Employee retention

One of the top factors of an organization’s performance is its workforce, as it impacts its products, services, and client relations. This is why losing high-performing employees may have anegative impact on the bottom line. It is important for employers to understand the causes of employee turnover, how to avoid them, and how to determine the best strategies for retention.

What is employee retention

Employee retention is an organization’s ability to keep its employees.  Many organizations set retention goals, especially to retain high performing and productive workers. They work to reduce turnover by providing them with a positive work environment, competitive pay and benefits, work-life balance, and by promoting employee engagement.

This is crucial in times of low unemployment and talent shortages in the market. Organizations leverage the use of human resources technology for recruiting employees, keeping them engaged, and offering greater flexibility.

Why is employee retention important

Employee retention is an important HR strategy, and it can build cohesion and trust in the workplace. Employers may want to retain their teams who depend on each other. If turnover starts to increase, an organization may face loss of productivity and competitive advantage. It may become challenging to carry out a mission due to loss of institutional knowledge, issues with continuity, time and cost of replacing departing employees, and training replacements. A high turnover rate may risk negatively impacting the morale of other employees, prompting them to consider leaving. High turnover of employees may create a negative impact on customers who notice they are dealing with a series of different people. This can be interpreted as a sign that there is something wrong within the organization and client trust may become unstable.

Business benefits of employee retention

Businesses may benefit significantly by retaining their workforce and maintaining positive relationships with employees. Here are some of the benefits:

• Efficient processes – When employees work within an organization for a long period of time, they gain institutional knowledge and become experts at various processes, which may lead to better work efficiencies and achievement of goals.
• Increased productivity – Seasoned employees are often masters at their craft. They can execute their tasks efficiently and take on more responsibility. On the contrary, having to hire new replacements can generally cause delays and if they are not equipped with the right knowledge, they may even cause costly mistakes in workflows.
• Motivation and high morale – When employees have a sense of belonging in the organization, they are motivated and they take pride in the work they do to contribute to the overall mission. However, if turnover is high, employees may not feel a sense of contribution.
• Lower staffing costs – Organizations that retain employees can also curb the high costs of recruitment and training.
• Better relationships with customers – When customers deal with consistent employees of a company, they can be more likely to establish relationships and build trust. Low employee turnover can improve customer experience and perception of the company.

Why are employees leaving or staying

There are 3 primary factors influencing employee retention:

The market and economy’s effect on retention

Traditionally, an economy that is thriving will see an increase in job opportunities and a decrease in unemployment rates. This results in workers feeling more comfortable seeking employment at other organizations based on factors such as pay and benefits, growth, etc. Conversely, in times of economic uncertainty, employees will typically not leave their current employers because there won’t be many jobs available in the market.

The organization’s effect on retention

Factors such as the culture and environment of an organization, compensation and benefits, growth opportunities, manager and team relationships, and the nature of work itself can influence personnel retention.

The employees’ effect on retention

There are several personal reasons that may cause employees to leave – relocating to another country/city, career changes, travel, etc. Other factors such as demographics are also relevant since employees who are early in their career may change jobs more frequently compared to those who are more experienced and settled in their careers.

How to calculate your employee retention rate

The following equation can be used to quantify your company’s retention rate for a specific time period:

Employee turnover rate =	Number of employees who left  x 100
	Total number of employees

 

This metric can be used to create a benchmark rate which will help you determine how it changes over a period of time.

6 employee retention strategies for job satisfaction

Mentorship programs

Mentors can welcome new employees into an organization, offer support and guidance, and help with the overall onboarding process. It is, however, not only new hires who benefit from mentors, but also the mentors themselves, as they gain new perspective on various aspects of the business. Existing employees also benefit from having mentors as it gives them the opportunity to learn from their experiences and implement their learnings into their own roles.

Employee compensation

It is important for companies to evaluate industry compensation and consider a compensation package and schedule for adjusting to their employees’ salaries as needed. If pay increments are not possible at any point in time, companies can consider other forms of compensation such as paid time off, performance bonuses, health care benefits, or retirement plans. Compensation may improve retention for an organization and minimize turnover.  

Communication

Leaders may look to foster open, timely, and constructive communication with their teams to build deeper connections. With the recent shift to hybrid/remote work, it has become more important now to encourage workplace communication and help employees feel heard. It can be useful to connect with team members regularly and understand their levels of job satisfaction.

Consistently providing performance feedback

Some employers have recently started moving away from annual performance reviews and have instead adopted the trend of frequent meetings with their employees. These are typically weekly or bi-weekly, one-on-one meetings where they talk to employees about their projects/duties, achievements, any challenges they face, etc. This can be an ideal time to provide feedback on performance, discuss short and long-term goals, and go over strategies to help achieve them.

