When consultancy KPMG asked more than 300 CEOs about the greatest threat to their companies’ growth through 2023, the No. 1 response — from among a dozen options — was “talent risk.”
What’s interesting is that talent risk was at the very bottom of that perceived threat list just six months before.
These leaders are not just worried about retaining key staffers in evolving work arrangements. Businesses are also concerned about acquiring the skills to address fast-changing operating models and for on-shoring some tasks now accomplished overseas. The answer is a talent retention program that is flexible, encourages retraining and incorporates a human capital management (HCM) practice to help HR teams align business goals with workforce realities.
What Is Employee Retention?
Employee retention refers to both how proficient an organization is at keeping talent over the long term and the strategies used to maintain a stable workforce.
While they’re related, retention is not simply the inverse of the turnover rate — there are important differences. For one, to yield a true picture, retention rates need to be calculated over an extended period of time; many experts recommend an annual calculation of this KPI. Turnover is often calculated on a monthly or quarterly basis.
Another important difference is that some companies choose to calculate retention rates by including only voluntary turnover, that is, people who left the organization of their own accord, and excluding those who were laid off or terminated for cause.
Why Does Employee Retention Matter? Why Is It important?
Losing top talent is expensive. Estimates of the cost to replace an employee range from one-half to two times the person’s annual salary. Meanwhile, the U.S. Bureau of Labor Statistics reports that, in November 2020, 3.2 million workers voluntarily left their jobs(opens in new tab).
When an employee earning $50,000 per year joins those ranks, a company can expect to spend between $25,000 and $100,000 to fill the position, depending on the specialization of the role.
And, the impact of poor retention on the bottom line doesn’t come solely from hard costs related to hiring and onboarding. Retention and engagement are closely linked, and higher employee satisfaction scores are associated with higher customer satisfaction scores and increased productivity and profitability. A recent study by employee and consumer reviews site Glassdoor shows that each one-star improvement in an employer’s Glassdoor rating correlates to a 1.3-point increase in customer satisfaction, on a 100-point scale. Employers with higher levels of engagement have 23% higher profits than those with low levels of engagement. And, the report shows that organizations with engaged employees have productivity levels that are 18% higher than those with low engagement scores.
Employee Retention Rates
Retention levels show whether companies are using the right strategies to turn hires into long-term employees. Retention rates are calculated by looking at the percentage of people who started at the beginning of the time period being calculated, subtracting the people who left voluntarily and dividing by the former.
People hired to fill open positions within that time period are not counted in the calculation.
The formula for calculating retention is:
# of individual employees who remained employed for the entire measurement period / # of employees at the start of the measurement period × 100
Many human resources professionals consider monthly turnover a top actionable metric. On the other hand, retention is often calculated annually — after one year of employment. In contrast, turnover rate KPIs provide valuable insight into the people who joined and left the company in under a year, or within less than a full year of the period being tracked. Examining the two together lends a good view of the stability of the workforce.
Top 25 Employee Retention Strategies
Over the coming decade, the Bureau of Labor Statistics projects that the economy will add 6 million jobs. As competition for talent — especially for specialized skills like IT security and statistics and in industries like healthcare — intensifies, what employee retention strategies will you employ to hold on to your best people?
Here are 25 best practices for all companies.
1. Don’t dawdle on hiring. You get only one chance to make a first impression, so don’t let the hiring process drag on for weeks or months. Stringing people along is annoying, and worst case, you’ll lose the best candidates to more agile competitors. Some companies with very positive interview experience ratings on Glassdoor hire in 15 days or less.
This is not the norm, unfortunately. Data from SHRM shows the average annual time to select a candidate is 36 days, and the average time from screening to offer acceptance is 24 days. That’s too long. HR specialists should work with hiring managers, recruiters and other team members to develop a clear understanding of qualifications needed, budget appropriately for the role, clear calendars for interviews and move rapidly when an attractive candidate is identified.
2. Hire the right people for the job. On its career page, outdoor-clothing maker Patagonia writes that it would not “staff our trade show booth with a bunch of out-of-shape guys wearing white shirts, ties and suspenders any more than a doctor would let his receptionist smoke in the office,” and says the company will often “take a risk on an itinerant rock climber that we wouldn’t on a run-of-the-mill MBA.”
That’s very much on brand. Be similarly honest and transparent in the interview process about the company’s culture and the job itself. Hold out for a solid candidate, but avoid unicorn hunts, where the company pines for a mythical “perfect” employee. You’ll increase retention by selecting for soft skills and cultural and team fit and training to fill expertise gaps.
