Attracting and retaining is one of the biggest issues companies face. The most successful organizations recognize the value of their workforce and are constantly looking for strategies that will help them hold onto top performers.

Today, increasing labor costs and employee turnover are lowering the profits of businesses. If that trend continues, corporate profitability in the U.S. will hit lows not seen since the 1980s, according to a 2020 report by The Conference Board.

Employee turnover is a measure of how frequently employees leave a business, and is typically measured on a monthly, quarterly and annual basis. Turnover rates cover voluntary and involuntary turnover. In other words, it counts people who left the company to pursue new jobs or educational opportunities, for personal reasons or to retire (voluntary), as well as those who the company terminated for performance or behavior violations or as part of broader layoffs (involuntary).

What qualifies as a healthy turnover rate will vary widely by industry. The overall annual turnover rate in the U.S. varies depending on the source, but most put it at somewhere between 10% and 20%. Turnover costs the U.S. economy $1 trillion every year, and replacing an individual employee can bring a bill that’s anywhere from one-half to two times the person’s annual salary, according to Gallup.

What Causes Employee Turnover?

The many studies that examine turnover each year all point to the same causes of employee departure, even if the order of them varies. Employees overwhelmingly leave for more money and better benefits, to progress in their careers, to gain a better work-life balance and because their manager is ineffective.

Many of these shortcomings could be classified under company culture, which can include a company’s values, career opportunities, compensation and benefits, work-life balance and the effect of senior leadership. Retention can be predicted by culture, pay and employees remaining in the same role for too long.

Why Is Reducing Employee Turnover Important?

Reducing employee turnover impacts company profitability. Having enough people with the right skills is obviously crucial to delivering on business plans and objectives. Additionally, finding the right people is getting more challenging (and costly).

Once businesses identify the right candidates, getting them to actually sign on can prove costly and time-consuming. It’s taking longer to hire people, and most organizations have increased pay for salaried roles while half of others have increased starting pay for hourly roles. These rising costs offer all the more incentive to cut down on turnover.

15 Tips to Reduce Employee Turnover

With all that in mind, what can you do to keep high performers and contributors with your business? Much employee turnover is preventable, and small changes in career development opportunities, work-life balance, manager relationships, compensation and overall wellbeing can make a big difference.

  1. Hire the right people.

    Some of the blame for poor hires falls on recruiting. Recruiters must be clear about the organization’s culture upfront, telling the candidate not what they think the person wants to hear, but how the company actually operates. But a big part of hiring the right person is making sure that recruiting is looking for the right person from the beginning. Less than half of workers believe that job descriptions reflect actual job responsibilities, and nearly a third have left a job in the first 90 days because it wasn’t what they expected, a report from Jobvite states.

    One way many organizations have improved their success rate with new hires is by allowing peers in that person’s role to make the hiring decisions. Organizations should also invest time into getting to know the candidate by whatever means available. In-person visits to the office and opportunities to see how the person reacts and interacts with potential co-workers is ideal, but can sometimes be accomplished via video, as well. If possible, considering making certain roles remote to increase the pool of available candidates and boost the chances you find the ideal fit.

  2. Keep up with the market rate and offer competitive salaries and total compensation.

    Pay and benefits are key reasons people take jobs and show up for work every day. It’s also a top reason why professionals change jobs. It’s therefore no surprise that higher pay tops the list of what would convince workers to stay, followed by time off and benefits.

    Companies should start by offering an appropriate starting salary that will attract qualified and talented candidates. They should also offer regular raises and monitor what other companies pay for similar roles, especially when it comes to hard-to-fill jobs. Organizations should expect to pay more for those with in-demand skills, and more are offering bonuses that are tied to project completion. Establishing talent management processes that identify top performers and correcting pay imbalances by conducting racial and gender pay equity analyses can also limit compensation-related turnover.

