencing work.
Turnover and retention rates vary by industry and business size, which means benchmark data can provide valuable context. Suppose an employer’s overall and voluntary turnover rates are comparable to similiar companies. In that case, it can mean that turnover is about right or that many organizations of that size and industry are having the same issues. However, benchmark data should not solely be relied upon since averages can sometimes hide problem areas, particularly in larger organizations.
Common mistakes employers make
Many employers fall into the trap of creating complex retention programs or focusing entirely on improving their benefits because they think of turnover as an organizational problem. In reality, employees tend to leave a job because of their personal experiences.
To truly improve retention, employers must create environments where employees feel valued and supported for their best work. Managers who check in with team members weekly and focus on their strengths can be instrumental in achieving such a goal.
Frequently asked questions about employee retention
What is the difference between employee retention vs. turnover?
Retention measures how successful an organization is at retaining the services of its employees, whereas turnover is the rate at which people leave their jobs. This inverse relationship is significant when calculating and analyzing retention rates.
Can the employee retention rate be over 100%?
The maximum retention rate is 100%, meaning no employees leave an organization during a specific period. A retention rate that consistently approaches this upper limit may not always be ideal because it limits employee growth and development opportunities.
How does employee retention fit into the employee experience (EX) strategy?
Strategies for improving employee experiences usually work in tandem with those aimed at retention. In fact, many of the same aspects that affect engagement – workplace culture, relationships with managers, compensation and benefits, growth opportunities, etc. – also directly impact retention. That’s why engagement surveys, along with other metrics, are used to analyze why employees stay or leave an organization.
This article is intended to be used as a starting point in analyzing employee retention and is not a comprehensive resource of requirements. It offers practical information concerning the subject matter and is provided with the understanding that ADP is not rendering legal or tax advice or other professional services.