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5 advantages of a good employee retention rate

The effort to keep employees happy, motivated and committed to the company has major payoffs. Learn what these efforts are and why they matter.

In an era where both layoffs and job hopping seem to be the norm, efforts to keep employees from leaving might seem antiquated. They're not.

A good retention rate can seem challenging to maintain, but employing long-tenured workers helps companies in various ways. Recruiting, hiring and onboarding new employees is a major cost for today's companies, using funds that could go to innovating products or improving productivity. HR leaders must work to improve their organization's employee retention rate and convince other leaders of the importance of doing so.

Here are five benefits of a good employee retention rate.

1. Reduced costs

HR leaders may not be aware of all the expenses involved with recruiting and hiring new talent.

Paying to access resume databases and post on job boards is only the beginning, said David Lewis, CEO of OperationsInc, an HR consulting firm located in Norwalk, Conn. Company recruiters must also spend time finding candidates -- or the company must pay an external recruiter to do so -- and managers must spend time onboarding new employees once the workers are hired. Companies may also need to pay an employee referral bonus if a current worker found the new person.

A long "time to hire" -- a key metric in the HR world -- may also result in other employees taking on extra tasks for long periods, which can lead to decreased employee morale and potentially even more employee turnover, he said.

More departures lead to more company expenses.

2. Improved productivity

No matter their skill level, a new worker will require a certain amount of time to reach peak efficiency in a new position.

A new employee could take anywhere from three months to two years to attain the same level of performance, efficiency and team collaboration as a more experienced worker, Lewis said.

HR leaders may account for the time it will take to hire a new worker when evaluating employee turnover metrics, but they should also consider the amount of time an employee will require to become a truly productive worker as well.

3. Retained institutional knowledge

When a veteran employee departs, their company doesn't just pay offboarding costs -- the organization also loses the skills that the worker has developed during their time there.

No matter how skilled, a new worker will not possess the same knowledge as a longer-tenured employee, Lewis said.

"You could [hire] a rock star in their respective field, but what do they know about your team, clients, practices, processes and culture?" he said.

4. Improved business relationships

A departing employee has likely built up valuable relationships with their co-workers and external business contacts.

"When someone walks out, they leave with [their] client and peer relationships," said Marisol Hughes, who is general counsel at the Tampa, Fla.-based recruitment outsourcing company WilsonHCG and is in charge of their internal human capital management strategy.

Retaining employees helps ensure a smoother relationship with external clients.

"We've all been in the position where we're talking to someone in an organization, and three months later, we have a different account manager," said Parul Kapoor, chief talent and culture officer at Calix, a telecommunications company located in San Jose, Calif.

Switching between multiple contacts at a company could lead to frustration for clients.

Giving internal workers a positive employee experience can help benefit future client relationships as well.

Companies that focus on improving employee development and morale will benefit even when employees leave, because those former workers could bring in new business if they possess positive feelings about their old company, Hughes said.

"Even when people leave [WilsonHCG], we've found they become clients in a year or two," she said.

5. Improved company culture

Good employee retention leads to better employee morale as well. Workers who hear about other departures will likely wonder why their co-workers are leaving and whether they should look for a new position as well.

"It [can] be challenging for employees when they see people around them resigning constantly," Kapoor said. "You feel less motivated and more worried."

Company teams will work together better if team members have been at the company for years and know one another well.

Christine Campbell is a freelance writer specializing in business and B2B technology.

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