  3. Closely monitor toxic employees.

    Toxic co-workers are those who are overly critical, often blame others, gossip, undermine colleagues and only look out for themselves. These types of employees can push high achievers out of the organization — a survey by McKinsey revealed trusting colleagues and leaders can have a positive impact on employee engagement, well-being and quality of work with the company. There is a direct link between relationships and turnover, and the old “one bad apple spoils the bunch” metaphor applies here.

    Spotting toxic employees can be tough, but it’s crucial. How do you find them? Look for the traits described above and then initiate conversations with those employees to see if it’s possible to change their behavior. Check in with other members of that person’s team to see if they’re encountering issues with their toxic colleague so you can address the problem before it’s too late.

  4. Reward and recognize employees.

    This is an easy turnover reduction strategy to tackle. Simple “thank yous” and notes of appreciation — either spoken or written — for the work employees put in every day can go a long way. Giving staff members new opportunities is another great way to recognize them.

    An employee’s manager has an outsized impact here. Workers whose manager’s feedback left them with positive feelings are significantly more likely to be engaged, and only a small minority of that group are actively looking for a new job.

    But feedback from colleagues is equally impactful. Seventy-five percent of employees say that receiving recognition makes them want to stay at their current organization longer(opens in a new tab). It’s not hard to see why peer-to-peer recognition programs are so successful, particularly when they leverage technology.

  5. Offer flexibility.

    Employees are increasingly concerned with job flexibility, so giving them more latitude here is another way to boost retention. According to online job board Flexjobs, about 30% of workers reported leaving a job because it did not offer flexible work options, and another 80% said they would be more loyal to their company if they had flexible work options.

    Flexible work isn’t only telework or remote work. It can include flextime (where employees are required to work a standard number of hours, but can choose when those are), a compressed workweek, part-time schedules or a job-share where workers rotate days working from the office. Although effectively managing remote workers does pose its own challenges, leaders should explore whether any of these options might be effective for their organization.

  6. Prioritize work-life balance.

    Work-life balance is a struggle for many employees and can lead to burnout that leaves them looking for another role. More than half of workers say employers encourage them to work on the weekends or after hours, and 30% have found themselves working on a project past midnight, per Jobvite. That trend is more pronounced for older workers, those who are married and those who have children.

    Flexible scheduling and remote work are two ways employers are trying to help workers achieve better work-life balance, which can increase retention. The number of workers who said they left a job because of the commute has increased by 400% over the last decade according to the Work Institute, something remote work can help address. Giving employees time off, and respecting that time off, is also crucial.

    Key to ensuring work-life balance becomes integrated in the company’s culture is making it clear that everyone can take advantage of policies meant to keep employees happy — and feel comfortable doing so. Without that, well-meaning efforts risk breeding resentment among those who don’t take advantage of these policies and feelings of guilt and inadequacy among those who do. To avoid this issue, top leaders should stress that work-life balance is a company-wide priority.

  7. Pay attention to employee engagement.

    It’s critical to always keep an eye on employee engagement, because higher employee engagement translates to lower turnover rates. Many of the efforts businesses launched to improve engagement focused on meeting their social and emotional needs. They manifested themselves in a number of different ways — interesting physical spaces, free food, annual company trips and more. But those things have failed to move the engagement needle much. Engagement is influenced by a number of things, but a big factor is the relationship the employee has with his or her manager, which Gallup says accounts for 70% of the variance in employee engagement.

    Not all companies operate in industries that inspire easily inspire a heartfelt connection to the work. But those businesses can still discover and cultivate individual employee motivations to find out how the organization can best leverage its employees to accomplish its goals. Employee engagement surveys and focus groups are excellent places to start — providing that management evaluates the results and actually acts upon them.

  8. Define and develop corporate culture.

    Corporate culture can mean many things, but it generally refers to the shared attitudes and beliefs that define a workplace and affect the experience of employees. Culture plays a central role in how much employees enjoy their job. And if you consider that the Society for Human Resource Management reports that nearly one-quarter of people dread going into work(opens in a new tab), you begin to understand the importance of culture.

