To assess retention, find out who is staying, who is leaving and why. Then benchmark and dig into your data to understand more about what's happening.
People come and go at organizations; some turnover is expected. So how do you know if the retention at your organization is a problem?
Start With Your Data
A retention strategy should include an analysis of both why people leave and why people stay. They are different populations with different concerns. You want to know both how to retain people who are thinking about leaving and how to do more of what inspires people to stay.
One of the first steps in creating a retention strategy is to understand your own organization's retention and turnover rates, then compare them to other similar organizations.
Once you understand the benchmark, go deeper. Turnover varies widely by industry, geography, size of the organization, organizational structure, life stage of employees and the overall economy. Understanding these factors and how they apply to your organization will give you clues to both what is going well and where there are potential problems.
Calculating and Understanding Who Leaves
To understand turnover at your organization, calculate your overall turnover, then break it down to see how much of your turnover is voluntary so you can begin to investigate who is leaving and why.
To calculate your overall turnover rate, divide the number of separations by the number of employees for that time period. For example, if the business has 500 employees and 20 people left that month, then your turnover rate for that month is 4 percent.
The time period you use matters. Monthly turnover rates will give you a snapshot and show seasonal variations over the year. Annual turnover rates are cumulative and reflect the total number of separations for the year. So, if your number of employees is fairly stable and your monthly turnover rate is 5 percent, expect your annual turnover to be 12 times that, around 60 percent.
Next, calculate your voluntary turnover rates by dividing voluntary separations by the number of employees for that time period. Voluntary turnover reflects the people who choose to leave your organization. The ADP Research Institute® (ADP RI) white paper, Revelations from Workforce Turnover: A Closer Look Through Predictive Analytics explains that 60 to 70 percent of all employee turnover is voluntary. This is where a retention strategy can make a difference to reduce some of the attrition.
Calculating and Understanding Who Stays
Retention rates are usually the inverse of the turnover rate. If you have a 6 percent turnover rate for June, you would generally have a 94 percent retention rate for that same period.
Some organizations calculate annual retention rates based on the number of employees who were employed for the entire year. This method doesn't account, however, for any employees who both come and go in the same year.
Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, explains, "There can be significant turnover within the first year on the job, as both employees and employers decide if the employment relationship is working out. If you have employees leaving in the first year, you want to know because recruiting and training is expensive and there may be issues with onboarding, or other problems. Excluding these short-term employees can skew your results and hide retention issues."
If you want to understand how long employees stay at your organization, a better approach is to look at the length of service for your employees. Determine how many employees have been employed for one, two, three years up to the longest years of service.
"Understanding length of service (or tenure) will give you more insight into which employees stay," Yildirmaz says. "This data is also useful to understand where your institutional knowledge is, where to expect retirements, and how to approach recruiting, training and succession planning."
Benchmark Your Rates Against Your Industry and Location
ADP RI has analyzed payroll data from 2014 to 2018 and calculated turnover rates based on industry, geography, levels of hierarchy in the organization, age and marital status.
Turnover rates can vary significantly by industry. Hospitality, retail and construction have the highest monthly turnover rates of 2.5 percent or higher. Education and health, finance, manufacturing, information and professional services have the lowest monthly turnover of 2.3 percent or lower.
Interestingly, there is almost no difference in turnover rates based on gender. Life-stage/age is more significant.
Younger and entry level workers have higher turnover rates as they explore careers. People under 25 have the highest monthly turnover rates, at 4.1 percent. This declines as people get married, have children and settle into careers. People ages 26-35 have monthly turnover rates of 2.8 percent. Once people are over 35, the turnover rate drops to 2 percent or lower.
The size of the organization is also important. Turnover at smaller organizations can vary widely. Some have almost none; others' monthly turnover can be 5 percent. Turnover declines as organizations grow, partly due to scale. The impact of one person leaving a 10-employee firm is much greater than one person leaving an organization with 500 employees.
Dig Deeper — Even if Your Rates Are Similar to Industry Averages
If your overall and voluntary turnover rates are about the same as other organizations in your industry, size and location, it can mean that your turnover is about right or that you're all having similar issues. Benchmarks are just the start of the analysis. And averages can hide problem areas, particularly in larger organizations. Go deeper into your data to see if there are hidden problem areas.
Calculate your overall and voluntary turnover rates by location, department, type of job or other logical group, such as level of management. Compare them with each other and the overall rates for the organization. If you find higher turnover (either voluntary or involuntary) in any of the areas, break it down further by manager or demographics such as age, gender, race or another category that may be a factor. This will help you see where problem areas are so you can begin to talk to people to understand what is going on.
If it appears that there may be potential discrimination or other legal issues, be sure to get your employment attorneys involved as soon as the concern arises. They can guide you through the analysis, help you with any investigation and should be involved in determining the right strategy to address any concerns.
Figure Out What's Working Well
Also analyze which departments, locations and jobs have employees with longer tenure. You want to explore what is working for these employees and why, so you can do more of that wherever possible.
Getting your retention strategy right involves understanding both the problems and what you're doing well, and addressing them together.
If you would like to receive the ADP Research Institute Report on Getting Your Retention Strategy Right, register here. It's coming this summer 2018.
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