What is employee retention?
Employee retention is the organizational goal of keeping productive and talented workers and reducing turnover by fostering a positive work atmosphere to promote engagement, showing appreciation to employees, providing competitive pay and benefits, and encouraging a healthy work-life balance.
Employers are particularly interested in retaining employees during periods of low unemployment and heightened competition for talent. To retain employees, organizations use human resources technology for recruiting, onboarding, engaging and recognizing workers, as well as offering more work flexibility and modern benefits like physical and financial wellness programs.
Why employee retention is important
Employee retention is important to team building and cohesion in the workplace so workers can come to trust and depend on each other.
Diminished productivity and competitive advantage are among the biggest losses when talented employees leave an organization. High employee turnover rates can harm an organization's ability to carry out its mission due to impairments to continuity, loss of institutional knowledge, and high costs of replacing departing workers and training new replacements. Employee departures can also lower morale and prompt more employees to leave the organization.
Another negative effect of turnover is the impact to customers who notice that they're dealing with a continual flow of different people. High turnover typically signals consumers that there's something wrong with the organization or brand.
Business benefits of employee retention
Employee engagement and employee experience are among the more important strategies in retaining valued workers and maintaining a positive employer-employee relationship. Significant business benefits include the following:
- Better process efficiency. Longer-term employees know how the company wants things done and possess institutional knowledge they can draw on, leading to greater work efficiencies and attaining company goals expediently.
- Greater worker productivity. Seasoned employees are often skilled at quickly and efficiently executing their tasks. Conversely, hiring new replacements typically causes delays and inevitable, prolonged and costly mistakes in workflows.
- Higher employee morale. Employees are more likely to have higher morale, take pride in their work and therefore perform better when they have a sense of belonging in the organization. High turnover rates can create the opposite effect.
- Reduced staffing costs. Recruitment and training can cost organizations significant sums each year. Retaining employees is the best way to curb those costs.
- Improved customer experiences. Customers tend to strongly favor organizations where they see friendly and familiar faces over time and develop a relationship with one or more employees. Low turnover rates can increase positive customer perceptions.
- Increased revenue and ROI. Multiple studies show direct correlations between increased revenues and lower employee turnover, higher employee morale and improved employee experiences.
Key causes for high employee turnover
Exit interviews and employee surveys reveal some of the more common reasons why employees quit their job, including the following:
- poor compensation;
- insufficient employee benefits;
- lack of remote work and work-from-home opportunities;
- lack of career development opportunities;
- lack of work-life balance;
- poor or undefined company culture;
- no sense of belonging with team members or the company at large;
- lack of recognition or rewards;
- concerns about the company's financial health; and
- better job opportunities elsewhere.
Effective employee retention strategies
Companies concerned about retaining valued employees can take several immediate actions in key areas to help bolster their retention programs and lower turnover rates.
Onboarding. Companies focused on retaining employees usually start with the hiring and onboarding process by giving new workers adequate training and orientation about the company's culture. They also give new employees an opportunity to ask questions about their work and engage in dialogue with their supervisors. Employees are often offered, or at least surveyed on, flexible or hybrid work schedules to better ensure a good work-life balance and improve the overall employee experience.
Recognition, rewards and compensation. Some organizations use systematic recognition and rewards strategies to show they value their employees. Some employers rely on employee engagement software that uses gamification and other techniques to recognize workers and provide rewards and perks like retail discounts. Employers also focus on competitive pay using employee compensation management software that compares pay rates with benchmarks for given regions, job titles and performance ratings.
Benefits. Employers seek to distinguish themselves in the hiring arena by offering slates of varied benefits, including voluntary, employee paid and corporate subsidized. Newer types of benefits include lower premium, higher deductible health insurance plans, pet insurance, education debt repayment programs and legal counseling.
Performance feedback and reviews. To promote good communication and transparency, especially with the advent of remote and hybrid workforces, many companies don't wait for an annual review to evaluate an employee's performance. Instead, managers hold frequent one-on-one meetings with employees to provide constructive feedback, periodically discuss their professional interests and goals, and encourage new ideas.
Training, education and development. Companies offer employees opportunities for advancement through programs that provide upskilling, succession planning and attendance at conferences and webinars. They also promote programs that pair an employee with a mentor who can offer guidance and training in a specific area of expertise.
Perks. To foster work-life balance, companies offer flexible work schedules, time off and shorter work weeks; telecommuting via work-from-home schedules; and remote work opportunities for extended vacation and holiday location stays. They also train managers to encourage employees to take vacations.
Amenities. Employers increasingly provide office amenities such as ergonomic and standing desks, subsidized meals, free refreshments, daycare, elderly care and relaxation hubs featuring games like ping-pong and pool.
Employee retention metrics and measuring
HR departments can deploy employee engagement software to do pulse surveys on worker impressions of the company and take action to remedy areas where employees show low job satisfaction. Such surveys are usually anonymous and brief, so employees are more likely to participate.
Within an organization, a feeling of belonging and being heard are considered key aspects of employee retention. Workers also often cite the importance of managers who support them. Frequent surveys are a way to gauge employee feelings about their supervisor.
Employers also use corporate wellness technology that encourages companywide teamwork through a variety of techniques, such as competitive activities and group volunteer projects. Promoting physical and psychological well-being is sometimes a key aspect of corporate wellness. For example, organizations can provide incentives and discounts on health insurance for employees who use wearables, mobile devices and other metrics to track their physical health and activity.
Using HR software to improve employee retention
Depending on the application, there are several different types of HR software available, including hybrid work systems, HR information systems, HR management systems, human capital management systems, applicant tracking systems and payroll systems.
For hybrid work schedules, the newest category of HR software manages flexible hours and work environments that blend on-premises and remote work scheduling for each employee, as well as space requirements such as hot desking, hoteling, customizable work hubs and conference areas. These tools can also play a role in managing employee retention efforts. In addition, HR information, management and capital management systems incorporate elements of employee retention tracking and management.