    Culture is more important to retaining certain groups of employees — nearly half of people with advanced degrees and those with children cited culture as very important in the Jobvite report. You can’t change or strengthen a culture without first identifying what type of culture the company has. There are lots of tools and consultancies that can help with this. One of them is the University of Michigan’s Organizational Culture Assessment Instrument (OCAI)(opens in a new tab), which breaks culture into create, compete, collaborate and control. The most important thing is being honest about and communicating openly about the organization’s culture as it is — not as it aspires to be — with new hires and current employees.

  9. Standardize performance reviews.

    Another not-so-surprising turnover predictor are unproductive or infrequent performance reviews. The traditional performance review — a static, annual or biannual event consisting of reviewing an Excel spreadsheet with static goals — doesn’t exactly inspire. In fact, it may do more harm than good. About 80% of employees who felt criticized or unmotivated after a performance review started to look for a new job, according to Gallup.

    Making the performance review a collaborative, dynamic and continuous process that works to improve the relationship between an employee and a manager, rather than put up walls between them, is the way to go. For instance, functionality in human capital management (HCM) or human resources management system (HRMS) software reimagines the performance review as a process that aligns the manager and employee on goal setting, offers an opportunity to reflect on the progress and provides rewards in response to high performance. Tying goals to actionable metrics and viewing them through performance management dashboards helps managers easily automatically updates goals in real time.

  10. Allow opportunities for development and continuing education.

    Employees care about training that can strengthen existing skills or build new ones. People looking for jobs in the U.S. said they were willing to forgo up to 12% of their salary in exchange for more training opportunities and flexibility, per the PwC survey.

    Think creatively when it comes to training. Traditional daylong classroom or travel-intensive training sessions may not be the best use of a staff member’s time or the type of engagement they’re seeking. Organizations with outstanding training make room for it within a person’s “day job” and actively encourage it. They also constantly try new ways of delivering it (smaller sessions, new media) and measuring its effectiveness.

    Don’t overlook the value in training existing workers for entirely new roles. Finding people with the right skills for today’s digital economy is a pressing concern for organizations. This applies not only to jobs that will be eliminated or at least changed by automation, but making sure all employees have practical knowledge of systems and can use them to innovate. To that end, organizations are focused on upskilling, with half of CEOs telling PwC that retraining and upskilling were the best options for closing skills gaps. Upskilling programs serve two ends: they provide the company with the skills it needs to meet evolving business needs while more deeply engaging employees in their work, which drives retention.

    A concern that surfaces again here among CEOs is holding onto upskilled employees. Organizations that clearly map upskilling to defined job roles within the organization and make it simple for workers to find internal positions that could be a fit for people with particular skills can ease this concern.

  11. Develop career paths and opportunities to grow.

    One of the major reasons people leave companies is lack of career growth. LinkedIn reports that employees stay 41% longer at companies focused on hiring internally compared to those that don’t make it a priority. More companies are looking inward, with role changes via promotion, transfer or a lateral move increasing by 10% over the last five years, per LinkedIn.

    Internal recruiting must be standardized and free of fear from employees that they’ll be penalized for seeking roles on other teams. One of the major barriers to internal recruiting is that managers don’t want to let go of good talent. Organizations that encourage cross-functional projects, identify skills of existing employees and connect upskilling to internal opportunities have found these strategies help with internal recruiting and can convince workers to stick around.

  12. Don’t forget soft skills.

    Creativity and the ability to problem solve are crucial skills for just about any employee. Companies should focus on finding candidates that possess creativity, persuasion, adaptability and emotional intelligence.

    Certain companies excel at this. Trader Joe’s director of recruitment and development said on one of the company’s “Inside Trader Joes” podcast that training at the company is not just to create great leaders, it’s to create content and material that helps people just be the best version of themselves, regardless of their role or responsibilities.

  13. Be transparent.

    Leaders recognize that better communication with employees is key to increasing retention. Communication could take on forms like town halls, more frequent one-on-one meetings between managers and their team members and employee engagement surveys. An HBR study showed that senior leadership continually updating and communicating the business’s strategy(opens in a new tab) is an impactful driver of employee engagement and can boost performance.

