What Is Employee Retention? Definition, Strategies, and Ideas, With Examples | (2023)

Do you know what employee retention is and how it could be impacting your company? In this primer, we explain what retention means, how to calculate it accurately, and tips on improvement, inspired by Microsoft, Walmart, Hilton Hotels, Siemens, and Gucci.

What Is Employee Retention? Definition, Strategies, and Ideas, With Examples | (1)

Table of Contents

  • What Is Employee Retention?
  • What Are the Different Employee Retention Strategies You Can Adopt?
  • 5 Ideas to Improve Employee Retention, Illustrated by Leading Companies
  • Why Employee Retention Should Be on Your Radar in 2020

What Is Employee Retention?

Employee retention is a phenomenon where employees choose to stay on with their current company and don’t actively seek other job prospects. The opposite of retention is turnover, where employees leave the company for a variety of reasons.

Retention is defined as the process by which a company ensures that its employees don’t quit their jobs. Every company and industry has a varying retention rate, which indicates the percentage of employees who remained with the organization during a fixed period.

Let’s look at the different types of turnover and how they impact your retention rate with a few examples.

Example 1

Imagine a scenario where an employee has been working at your company for over five years. Their spouse is forced to relocate to a different city for medical reasons. In this case, retaining the employee may be next to impossible, especially if it is an on-premise job.

Example 2

Now, consider an employee who joined your company a couple of years ago and grew quickly through the ranks. But lately, the employee has become complacent as the job is no longer challenging for them. They become a passive job seeker and might be scooped up by a recruiter from a different company. By keeping your eye on the employees engagement level, it is possible to retain them.

Example 3

Here, consider an employee who has been in your company for over a decade but has not grown. When you conduct performance audits, you find that they are contributing very little to the bottom line and are putting in their daily hours without any real investment in the job. When the employee decides to leave the company, this instance of turnover may actually be good for business. In such cases, retention is not desirable.

As you can see, retention is a multidimensional concept and needs careful consideration before you arrive at the exact retention benchmark for your company.

Let’s now look at a simple formula to calculate employee retention rates.

  • Conduct a total headcount of employees at the beginning of the year. This could be of a single department, office location, or the entire company. Let’s say this number stands at 1,000.
  • At the end of the year, count how many of these employees (barring new hires) continue to work at your company/department/office location. Let’s say this number stands 650.
  • (650/1000) x 100 will give you your employee retention rate as a percentage figure. Here, it would be 65%.

While this is a valuable metric, we recommend you factor in desirable turnover when calculating retention. This is a better marker of your company’s performance and indicates precisely how much you need to improve.

From the perspective of calculating desirable turnover using the same example above, lets consider that 50 employees retired over the year, and another 50 low-performing employees decided to quit. Finally, 10 employees were terminated because of misconduct in the workplace. All three are indicators of good turnover because they save the organization costs arising from low productivity.

Add these numbers to 650, and you get 800. So, your actual retention rate is (800/1000) x 100 or 80% this is the baseline for your future retention strategies.

What Are the Different Employee Retention Strategies You Can Adopt?

Every company strives to hold onto its people assets for the longest time. This improves productivity, maintains uninterrupted business flows, and reduces the cost of rehiring. That is why retention is a top priority for most organizations. But in a competitive hiring climate, employee retention can often be a challenge.

By applying the right tactics, you can hold onto your best-performing talent and create a workforce thats loyal, engaged, and outcome-focused. Its important to remember that retention strategies will differ from employee to employee.

So, what are the different strategies you can deploy to ensure maximum retention? Keep in mind that your high-performing talent isnt likely to have the same drivers as the mid-performing group. Similarly, poor performers need different retention strategies altogether.

Retention strategies for top performers

Did you know that, according to McKinseyOpens a new window , high performers are likely to be 400% more productive than their average-performing counterparts? While this number may vary from company to company, its definitely worth paying special attention to retention strategies for this group.

What Is Employee Retention? Definition, Strategies, and Ideas, With Examples | (2)

Fig 1. How to retain your top-performing employees

1. Give them challenging work

By continually giving your top performers a new target to work toward, you can keep them engaged. This strategy also helps them further their careers, allowing them to acquire new skills and achievements. The positive impact on their overall employability will make top performers more loyal to your company.

2. Train them in cross-disciplinary skills

Once an employee becomes an expert in one area, you can open them up to cross-skilling opportunities. This will ensure that the employee doesn’t jump ship in search of their “dream job” and has a chance to transition to a similar role within the company laterally.

3. Define and implement a succession plan

Succession planning creates a talent pipeline, preparing todays top performers for future leadership roles. Involving this employee group in your succession plan can be a good idea for retention, as they know exactly where they are headed in the company.

Retention strategies for average performers

Average performers form the majority of the workforce in most companies. As a result, they are also responsible for a large portion of your productivity. For example, if you run a car showroom, the average salespeople will bring in at least 50% of total sales, while the top-performing group could be bringing in another 40%. Thats why retention strategies for this segment are equally important. Note that these strategies can be added to those for high performers.

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Fig 2. How to retain your average performers

1. Offer personalized benefits and perks

Personalized benefits can be an excellent way of retaining your employees, as it gives them a sense of security about their future and a better quality of life. Conduct surveys to find out the most popular benefits and double down on your investments in these areas.

2. Ensure they are working under the right manager

Inadequate management will make employees feel demotivated, or even disgruntled with their job. This is particularly relevant for average performers, as they often lack the quality of self-motivation that characterizes high-performing employees. Conduct anonymized pulse surveys to get employee feedback on their managers.