3. Match the job description to the actual job. A misfit hire costs far more than that person’s salary; unnecessary turnover leads to a cascade of ill-effects, from lost productivity by the team that now has to start over on a position to lower morale to a waste of time spent training.
Of course, you can’t hire the right person unless your recruiters are looking for the right person. There’s often a disconnect here, with LinkedIn reporting that top recruiting challenges include uncooperative hiring managers and job descriptions that are too technical. Some organizations have had success in matching roles and expectations by having peers be very involved, and not just around conducting interviews. Manufacturing company Semco, for instance, has the team that the new hire will work with complete the entire hiring process — and it reports an employee turnover of just 1% to 2% annually.
4. Improve onboarding and orientation. The Human Capital Institute found that experience-driven onboarding — that is, a smart onboarding process that drives engagement and sparks human connection — improves new-hire retention by 82% and boosts productivity by 70%. Yet according to Gallup, only 12% of employees say their employers did a good job at onboarding.
The problem often lies in viewing onboarding as a one-time, “check a box” event when it should be an ongoing process that stretches for up to one year and engages a range of employees. The best onboarding programs create connections to the company by forging connections with the people in it — specifically, the new hire’s manager. Gallup found that when a manager takes an active role in onboarding, employees are more than three times as likely to call the process a success.
5. Encourage mentorship. More than nine in 10 people who have mentors at work are satisfied with their jobs, a CNBC/SurveyMonkey poll(opens in new tab) shows, with 57% saying they are “very satisfied.” For those who do not have mentors, four in 10 say they’ve considered quitting their jobs in the past three months. Consider a formal, structured mentoring program. For instance, at NASA’s Goddard Space Flight Center, the “Mentoring Matters” program leverages a web-based platform with collaboration tools, virtual open houses and information sessions that provide mentor and mentee training through webinars, group sessions and hybrid educational activities.
6. Get feedback frequently with pulse surveys. Employee engagement is about more than people simply doing their work and collecting a paycheck. Companies need to measure how connected employees are to the business and whether they’re invested in its success.
Annual engagement surveys provide good insights into issues that affect the organization as a whole and may reveal what’s dinging your retention rates. But because of their broad reach and infrequency, these surveys often miss effective levers HR could use to incentivize people to stay. Pulse surveys with just a handful of questions, in contrast, are effective in gathering input on a focused topic and are particularly useful in rapidly changing business environments. Employees want to provide feedback more than once a year; let them, and they’ll be more engaged.
7. Run focus groups. Focus groups can be an effective way to dig into findings surfaced in annual engagement or pulse surveys. Keep groups small — no more than 15 — and cap sessions at an hour. Ask participants to keep all discussions confidential, and promise that facilitators will do the same, to encourage honest conversation. As with surveys, there are plenty of third-party firms that will run focus groups and generate reports.
8. Seed and encourage employee resource groups (ERGs). ERGs are organized around a shared identity, such as race, gender or age, or life experience, such as veteran status. ERGs offer a space for underrepresented employees to connect and support one another and have been shown to yield benefits including higher retention rates and foster professional development and mentoring opportunities.
9. Offer competitive pay and benefits. Seems logical: Higher-than-average salaries equate to better retention. But perception needs to match reality. PayScale’s 2020 Compensation Best Practices Report shows that 45% of some 5,000 employers surveyed agree or strongly agree that their employees feel they’re paid fairly — but only 21% of workers say the same, a 24-point perception gap.
To keep everyone on the same page, monitor what other companies are paying. And remember: An increase in remote work means that, for some roles, you’re competing with employers across the country. If you find you’re on the low end of the spectrum, especially for hard-to-fill jobs, consider linking bonus pay to project completion to make up the gap. Identify top performers and budget for above-average raises, and correct pay imbalances by conducting a racial and gender pay equity analysis. Strive to provide at least some increase: 85% of organizations in the PayScale survey will boost base compensation in 2020, with 34% planning to continue giving a 3% average base pay increase.
As for benefits, increasing access to telehealth, reduced or waived payments for COVID testing and enhanced PTO policies are trending. Robert Half’s 2021 Salary Guide(opens in new tab) found that 68% of those surveyed offer medical coverage to their staffs. If you can’t increase base pay, look at whether you can enhance your benefits bundle.
10. Show awareness of mental health and wellness. New telehealth programs often include mental health benefits, and some companies are finding innovative ways to offer wellness resources. For instance, at Adobe, every employee gets a free subscription to guided meditations through Headspace. Even something as simple as mandating that employees sign off Slack and email and take a real lunch hour three days per week, as many healthcare companies are now doing, shows that an employer recognizes the need for stress reduction.
