Business Leadership Today

Why Employee Retention Matters to HR


Matt Tenney, Author of Inspire Greatness: How to Motivate Employees with a Simple, Repeatable, Scalable Process

Retaining talented employees is becoming an even greater challenge for organizations looking to combat the financial effects of high turnover in light of The Great Resignation and The Great Retirement.

The Great Retirement saw the exodus of roughly 1.6 million workers aged 55 and older over the past two years due to retirements, nearly doubling pre-COVID projections. 

The loss of experienced, highly skilled workers like these can hurt a business’s performance and productivity, leading to less profitability, and replacing those workers is expensive.

Human resources departments struggle to find ways to retain employees to ensure the financial success of their organizations, but profits aren’t the only thing that can take a hit when turnover is high.

Employee morale and well-being can tank when team members leave an organization. When these workers leave, they often take a substantial amount of institutional knowledge with them. They also take the organization’s cultural DNA with them.

Because of this, retention is a serious matter for HR. 

Employee retention matters to HR because of the many ways retention benefits organizations and the harm that high turnover inflicts on profits and employee morale. Because the loss of skilled employees can be devastating to a business, retaining them is essential for its long-term financial success. 

In this article, we’ll look at the benefits of retention, the effects of turnover, and strategies HR departments can use to improve retention in their organizations. 

Employee Retention and Employee Turnover Defined

Employee retention refers to a company’s ability to prevent turnover and retain its employees. Employee turnover refers to the number of employees who leave a job, either voluntarily or involuntarily, during a certain period of time. 

Employee retention is driven by employee experience and employee engagement. An employee’s attitude toward their job and work environment determines whether an employee will stay or seek out other job opportunities.

A certain amount of turnover is normal for any company. Since a good retention rate is 90% or more, keeping turnover at 10% or less is considered ideal, though what is considered low turnover can vary by company size, industry, the type of job, and location.

Drivers of Turnover

Poor compensation and benefits still drive a lot of turnover, but it’s not the only or even the main reason for the high turnover rates we are currently experiencing. 

There are less tangible benefits and intrinsic motivators lacking in an employee’s work life that drive them to look for better opportunities.

Flexibility has become increasingly important to workers, with many leaving their jobs for organizations that offer remote and hybrid work options. The need for autonomy and a better work/life balance also drives these workers to pursue other jobs.

Many employees leave organizations that lack career development or advancement opportunities because they do not see a future for themselves in such organizations. 

Bad culture can lead to toxic work environments, which has been cited by many as a major factor in The Great Resignation. In fact, research published by MIT Sloan School of Management this year revealed that toxic work culture was the biggest cause of attrition.

Working with people you like and get along with is important; when this isn’t the case, it creates an extremely unpleasant work environment where both engagement and retention are low. 

Throw in bad leaders, who are either the root of the dysfunction or unable (or unwilling) to diffuse the strife that leads to toxic work environments, and you’ll see even higher rates of turnover. 

Lack of recognition can also drive employees away. If employees aren’t recognized regularly for their accomplishments, they may feel their work isn’t appreciated or even seen by upper management. 

Effects of Turnover

Studies have indicated that every time an organization has to replace a salaried employee, it can cost them the equivalent of six to nine months of salary. 

For a real-world scenario, imagine replacing a manager making $60,000 a year. This can cost $30,000-$45,000 in recruiting, onboarding, and training costs. These costs can really add up, even for larger organizations; for smaller ones, these costs can be devastating. 

Employee retention costs are extremely high for companies experiencing high rates of turnover, with organizations in the US losing a trillion dollars yearly due to voluntary turnover. It’s estimated that the replacement of an individual employee can cost up to two times that employee’s annual salary.

In addition to its negative effects on profits, high rates of turnover can also hurt employee morale and employee engagement, and the loss of institutional knowledge can negatively impact the organization in a variety of ways.

Turnover can also be contagious. In a poll conducted by LinkedIn, 59% of respondents said a colleague’s resignation led them to consider leaving their job as well. 

Benefits of Retention

Retaining talented employees costs much less than the recruitment, onboarding, and training of new hires, and it can also improve profitability by keeping productivity and performance high. 

High retention rates can indicate that a team is highly engaged and provides excellent customer service. Engagement is particularly important as employees who care more about an organization’s mission will feel a sense of purpose in their roles and demonstrate more commitment to their jobs. 

But retention has many other benefits that are essential to an organization’s success.

Retention ensures continuity, confidence, camaraderie, community, and a strong culture within the organization, which are vital for success and a positive employee experience.

Strategies for Retention

Some leaders have blamed the current retention challenges their organizations are facing on people not wanting to work or a lack of acceptable, qualified candidates in hiring pools. 

But the reality is, the pandemic has shifted employees’ expectations and needs, and they are seeking jobs that offer them more. 

Compensation and culture, as usual, are still impacting engagement and retention, but so many of these Great Resignation job seekers are looking for work situations that will provide a good work/life balance. Many are seeking work environments with more flexibility, autonomy, and inclusion. 

Offering flexibility and autonomy to workers in the form of hybrid or remote work options and other types of flexible schedules is becoming more common, and any organization that wants to appeal to highly skilled and experienced workers should take note. 

This can significantly improve a person’s mental and physical well-being by reducing stress and improving the employee experience.

Many workers are also looking for opportunities where there is a chance for growth and advancement. Providing learning opportunities and career-pathing to employees shows them that there is a future for them in the organization. This increases the likelihood that they will stay.

HR’s job is to ensure that institutional knowledge is not lost, that the work environment is a positive place for all employees, and that the conditions are right for high engagement and high retention. Leaders and recruiters should pay close attention to what workers are asking for.

The key to successful recruiting efforts and retention is to recognize shifts in employee needs and expectations and determine where your strategies can be improved so that your organization is recruiting and retaining top talent. 

Remember, it isn’t just about retaining employees; it’s about retaining the right employees. To do this, the retention process should start at recruitment. Hiring for cultural fit and properly onboarding new employees can result in higher retention. 

Matt Tenney has been working to help organizations develop leaders who improve employee engagement and performance since 2012. He is the author of three leadership books, including the groundbreaking, highly acclaimed book Inspire Greatness: How to Motivate Employees with a Simple, Repeatable, Scalable Process.

Matt’s ideas have been featured in major media outlets and his clients include numerous national associations and Fortune 500 companies.

He is often invited to deliver keynote speeches at conferences and leadership meetings, and is known for delivering valuable, actionable insights in a way that is memorable and deeply inspiring.

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