GUIDE

The Benefits & Importance of Employee Retention

Everything you need to know to lower turnover in the workplace

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Employee Turnover Statistics

What’s the longest you’ve ever stayed at a job? 

Depending on your age, chances are, it’s much less than 10, 15, 20, even 30 years. Imagine staying at the same company for 30 years?  

This idea seems unfathomable to many individuals today. Rewind a couple of decades though—and this was common practice. The main goal of work was stability and security.  As we will see in this article...a lot has changed since then. 

Basic job turnover statistics 

Recent employee turnover statistics support what we all intuitively assume, based on our personal experience and that of our social network: Many people are serial job-hoppers.

Asset 14According to an extensive analysis by Workopolis of over 7,000,000 employment-history records from 1990 to the present, the overarching trend suggests “shorter stints at jobs have now become the majority.”

In the past decade, the number of people working for the same organization for more than four years has dramatically dropped. Currently, only 30% of people work for the same employer for more than four years.

If you zoom in on the younger generation, the trend becomes even more apparent: A recent Gallup report on the millennial generation shows that 21% of millennials have changed jobs within the past year, which is more than three times the number of non-millennials who report the same.

Do stats tell the full ‘employee turnover’ story?

These statistics unequivocally show that⁠—yes, people are job-hopping at a higher rate, but the numbers fail to tell us anything about why people leave their jobs, nor anything about the psychological repercussions of continually switching jobs. In short, are people actually happy?

Interestingly, recent reports suggest these statistics only scratch the surface and can be misleading.

Asset 22For instance, a 2016 Forbes report suggests that workers—even Millennials!—“aspire to build a long-lasting career with one company.”

Although this rubs up against the current stats, it makes a lot of sense. The desire to fit in, belong and make an impact is very human and can be a desirable option in our chaotic work market. Not to mention, having to repeat the process of onboarding, training, and proving yourself in a new job every two years sounds exhausting and unsustainable over a career spanning decades.

Another 2019 report by the Atlantic called “Workism is Making Americans Miserable” suggests that, in short, work is the new church. Where Americans used to find identity and meaning in religion and community, they are now driven to find that same identity and purpose at work. But most jobs and employers fail to fulfill intrinsic personal-growth needs.

Building a meaningful work culture

Without going too deep down the philosophy rabbit hole, the primary take-away should be that although turnover statistics are disturbingly high, these surface numbers should not colour overarching attitudes towards your workforce.

Avoid painting everyone with the same brush. 

Assuming all employees are job hoppers and treating them as a short-term asset will only succeed in perpetuating the very thing organizations are trying to avoid—turnover. And ultimately, this mindset, further drives what economists are calling the “quitting economy.” 

Our professional lives take up the vast majority of our time. People want this time investment to benefit their professional growth, but also their personal growth. As the two are inextricably linked. If you want to keep turnover low, build a work culture around a distinct central mission and philosophy that drives decision making, affiliation, and dedication. Ultimately making employees contribute to something greater than just taking home a paycheck.

 

 

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What is Employee Retention

Employee retention is about enticing and motivating your staff to stay with your company long term. It’s about building strong relationships—filling workers with a sense of accomplishment, pride, and mutual respect that drives long term loyalty.

That said, you can’t talk about employee retention without mentioning the opposite phenomenon: employee turnover. Also known as employee attrition or churn. In short, the number of people that leave your company per given period, for whatever reason. 

Losing employees is an inevitable part of business, to some degree. However, organizations still strive to keep attrition low and retention as high as possible.

Metrics for Employee Retention

As you probably imagine, employees leave a place of work for all types of reasons. So gaining a nuanced understanding of employee turnover in your company starts by digging deeper and understanding who is quitting and why.

Asset 32Employee happiness

Keeping your finger on the pulse of employee satisfaction is key to retaining employees. Early intervention is critical when problems and dissatisfaction arise. 

As we all know from personal experience, when tension and resentment are left to fester, it’s only a matter of time before someone explodes. Although we don’t generally think of work as a place to let our emotions get the best of us, we are all human, and people experience human emotions like frustration and contempt in their professional lives as much as in their private lives.

That said, it’s incumbent on management to continuously be a barometer for the morale of their team. How you measure it is up to your own ingenuity. 

Voluntary/involuntary turnover rate

As mentioned above, a voluntary departure is different from an involuntary one.

Differentiating and tracking these two metrics can allow HR to pinpoint issues the company is facing.

When employees don't feel fulfilled or impressed by a company's offerings, high voluntary turnover is usually the first symptom. Or they are unfairly compensated or challenged and as a result, have eyes for organizations offering a higher salary and more challenging position.

On the other hand, when terminations are high (involuntary turnover), this suggests flaws in your hiring process. Your hiring filter may not be fine enough. Slipping through are workers that are poorly fit for the role or the company's culture.

revolving-doorTop talent turnover

Being aware of the percentage of people that leave the company per year is a great start. But it tells you nothing about the types of employees that are leaving.

Calculating top talent turnover rate allows you to understand if you're losing top talent. If the answer is "yes," some deeper digging must be done to get to the bottom of the underlying reason and fix the issue as quickly as possible. Attrition of top performers is sure to impact a business's bottom line negatively. 