Training and development

As businesses evolve, they need to upskill their employees to ensure their abilities align with the changing requirements. This is especially important today as technology drives companies to change consistently. Companies can invest their employee’s training and development by encouraging them to attend conferences, reimbursing their tuition, or paying for their continuing education.

Work-life balance

A healthy work-life balance can be key to high levels of job satisfaction. Employees should be encouraged to set boundaries and take their vacation time. Over-time to complete projects should be compensated with some extra time off. It can sometimes become challenging for employees who work from home to separate their work from their personal lives, so their managers can remind them to clock out on time.

How do you track employee retention

It can be helpful for a retention strategy to resonate with employees. One way to determine this is to track monthly turnover, draw trends, and then take action when necessary. Here are some tips on tracking employee retention:

• Develop an understanding of employee turnover for your specific industry – industries may have vastly different turnover rates – for instance, companies with low-skill positions may see higher turnover compared to those with highly credentialed staff. This is why it’s crucial to compare your retention rate with companies in the same industry.
• Gain valuable insights by conducting exit interviews – by asking departing employees their opinions on the company’s pay, benefits, management, company culture, etc., you maygather indicators of what areas may need improvement and why the exiting employees were not satisfied.
• Keep your exit interview questions up to date so you ask the right questions – for instance, before the pandemic, you may have asked about commuting to work; however, since then and especially today, asking about flexibility may be useful. You can gather insightful data by making the most of exit interviews.

Using HR services & software to improve employee retention

There are several different HR software and solutions available today, including talent management software, human capital management, time and attendance systems, and payroll systems. These tools contribute towards managing and tracking employee retention, as they streamline HR functions and make it easy for the employer and employees to be able to carry out their duties and responsibilities with ease.

Common mistakes employers make

1. Not taking employee feedback into account
   Managers can influence key drivers of employee engagement – and so it may be an opportunity for first-line managers to really listen for feedback and act on it. Not giving employees a safe platform for communicating their feedback or simply ignoring it means creates the risk that there will be no meaningful visible improvements in employee satisfaction.
2. Only focusing on monetary benefits
   Employees are often driven by more than just their pay. Flexibility in work hours increased paid time off, reduced working hours, and benefits are just some of the other details that can motivate employees, and these can often go beyond simple monetary benefits.
3. Not taking accountability for employees’ well-being
   Employers can be mindful to create an environment for employees that allows them to maintain a healthy work-life balance and to be able to prioritize their well-being in situations where they are experiencing any sort of burnout. Managers can lead by example and emphasize on the importance of taking care of mental and physical well-being by taking time off when needed.
4. Discrimination against working parents
   It is common for working parents to feel that they are being discriminated against when their job responsibilities impact their responsibilities as a parent. Organizations may experience low retention if this dynamic is not addressed. One approach to solve this  can start by managers and employees meeting to set expectations and timelines to help minimize confusion.

Frequently asked questions

What is the difference between turnover and retention

Employee turnover is the proportion of an organization’s workforce that leaves the organization over any given period (a month, or a year); while employee retention is the proportion of employees who stay in an organization over any given period. In other words, they are the opposite of one another.

How do I calculate my employee turnover rate

This is calculated by dividing the total number of employees who left the organization by the total number of employees. This is multiplied by 100 to get a percentage.

Can the employee turnover rate be over 100%

The turnover rate can be over 100%. Factors contributing to turnover can be voluntary (employees leaving the company by their own will), involuntary (when a company lets go of an employee), internal (movement of employees within the organization, for instance, promotions or transfer to other locations), etc.It is important to note that turnover is not always a bad thing. It may even occur if several employees retire – and that does not negatively impact the company. In fact, it may give the company the opportunity to seek out new talent and bring in fresh ideas and perspectives.

How does employee retention fit into your employee experience (EX) strategy

Employee retention and employee experience go hand-in-hand. If an organization does not have a strong EX strategy, it may face a high turnover; on the other hand, if employees are staying for long periods of time, it can sometimes mean the company has an EX strategy that works. Factors that can drive an EX strategy include work-life balance, compensation and benefits, training and development, room for growth, and the level of empowerment employees feels. These factors, when present in favour of employees, can keep the retention rate high.

Learn More

Are you looking to retain your top performing employees? You can benefit from ADP’s Talent Management Software by getting help with recruitment, learning & development, succession planning, and much more!

Talk to us about your employee retention goals, and we’ll walk you through our talent managements solutions — including how companies like yours use them. Call 866-622-8153 or request a demo [trigger form] to get started.

This guide 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.