    Some organizations go all-in on transparency, inviting, encouraging and lending tools to facilitate honest, critical assessment of anyone by anyone regardless of title. True transparency requires that people say what they really think and believes in a meritocracy. Employees are more invested in a company when they feel like they have a voice and have a real understanding of what’s going on with the business.

  14. Focus on onboarding.

    Onboarding is often a new employee’s first introduction to the culture of an organization. It’s tough to recover from a bad onboarding experience. Employees who have negative new hire onboarding experiences are twice as likely to explore new opportunities early on in their tenure.

    But small improvements in the process have the ability to leave positive first impressions that last. Indeed, employees are more likely to stay with the company for several years after a good onboarding experience. Better onboarding — and longer onboarding, in particular — leads to faster time to productivity. The best onboarding processes don’t park employees in a room for eight hours and call it a day. They pair new employees with mentors and facilitate connections with people in different departments. And they continually check in to see how things are going, providing support and resources along the way.

  15. Analyze existing turnover to find issues.

    The ability to collect, analyze and act on turnover-related data in real time and compare it to historical trends will be essential to finding, developing and retaining your best employees. Software can break down turnover numbers by quarter and year, voluntary vs. involuntary, business unit, department and geography. It can report on termination root causes, top performer turnover trends and turnover demographics (breaking down turnover by age, ethnicity, gender, etc.) to reveal trends and insights that can positively influence an organization’s talent management strategy.

    It’s becoming increasingly important for HR professionals to have data analysis skills so they can evaluate and interpret all this information in a way that can help the business. This includes skills-gap analysis and identifying flight risks.

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How Can HR Software Help?

Organizations may choose to implement software with the singular goal of better understanding retention and trying to reduce it. But making a long-term impact on turnover requires a complete view of talent management processes so HR can optimize the entire employee experience, from recruiting to onboarding to performance management and development through succession planning and transitioning.

A cloud-based HR system integrated with finance, CRM and/or project management tools brings all information together to analyze talent trends, track performance to help employees reach key goals and enables them to collaborate with managers to complete objectives and gain recognition when they do. This software can support a skills-gap analysis to develop relevant training programs and identify candidates who may be a good fit to encourage career development and progression. Organizations can start small, such as a tool for peer-to-peer recognition that sits within the same system they use for their day-to-day work.

It all makes for more engaged employees and an improved employee experience that not only facilitates higher financial and employee performance, but attracts top performers and convinces them to stay. Referrals from current employees are a key pipeline for new hires, so turnover reduction strategies can both keep existing workers happy and increase the chances of pulling in their talented connections.

Reducing Employee Turnover FAQs

What reduces employee turnover?

Employee turnover can be reduced by implementing a combination of strategies focused on improving job satisfaction and employee engagement. This includes offering competitive compensation and benefits, promoting work-life balance, and providing opportunities for professional development. Recognizing and rewarding employee achievements, fostering a strong company culture, and ensuring effective communication and management practices also play a key role. Creating a supportive and inclusive work environment where employees feel valued and have clear career advancement opportunities can significantly reduce turnover.

What does a decreased employee turnover mean?

Decreased employee turnover signifies a more stable and content workforce. It indicates that employees are satisfied with their jobs, feel valued, and are likelier to stay with the company long-term. This stability can improve productivity, better team dynamics, and a stronger company culture. Lower turnover also reduces the costs and disruptions associated with hiring and training new employees, contributing to overall organizational efficiency and effectiveness.

What factor reduces turnover?

Creating a positive and engaging work environment is one of the most impactful factors in reducing turnover. This encompasses aspects like competitive compensation, recognition of employee contributions, opportunities for professional growth, and a supportive management team. Ensuring employees feel heard and valued and have a healthy work-life balance also significantly reduces turnover. Essentially, employees are less likely to seek opportunities elsewhere when they are satisfied and see a future with the company.