New employee satisfaction rate

The people walking into your company today may become the top talent of tomorrow. But most won’t blindly offer their loyalty. They first need to feel respected, valued, and welcome. 

That said, starting a new job usually sparks a natural boost of energy and enthusiasm. A novel environment, faces, and responsibilities can be very stimulating and motivating.  

So⁠—if a new employee is feeling disengaged, it’s not a good sign. It means it’s time to question the employee experience your organization is providing and possible gaps and transparency issues in your recruiting process. Moreover, early intervention is vital as you could potentially be looking at more significant problems down the road.

Retention rate per department/manager

Keeping an eye on the turnover rate for individual managers and departments is wise. A high turnover rate with a specific manager or department can signal an underlying issue that could be affecting the entire team or department, and some investigating on HR’s side is required.

On the other hand, identifying managers with very low turnover rates can also be helpful. You might find some principles for successful employee retention that you could transmit to the rest of your organization.

 

 

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How to Calculate Employee Turnover

Don’t worry...you don’t need to be a math genius to calculate the employee turnover rate. Calculating various types of turnover rate expressed as a percentage is quite simple and only requires that you have a few solid figures handy.

Calculating your monthly employee turnover rate

To calculate the monthly employee turnover rate, all you need is three numbers:

  • The number of active employees at the beginning of the month (B) 
  • The number of active employees at the end of the month (E) 
  • The number of employees who left during that month (L)

Then, calculate the average (average) number of employees by adding your beginning and ending workforce and dividing by two.

Finally, you should divide the number of employees who left (L) by your average number (average) of employees and multiply by 100 to get your final turnover percentage.

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Pro tip: It's important to note that turnover rates vary significantly from industry to industry, as you'll see later in this article. However, turnover rates should (ideally) be lower than 10%, which is a very healthy turnover rate across the board.

Calculating voluntary resignations

Distinguishing between employees that left for another job or company (i.e. resigned voluntarily) and those who left because of terminated or retirement is important.

To calculate this more nuanced employee turnover percentage, you only include voluntary resignations in the "number of employees who left that month." 

Ideal employee retention rate

Losing some employees is inevitable, so you’re probably wondering the average (or “ideal”) retention rate is. In short, what’s the benchmark you should aim to maintain.

Determining a universal benchmark is difficult, as turnover rates vary widely from industry to industry. According to recruiting giant Monster, "every firm should establish its unique ideal rate."

For example, the hospitality industry is notorious for high turnover rates, according to a 2016 Compensation Force study turnover soared at 28.6 percent; almost triple the "healthy" rate of 10% mentioned earlier. That said, if you're curious to know more about turnover rates in your industry, check out this useful tool from Nobscot.

Regardless of your industry benchmark, organizations should keep these three points in mind when considering retention:

  • Strategically planning the flow of talent through the organization.
  • Decreasing the flow of top performers out.
  • Increasing the flow of top performers in.
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Why Employees Quit

Have you ever asked someone why they voluntarily left a job?  Asking this is like opening a can of worms. You’re likely to be on the receiving end of a long list of justifications.  

Workopolis conducted a poll to get to the bottom of why people leave their jobs. Here is what they found:

  • My relationship with my boss – 37%
  • I was bored, unhappy with the work – 29%
  • I found a better opportunity – 20%
  • Poor fit with the culture/coworkers – 14%

Restrictive management

We've all heard the saying: "people don't leave jobs, they leave managers." For anyone who's dealt with difficult management, it's no surprise that managers and management styles strongly impact employee retention.

Official studies provide evidence for this claim. For example, a study conducted by employee engagement firm TINYpulse found a strong connection between employee job satisfaction and the "freedom to make decisions about how to do their jobs."

In short, rigid management styles and micro-management results in  higher dissatisfaction among employees and higher turnover rates.

Moreover, overworked people for enough time and watch some of them languish due to exhaustion. Burnout affects employees when they've been pushed far beyond their physical or emotional limits. In other words, burning the midnight oil every day works against us and endangers our capacity to internalize and deal with daily challenges and overcome obstacles.

Asset 33Uninspiring work & culture

It’s human to feel like you want to be part of a group of like-minded people and contribute to a more significant cause that aligns with your own beliefs and personality.

For example, someone who is a firm believer and proponent of environmental sustainability would feel proud to work for a company with similar values that makes decisions based on low carbon footprint and environmental sustainability.

Recent studies support this claim. A TinyPulse survey found that uninspiring company culture is an active contributor to employee churn. According to the study, “employees who give their work culture low marks are nearly 15% more likely to think about a new job than their counterparts.”

Little opportunity for career advancement

Many top-performing employees value future career opportunities within their company. They'll surely feel like their career is stalling if there's no talk of promotion once they've proven themselves and feel like they deserve consideration for advancement. 

Over 70% of "high-turnover-risk" employees state that they want to leave their employer because they aren't given a chance to grow in the current position they occupy (Willis Towers Watson). The moral of this story? Depriving your star workers of advancement opportunities is a sure way to lose them, no two ways about it.

