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Employee retention and turnover are important terms to every manager, owner, and business leader—but some of the elements and driving factors that influence why employees stay versus leave are not often well understood. Do you know what your retention rate is or how to figure out what it is? What is considered a high turnover rate, and how can you get honest feedback from your team?
These questions are common among business leaders seeking a better way to manage their teams and to create a culture that employees will be proud to be a part of. Leaders like you know that it is important to attract and keep good talent, and that making employee retention a priority for your company is essential for continual growth and success.
Employee retention calculations provide you with a baseline and give you a point of reference when determining how your organization compares to others. Employee retention rate can be calculated by several different formulas, but here is a simple formula we use:
(# of employees who stayed at the company for the whole time period) / (# employees at start of the time period) X 100
Currently, employee retention rates in the U.S. average around 90 percent and vary by industry. Generally speaking, a good retention rate ranges 90 percent or higher. Industries with the highest retention rates include government, finance, insurance, and education, while the lowest rates can be seen in the hotel, retail, and food industries.
Interestingly, statistics of employee retention say that 30 percent of new hires quit within the first six months and that 30 percent of employees also knew within the first week of employment whether they intended to stay at the job long term or not.
Employees are also 10 times more likely to rethink their career path around their first anniversary than their fifth.
That said, it's not hard to see why one third of employees at companies with 100+ employees are seeking a different job at any given time.
Turnover rate and retention rate are often used interchangeably, but the two are actually different sides of the same coin. Retention rates are the rates of people staying, while turnover rate is the rate at which employees leave. Turnover rates can be calculated by adding the number of employees at the beginning of a time period to the number at the end, then dividing that by two to find the average number of employees and then divide that by the number of employees separated during the period of time.
Average employee turnover rates will vary by industry, but generally, a high turnover rate is considered to be anything over 10 percent.
Of course, turnover is an inescapable reality, but organizations need to take action to understand the reasons behind it in their environment in order to keep it to a minimum. Knowing the "why" behind high workforce turnover can inform your employee retention strategies moving forward.
Employees leave their company for various reasons, but some of the most common include:
Lack of work/life balance
Not feeling valued or respected
Don’t believe their compensation reflects the value they provide
Lack of raises, promotions, bonuses, incentives, and recognition
Ineffective and bad bosses
Job did not meet their expectations
High workload and stress
Not enough benefits and perks
Toxic environment and culture
Lack of engaging and fulfilling work
Lack of confidence in leadership
Perceived unfairness among team members
The cost of high employee turnover is the energy, time, and money required to seek and train new talent. Employer turnover statistics show that every time a salaried employee is replaced, it costs the company, on average, the equivalent of 6–9 months paid salary.
This figure varies based on the role of the employee. For example, the cost to replace a CEO can be as much as 200 percent of their salary, compared to a $10/hr. employee, whose departure will cost the employer approximately 16% of their annual pay.
Some of the many expenses related to losing employees and bringing in new talent include:
HR time spent on advertising, interviewing, screening, and hiring
Onboarding and training costs
Long-term effects of a perceived negative work culture
Reduced output from new employees as they get up to speed
Reduced output from established employees as they help the new teammate get up to speed and expend effort welcoming him or her into the fold
Now that we’ve focused on some of the reasons people leave their jobs and the associated negative impacts, let's focus on what we, as leaders, can do to ensure that we are retaining good talent.
The keys to employee retention are creating engagement, motivation, and a positive work environment that people want to be a part of. Some of the ways to do that include:
Make employees feel like they are part of something special. In the same way that you promote the value proposition of your products and services to potential customers, you should do the same with employees, only focusing on your attributes as an employer. Exclusivity and pride are feelings you can leverage to help them understand that working for your organization is a unique opportunity.
Emphasize the purpose and meaning of the work employees do. The outstanding employees you seek to hire and retain have special talents, skills, and drive. Make it clear to them that what they are doing benefits both the company and your customers in important ways.
Ensure team members’ personal contributions are rewarded. Successful companies reward employees who go above and beyond. Recognition, bonuses, and promotions demonstrate your respect and appreciation for hard-working team members.
Give employees responsibility and challenge them to make a difference. One of the most effective employee retention strategies is to give them greater visibility into and responsibility for the processes and initiatives that are necessary for success. This starts with financial literacy training and continues with regular updates on business statistics like profits and revenue, and details on how their efforts are moving the needle.
Surround employees with other talented workers. People like to be a part of teams that are built for success. By creating groups of skilled and motivated workers, you can tap into a competitive and cooperative partnership that will benefit the business as a whole.
Nurture trust in leadership. All great relationships are built on trust, and the workplace is no different. Outstanding employees will stay if they trust leadership, and that trust grows from leaders being honest, open, and interested in their team members.
Get employees emotionally invested in the company. People are passionate about the things they have helped create. The more you engage employees in the development of the organization, the more emotionally invested they become and the more likely they are to stay.
Create a positive work culture. A culture that is genuine, empowering, and supportive starts at the top. If you create a drama-free environment where honesty and integrity matter, your employee retention rate will rise.
Provide competitive compensation. Even if you provide all of the features above, an employee who is underpaid will entertain offers from another employer who is happy to pay them more. While you should not get into a bidding war, it is important to stay on top of what constitutes fair compensation in your industry.
After assessing and addressing your employee retention effectiveness, it is important that you stay on top of the issues that affect turnover. There are a number of ways to do that, including:
Anonymous surveys given to current employees
Exit interviews given to people who are leaving the company
Insights from consultants and coaches brought in to assess your work environment
Increasing employee retention and keeping it at a high level is challenging, but the payoff is worth the effort involved. By creating a positive environment, recognizing and rewarding hard work, and encouraging people to take ownership of their area of expertise, you can grow both employee satisfaction and your business.