11. Budget for upskilling. It’s become a meme: “What if we train people and they leave? What if we don’t train them and they stay?”
Upskilling programs serve two ends: Equip the company with the skills necessary to achieve business objectives and more deeply engage employees in their work to help retain them. In fact, companies ranking highly on employee training see 53% lower attrition than those ranked lower, LinkedIn’s latest Talent Trends survey shows.
When companies aren’t able to grow their workforces, retraining current employees can be a cost-effective way to meet new business requirements. Upskilling has also become an important tool to attract and retain diverse talent. The next step: Clearly map upskilling to a career path within the organization. That can knock down a major roadblock to investment: That fear that employees, once trained, will leave the company.
12. Develop an internal recruiting program. AT&T invests $200 million annually in internal training programs and $24 million each year in tuition assistance. To capitalize on that investment, the company launched a Career Intelligence portal to build learning paths toward desired roles while also providing a searchable database for managers within the company looking for people to fill roles. It’s a win/win.
The LinkedIn talent survey report shows that employees stay 41% longer at companies with robust internal recruiting compared with companies that don’t help employees find new opportunities. In a robust HRMS (human resources management system), recruiters are able to build career pages on the company website and internal intranet, create job requisitions and descriptions, manage positions, enable employees to update their profiles and deliver suggestions on open roles, training, mentoring and more.
13. Communicate transparently. Most companies understand the importance of frequent communication through channels like town hall meetings, messages from senior leadership and newsletters. Employees who understand and buy in to company goals are more effective in their jobs, right?
Yes, and you likely have good intentions — but how well are you succeeding? Again, surveys are helpful; asking about employee perceptions of your company’s strategy and matching results to reality will reveal weaknesses in communications. Healthy customer retention metrics also indicate that workers are pulling together toward a common goal.
Where some companies fall down is on transparency. If executives hold a town hall and talk about how great business is, then a month later announce layoffs, that will erode trust. This is a dramatic example, but make sure messaging matches action. If you’re unsure of employee perceptions of transparency, take a look at your employee Net Promoter Score (eNPS), which shows whether employees would recommend your company as a good place to work.
14. Work to bring in employees’ voices. Being transparent means admitting mistakes and accepting criticism. Companies that boast high levels of retention often put in place programs that allow many employees — not just those at the highest levels — to have their ideas and insights heard and recognized. For instance, startups tend to have open-door policies, where any employee can speak directly to an executive. As companies grow, these policies fall away. One manageable option is to hold “office hours” every week to encourage real-time interactions. In addition, collect and act on employee suggestions. If a warehouse worker recommends an improvement that saves $100,000 annually, publicly recognize that and consider a bonus representing a percentage of savings.
15. Break the annual performance review mold. Conversations shouldn’t occur only during formal performance reviews. Most employees in the Gallup workplace survey who had left their jobs said that, in the three months before they resigned, neither their managers nor any other leader spoke with them about their job satisfaction or future with the organization.
Dynamic performance assessments are a talent management best practice. Providing space and time for managers to interact with employees must be a priority — in fact, frequent conversations should be linked to manager performance and bonus objectives. For instance, at SaaS customer experience management vendor Sprinklr, employees have one-on-ones with managers every six weeks, during which they’re asked to rate their happiness levels on a scale of one to 10.
16. Regularly recognize employee accomplishments. In a new report, employee recognition and workplace culture consultant O.C. Tanner found that companies without formal recognition programs had a 20% increase in intention-to-leave scores. While managers matter, feedback and recognition don’t need to come from supervisors to make a big impact. Tanner data shows that 75% of employees say that giving recognition makes them want to stay at their current organizations longer.
If you don’t have a formal employee recognition program, launching one will pay off. At Zappos, for instance, employees can reward each other with a $50 coworker bonus.
17. Support and train managers. It’s a truism that people don’t quit jobs, they quit managers, and data backs that up: In a Work Institute report, the odds of leaving a job decreased by a whopping 31.8% for every one-point increase in the core rating for a person’s supervisor.
Top complaints from employees include managers who fail to communicate clear expectations, play favorites, lack concern for career and personal development and don’t respond to or seek feedback.
HR can spot poor managers by using their HCM systems to pinpoint higher-than-average attrition in a given department. Companies can then educate them on leadership skills. Do supervisors regularly ask, for instance, how they can remove roadblocks or whether team members have ideas to share?