Cost of employee turnover

Every time an employee is hired or replaced, your organization takes a financial hit.

It is essential to avoid these situations because, according to the Center for American Progress, the cost of replacing an employee earning $30 000-50 000 represents 20% of their annual salary and can be extended up to 200% for senior management.

Asset 34The cost of losing employees extends beyond financial implications, too. When a team member is lost, group morale can take a severe hit, especially if employment ended in termination. Terminating a worker's employment can cause a wave of anxiety among the remaining team members.

On the other hand, if an employee left for greener pastures, this can also affect morale differently, persuading other team members to take the plunge and quit as well.

 

 

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Tips for Driving Employee Retention

The 1999 comedy Office Space perfectly illustrates the type of work environment that crushes the spirit. Depicting grey office cubicles as cells and passionless supervisors as the wardens, employees of the fictional company Innotech are deeply miserable even among the sugary birthday cakes and mission-statement banners.

That's because, despite Innotech's best efforts to provide birthday parties and mission statements, management is entitled and rigid, treating workers like machines that don't need a day off.

Office-Space

Moreover, their attempt at a mission statement, "initiative and technology" is meaningless and empty. It says nothing about the values or type of company they wish to embody. It's a half-hearted attempt at motivating employees by having a mission statement, but in reality, not acting by it.

Suffice to say; this is an exaggerated example of a company doing everything wrong. So it should be a great starting point to show how to move in the right direction.

That said, look up "tips for improving employee retention," and you'll be overwhelmed with results. If you're not sure where to start or which retention strategies to implement for your business, it's helpful to remember these tips grow out of universal principles:

  • Flexibility
  • Fairness
  • Trust
  • Growth
  • Inclusivity
  • Generosity
  • Recognition
  • Wellness 

Now, for a more concrete example, let's look at a few popular and actionable tips for keeping employee turnover low.

Competitive compensation

A 2018 Glassdoor survey of people in recruitment, HR, and hiring managers found that 45% of employees who quit, the top reason is salary. 

Of course, salary is just one piece of the employee retention puzzle. However, in today’s competitive labour market, companies must offer attractive compensation packages. This includes salaries, of course, but also bonuses, paid time off, health benefits, retirement plans. 

If you’re a bootstrapped startup and don’t have the resources to pay above market for a position, there are always other ways to entice talent to stay at your company.

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Asset 37Work-life balance

Your employees probably play many roles outside of work: mothers, fathers, and caretakers for family members. In the spirit of flexibility and generosity, it's essential to recognize your employee's personal life and offer them wiggle room in terms of start and end time.

In addition, the option of offering your staff a half-day on Fridays would give them precious needed time to get chores done before the weekend begins. The weekend can then be used as a time to actually relax and recharge, instead of running around trying to catch up on chores and housework.

Everyone loves a head start to their weekend. With life being so hectic and jammed-packed, people to see, laundry to wash, and family to feed, the weekend can seem daunting. When employees sense that their need for work/life balance is taken seriously, they will be more likely to go the extra mile when they are at work.

Offer educational assistance & training

With the values of growth and recognition in mind, you can provide resources for training and education-based employee initiatives. Even the simple act of buying books or subscribing to publications that will help contribute to your employee’s growth is a great and inexpensive place to start.

Investing in employee training works twofold—first, your business benefits directly from newly acquired, or freshly updated skills, which employees carry over to their day-to-day work. Second, it inspires and motivates employees in ways that endear them to your corporate culture, and ultimately their workplace.

 

 

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Tools for Employee Retention

No matter the engagement and retention program you develop, it should be supported by technology. 

A variety of cloud-based friendly software exists to address solutions for various HR problems. For example, applicant tracking software like JazzHR, ClearCompany, and Breezy HR helps automate and streamline the hiring process for recruiters.

What about software that helps once an employee is onboard? When it comes to supporting employee retention initiatives, a whole other type of software solution is needed: One that works to foster communication, rewards, and recognition.

Asset 29-1Reward & engagement software

Cloud-based and cost-effective software like Applauz Recognition provides essential HR tools to help engage, celebrate, and reward, as well as motivate your workforce in a personalized way.

Software like Applauz offers participants access to a Marketplace where they can be rewarded with tangible rewards and name-brand goods. 

Software like this makes the administration and daily operation of employee retention and engagement program easy to access and manage while making it automated and push-button easy to implement.

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Performance tracking software

Performance tracking employees can instill a sense of higher purpose and mission by keeping teams focused on an overarching target. Several software solutions exist to help communicate goals and transparently monitor their progress not only across a team but the entire organization.

Tools like BambooHr and 15five  help managers and HR with the task of monitoring and tracking goals.

 

 

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Final Thoughts

Employee loyalty is not given; it must be earned.  

However, many companies are not willing to put effort and resources into driving employee loyalty. These decisions are often fueled by grim and misunderstood job-hopping statistics. In short, companies think—"why bother," they will most likely leave soon.

Ultimately, ignoring employee retention is narrow-sighted, as management often forgets that loyal employees are among the best assets for a successful company. They bring momentum, stability, growth and productivity to an organization. And more importantly, loyal employees serve as prime examples of your companies values and overall employment success.

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