How to Manage and Improve Employee Retention

What is employee retention?

Employee retention is the ongoing process of keeping your staff. Companies go to great lengths to recruit excellent employees. Once the hiring process is over, business owners must immediately work to ensure that employees stay with the organization.?

A company’s employee retention rate measures the percentage of employees who stay with the organization for a set period, usually a year. Here is a formula used to calculate the retention rate:

(# of separations during the measurement period / average # of employees during the measurement period) x 10

Most companies calculate retention rates annually. However, you can also measure the rate in smaller periods for faster results. The higher the retention rate, the better. If your retention rate is 80 percent, that means only 20 percent of employees left the business during a given period. Remember that retention rates vary by industry.

Did You Know?

Retaining a younger workforce can be particularly challenging, as job-hopping among millennials and Gen Z is rampant.

Employee retention vs. employee turnover

The employee retention rate is the percentage of staffers who stay with an organization within a given period, while the employee turnover rate is the percentage who leave during that time.?

Here’s the formula for calculating your employee turnover rate:

(# of employees who left / # of employees) x 100

The lower the turnover rate, the better. If a company has a 20 percent turnover rate, it means 80 percent of the staff is sticking with the company. (It also means the employee retention rate is 80 percent.)

There are two types of employee turnover:

• Voluntary turnover: Voluntary turnover occurs when an employee chooses to leave the company. Employees quit their jobs for many reasons, including low pay and employee burnout.
• Involuntary turnover: Involuntary turnover happens when the employer terminates the employee. The company may be conducting layoffs or firing employees for performance issues or workplace behavior.?

What are four ways to retain employees?

Employee retention is crucial for small businesses because the cost of hiring new employees can be substantial. Additionally, replacing staff members is time-consuming and can diminish your remaining employees’ productivity, especially when they must take on the extra work left by unfilled positions.?

“The cost of recruiting people is steep in addition to the opportunity cost as a key position remains open,” said Rhiannon Staples, chief marketing officer at GWI. “That team is not performing optimally.”

Fortunately, several effective strategies can help businesses keep employees, and most of those methods are free or inexpensive. Consider the following four ways to improve employee retention:

1. Keep employees engaged to improve retention.

Boredom is one of the worst things for company morale and productivity. If an employee has a mundane job and no opportunities for advancement or excitement, they’ll become dissatisfied and more likely to leave the company.

“The key tenant of retention is making sure you have highly engaged employees day in and day out,” said Traci Fiatte, CEO of professional and commercial staffing at Randstad US. “Many organizations have very quick-and-easy weekly, biweekly or monthly employee surveys to gauge how employees are feeling.”

Employee surveys can be short and quick to complete; the idea is to spot issues and respond to them before they lead to engagement problems.?

FYI

Effective employee communication is vital to engagement. Communication helps your team members understand their responsibilities, avoid costly mistakes and establish a shared mission.

2. Give employees clear growth opportunities to improve retention.

To keep employees over the long haul, companies must provide ample growth opportunities and encourage professional development. Employers also must ensure employees are aware of these programs. It’s crucial for employees to understand how they’ll grow, even in tumultuous times.

“You have to create new opportunities within the workplace to utilize employees’ other strengths,” said Angela Simpson, a retired HR knowledge advisor at the Society for Human Resource Management. “You have to make it interesting so they aren’t looking elsewhere for development and growth opportunities.”

3. Make employees feel valued to boost retention.

A company is only as good as its employees — and that means everyone in the organization, not just those in the C suite. Showing employees they matter boosts company morale and gives your team a sense of purpose.

“You have to make sure everyone in the organization, no matter the job, understands how important their job is to the total,” Fiatte said.

If employees know the business can’t function without them, they’ll feel good about coming to work every day. Fiatte noted that it’s essential to connect someone’s job to the value it brings the organization.

A free and easy way to help employees feel valued is to say thank you. As simple as it sounds, it’s not a given at many companies. “To me, that is the missing link,” Fiatte said. “You can never say thank you enough.”

3. Offer lifestyle enhancement benefits to boost employee retention.

Providing “lifestyle-enhancement benefits” can be a powerful way to recruit and keep employees, said Moses Balian, an HR expert at Justworks.

“There are a lot of increasingly popular fringe benefits that have to deal with lifestyle,” Balian noted. Fitness, mental health and enhanced medical benefits are highly valued.

Balian suggested offering employees access to a gym membership, digital fitness classes, mental health apps, employee assistance programs and flexible work schedules to help keep workers happy and loyal.

Tip

Cool job perks that boost employee happiness include in-house massages and yoga, free books, ample time off, mental health days and floating holidays.

How do you track employee retention?

You can have the best retention plan, but if it’s not resonating with employees, it will be a big waste of time. Tracking turnover is crucial to gauging your retention strategies’ success. Fiatte recommended tracking turnover monthly. “By doing that, you start to see trends, and you can plan for that turnover,” Fiatte said.

Here are some tips to consider when you’re tracking employee retention:

• Understand typical turnover for your industry. Turnover rates vary widely depending on the industry and role. For example, businesses with many sales positions tend to have high turnover, while companies with more senior staff tend to have lower turnover. Therefore, when you’re benchmarking, it’s crucial to compare similar retention rates.
• Conduct exit interviews. When you’re tracking employee retention, remember the power of exit interviews, which provide valuable insights to help reduce turnover. “You should ask [departing employees] why they’re leaving, if they took advantage of some of the fringe benefits, and if the health insurance was to their liking,” Balian advised. Questions could also focus on management and the company culture. “It’s really important to sit down and think about the exit interview questionnaires,” Balian added.
• Update your exit-interview questions. Examine your exit-interview process yearly to ensure you ask departing employees the right questions. For example, prior to the pandemic, you may have asked about commuter benefits. However, in 2020, access to additional health benefits may have mattered more to employees. And in 2023, freedom and flexibility are key.?

Tip

Don’t include the departing employee’s direct supervisor in the exit interview, regardless of whether they were a good boss or a bad boss. You want the departing employee to feel comfortable speaking freely.

Why do employees leave?

According to the U.S. Bureau of Labor Statistics, as of January 2022, the median number of years that wage and salary workers stay with a company is 4.1, down slightly from 4.2 in January 2018.?

Here are some of the primary reasons employees leave their jobs:

• They want higher compensation.
• The work isn’t challenging.
• There is no clear path to grow within the company.
• They lack access to health insurance and employee retirement plans.
• They don’t feel valued.
• Flextime isn’t an option.
• They have problems with a manager.
• They’re burned out from being overworked or stressed.
• They’re not recognized for a job well done.
• There is no clear direction from management.
• They don’t fit with the company culture.

Why do employees stay?

Employees are quick to change jobs when they don’t feel appreciated and challenged. However, they’re also loyal when treated right. Here are some common reasons employees remain with a company:

• Competitive salary
• High level of engagement
• Flexible work schedule
• Clear path to advance within the organization
• Access to learning and development
• Comprehensive employee benefits plan
• Supportive and empathetic management
• Respect and gratitude
• Great company culture and team
• Support for the company’s mission

Focus on meeting employees’ needs to boost retention

Staying attuned to your employees’ changing needs can help you manage and improve employee retention. These needs change continually based on internal and external factors. Maintaining open, two-way communication channels can help ensure you have a handle on employee sentiment and concerns so you can address your staff’s needs and stem the tide of turnover.?

Linda Pophal contributed to this article. Source interviews were conducted for a previous version of this article.

Donna Fuscaldo