18. Align technology to culture. When organizations use technology in a way that reinforces culture, employees are more successful and engaged. This extends to using HCM technology to identify reasons for turnover and leveraging people analytics to zero in on individual flight risks.
Even small changes, such as boosting peer-to-peer recognition, have big impacts on retention. LinkedIn points to IT services firm Globant, which launched a platform that allows colleagues to recognize coworkers for achievements aligned with company values. Employees who use the platform have a significantly higher likelihood of staying with the company and are often influencers and evangelists of the firm’s culture.
19. Encourage creativity. Recent research from Boston Consulting Group shows that innovation is a strategic priority for about 45% of the companies surveyed — which leaves us curious about how the remaining 55% plan to remain relevant.
Forming an environment in which creativity can flourish requires fostering a culture that accepts —and even embraces — failure and gives employees room to undertake passion projects. At real estate marketplace Zillow, for instance, after six years of employment, an employee is eligible for a six-week sabbatical. The company also maintains an email alias for employees to contact executives at any time. Feedback from those channels has included new product ideas, discussions on project flow and advice on how leaders might be more effective, Forbes reports.
20. Celebrate diversity, focus on improving inclusion. Nearly 40% of 1,300 employees surveyed by Deloitte, which has a large diversity and inclusion practice, said they would leave their jobs to join a more inclusive workplace. These respondents tended to prioritize criteria that reflect the experience of an inclusive culture, naming “an atmosphere where I feel comfortable being myself,” as the top priority, followed by “an environment that provides a sense of purpose.”
In response, we see large companies putting in place unconscious bias training and workplace flexibility policies aimed at removing constraints that limit growth for employees of diverse backgrounds. There’s good financial sense behind these efforts, given that among 366 public companies, those in the top quartile for ethnic and racial diversity in management are 35% more likely to have financial returns above their industry means. In particular, diverse boards of directors are associated with improved performance.
21. Offer — and support — flexible work policies. Remote work, flex time and job sharing are here to stay. Nearly half of employers now have official flexible working policies, compared with about one in four pre-pandemic, a recent ADP Research Institute study showed. In many cases, these programs were put in place to respond to an unprecedented exodus of women from the workforce.
Still, there’s a difference between having a policy in place and truly supporting flexibility.
To demonstrate that you’re serious, provide a robust collaboration toolset, show a commitment to productivity over presence and encourage senior leadership to model use of your policies. And be creative. Patagonia, for example, has a “9/80” work schedule that gives employees a three-day weekend twice per month. Employees can work nine hours per day from Monday through Thursday and eight hours on alternating Fridays to get every second Friday off.
22. Foster work-life balance. For all the talk, turns out not all employers walk the balance walk. Many tacitly encourage employees to work on the weekends and after hours, and while the aforementioned flexible scheduling and remote work could help workers achieve better work-life balance, in practice, the lines between work and personal time can become blurred when there isn’t a physical space to go to and leave.
Again, managers set the tone. Practical steps include setting expectations on when people are expected to be on Slack and email, being aware of time zones when scheduling meetings and evaluating employees on business results rather than hours clocked.
23. Provide challenging work, with purpose. People want to feel connected to and challenged by their work. In fact, the LinkedIn Talent Trends survey found that companies with a purposeful mission saw 49% lower attrition.
Again, managers matter. Traits of a good supervisor include coaching to strengths, providing challenging work and encouraging the pursuit of learning and development opportunities. As to purpose, can you summarize your company’s mission in a few sentences? If not, how do you expect employees to? Nonprofits tend to do a great job at summarizing and communicating their purpose statements using a variety of channels.
24. Mind your “brand.” Maintaining a positive employee experience over time is a big part of retention. That means making sure that reality lives up to the promises and branding that attracted talent to your company — the “employee value proposition.” That is, what tangible and intangible rewards do you as an employer offer employees in return for their commitment to achieving business goals?
Answering the question of what employees expect from your company is crucial in both attracting and keeping good people. An employee value proposition generally comprises five elements, but some companies may wish to add additional metrics.
25. Leverage technology for better retention. An HRMS enables a company to fully understand its workforce while staying compliant with changing tax laws and labor regulations. When selecting a human resource management system, consider your needs. Do you have a lot of turnover? Then look carefully at candidate management capabilities. Got a multi-state or -national workforce? Make sure the system can handle complex payroll scenarios. Do you bring on a lot of temps but wonder if it wouldn’t be smarter to hire? A contingent workforce management function can help with analysis. Looking to add flexibility? Cloud-based HCM software can handle dispersed remote workforces, lower capital spending and provide better business continuity.