3. Adopt a social recognition system to recognize them

The contributions of average-performing employees shouldnt be ignored. By adopting a social reward and recognition platform, you can make them feel appreciated in the workplace and thereby less likely to quit.

Retention strategies for poor performers

Low-performing employees might have hidden potential that is not being utilized correctly. They could be working in the wrong department, while their aptitude lies elsewhere. Or they simply might require additional training. A wave of turnover among poor performers can negatively impact your culture, not to mention lead to high rehiring costs. To avoid this, you should consider the following steps.

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Fig 3. How to retain your poor performers

1. Identify the cause of poor performance

In several cases, below-average performance can be linked to disengagement in the workplace. You must find these patterns and address them before it is too late. Measure productivity at regular intervals and deploy an employee engagement survey whenever you find productivity dipping below a specific threshold.

2. Address skill gaps immediately

By offering your poor performers the chance to update their skill set, you can make sure they stay on in the company for a longer time. The fact that the company is invested in their performance is likely to increase their loyalty to the organization. However, also ensure that these employees are trainable. Even a basic level of training should be able to add to their overall performance in the organization.

3. Write accurate job descriptions to hire the right people

Some employees will join your company with wholly different expectations from what the job really entails. For example, a software developer might want to create products but in reality, they will end up writing code for someone elses design and feature ideas. Make these details explicit in your job description, as well during onboarding to prevent a dip in performance, leading to a turnover.

5 Ideas to Improve Employee Retention, Illustrated by Leading Companies

Leading employers across the world have made employee retention a business priority. Apart from long-term strategies, they have also implemented specific ideas that have helped to improve retention. Here are five examples to inspire you.

1. Design a progression track for every field, like Microsoft

Not every employee will be interested in taking on managerial roles. Some may want to become specialists in their current area of expertise and grow within the same function. If your company places a ceiling on the career progression of specialized skill sets, these employees are likely to start looking elsewhere for growth opportunities.

Take a leaf from Microsofts playbook, which has career progression tracks for technical roles.

In several technology companies, technical talent can only flourish until a certain point, after which they must switch to a managerial role. Microsoft addressed this by designing a technical track that could support an employee across their entire career trajectory.

2. Support employees in their educational endeavors, like Walmart

Your employees might want to leave the job in pursuit of further education. Traditionally, this has been a case of unavoidable turnover but hugely regretted by the company, as they lose out on motivated and future-focused talent. By allowing employees to continue their education while on the job, you can retain your employees.

Take a leaf from Walmarts playbook, a company that has partnered with leading universities in the U.S.

Employees can opt for a discounted college course as long as they pursue an education track relevant to their current or a future role at Walmart. As a result, its employees benefit from increased employability at a subsidized rate (as low as $1 a day) and Walmart gains access to a skilled and loyal workforce.

3. Use a realistic job preview (RJP) tool, like Hilton Hotels

Employees who enter the job with incorrect expectations are most likely to leave in the first few months. Or, if your company offers a competitive pay scale and benefits package, they might try to stay on, but at below-average performance rates. Realistic job previews (RJPs) offer a transition period where candidates try out the real-world responsibilities of their future job without any commitment.

Take a leaf from Hilton Hotels playbook, which has a try-out period for its housekeeping roles.

Applicants must perform actual tasks like making a specific number of beds. This ensures that only applicants who are genuinely interested in the job were onboarded. In the long term, this translates into a high retention rate, as there is better alignment between candidates and their careers, to begin with.

4. Create an environment where every employee can flourish, like Siemens

For a truly sustainable retention strategy, you need a work environment that is conducive to every employee. For example, new parents may need days off frequently. Employees returning to education might want a sabbatical. And a high-performing employee who was compelled to relocate might opt for 100% remote working. Your company culture should be able to accommodate all of these needs.

Take a leaf from Siemens playbook, a company that has its own employee-led flexibility (ELF) policy.

Siemens found that 16% of women and 2.5% of men often choose part-time work. This company recognized that this benefit should be open to everyone without a long approval process. As a result, a senior manager running a team of 25 people was able to travel around Asia for 11 weeks without leaving his job.

5. Prepare employees for any wave of business disruption, like Gucci

Economic downswing or a dramatic dip in profitability is a major cause of turnover. Employees feel that they dont want to be on a sinking ship, and they leave the company in a hurry. Such waves could significantly dent your employee retention rate. But if you prepare the workforce beforehand, offer financial support, and instill confidence in the companys future, you can prevent significant turnover.

Take a leaf from Guccis playbook, where the companys CEO told its retail employees to not worry about a slowdown.

Gucci’s CEO, in a four-minute-long video, explained that a dip in sales was inevitable after the company had been growing at an unsustainable 5060% per month. Dipping sales are only natural, the leader assured employees, encouraging them to stay positive and “enjoy the ride.”

Learn More: What Is Job satisfaction? Definition, Factors, Importance, Statistics, and ExamplesOpens a new window

Why Employee Retention Should Be on Your Radar in 2020

Several 2019 reports highlighted that retention is becoming a significant concern for U.S. companies. Businesses are losing approximately $1 trillion a year, due to turnover, found GallupOpens a new window . And according to a report by Work InstituteOpens a new window covering 250,000+ employees, more than one in three workers will voluntarily leave their job every year by 2023.

Thats why you need to know what employee retention is, and ideas/strategies for improving retention rates at your company. While these numbers may differ from industry to industry, and across locations, retaining your best employees will become increasingly difficult as the labor market tightens. We recommend that you do your research, invest in employee engagement programs, and monitor how different strategies impact your retention rate.

Do you have a killer idea to improve retention in 2020? Tell us on FacebookOpens a new window , LinkedInOpens a new window , or TwitterOpens a new window . Wed love to discuss your views in our next article!

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