Understanding what employees value....

 

Increasing employee retention has a direct impact on business performance and success

In an increasingly competitive and fast-moving labor market, it is critical for businesses to understand why some employees go and others stay — not only for the bottom line, but also to retain top talent. Understanding what employees value, measuring the financial impact of retention and turnover, and managing and improving employee retention are all strategic advantages.

What Is Employee Retention?

Employee turnover — the loss of organizational talent over a period of time — is a significant issue for most organizations. More than 42 million U.S. workers(opens in new tab) left their jobs voluntarily in 2019. If that trend continues, more than one in three employees will voluntarily leave their positions by 2023.

Employee retention is defined as an organization’s ability to prevent employee turnover, or the number of people who leave their job in a certain period, either voluntarily or involuntarily. Increasing employee retention has a direct impact on business performance and success.

Key Takeaways

• Employee retention is a high priority for leading HR organizations today.
• The most effective employee retention strategies reduce overall turnover and keep high performers on board.
• A thoughtful and comprehensive employee retention strategy reduces the high costs associated with replacing lost employees.
• Employers that recognize the subtle signs that show an employee might leave have a better chance of identifying ways to retain that person.

Employee Retention Explained

Organizations need to keep their best employees around to thrive. This is the goal of employee retention. Employee retention refers to the strategies an organization develops to mitigate employee turnover risks and the processes it puts in place to retain its critical talent. Employee retention is a leading challenge for organizations and HR departments today.

Individuals leave their jobs for many different reasons. Some are voluntary, such as taking another job, while others are involuntary, such as getting laid off. Employee retention strategies primarily focus on voluntary turnover that is detrimental to the organization, as opposed to the loss of a poor performer. It also focuses on turnover that is avoidable, such as an employee leaving their job because they’re moving out-of-state.

Why Does Employee Retention Matter?

Employee retention has become a critical aspect of modern human capital management programs. The numbers speak for themselves: It costs U.S. businesses more than $1 trillion a year to replace employees who voluntarily decide to leave their jobs, according to Gallup. High turnover, some of which could be avoided with prior management intervention, also comes at the expense of revenue, productivity, employee experience and knowledge retention.

Benefits of Employee Retention

As businesses compete for top talent, employee retention is crucial. While some experts suggest that a 90% retention rate is a good goal, the reality is, it varies across different companies and industries. However, the ability to retain employees is universally beneficial for many reasons. Following are nine of the top benefits:

1. Cost reduction. U.S. employers spend hundreds of millions of dollars every year recruiting and training new workers. Those costs are sunk if an employee leaves prematurely. Productivity, team cohesiveness and morale also take a hit — which also has a financial impact. Total replacement costs for each employee can range from 90% of a worker’s salary(opens in new tab) for an entry-level employee to 200% or more for tenured professionals and leaders.
2. Recruitment and training efficiency. By focusing on employee retention, companies reduce recruiting costs and enjoy greater returns on employee training. Recruiting costs include fees paid to recruiters or to advertise the position, interview-related travel and possible signing bonuses. Next comes training, which can also be costly. If the employee leaves prematurely after being hired, that money is wasted.
3. Increased productivity. Employee turnover sets back productivity because it takes time for a new worker to get up to speed and produce at a comparable level as their predecessor. It also takes a toll on remaining staff, who have to take on additional work and may produce lower-quality output as a result. Conversely, high-retention workplaces tend to have more engaged workers who, as a result, are more productive.
4. Improved employee morale. Organizations with successful employee retention programs foster greater connectedness and engagement, which helps morale and, in turn, boosts retention. Conversely, a steady stream of departures has a dampening effect on workplace morale, with side effects that include a decrease in work quality and more workers who decide to leave.
5. Experienced employees. It stands to reason that the longer employees remain at an organization, the more engaged, knowledgeable and skillful they are. They have also forged valuable relationships with customers and co-workers. When an employee departs, the company incurs an opportunity cost in the potential value the employee could have delivered.
6. Better customer experience. Inexperienced and less adept new hires may be more prone to missteps that negatively impact a customer’s experience with the company. Satisfied, longer-term employees are often more skilled in dealing with customers and may have strong relationships with them. This is as true during all the stages leading to a signed contract as it is post-sales, when a customer might reach out to customer service. A better customer experience can also be a key brand differentiator.
7. Improved employee satisfaction and experience. A symbiotic relationship exists between retention and both employee satisfaction — worker happiness and fulfillment — and employee engagement, the level of commitment workers bring to their roles. Satisfied and engaged employees are often more likely to stay in an organization, and organizations with high retention rates often experience greater employee satisfaction and engagement.
8. Stronger corporate culture. Corporate culture develops over time, based on employees’ cumulative traits and interactions. When engaged employees who are aligned with an organization’s culture stay, they strengthen the organizational ethos. A strong corporate culture also improves productivity and performance.
9. Increased revenue. Employee retention is not just about cutting costs; anecdotal evidence shows it can have a positive impact on revenue as well. Employers with better retention rates deliver a better customer and employee experience, hold on to experienced top talent and are more productive — each of which can boost growth.
   
   
   
   

Improving Employee Retention with HR Software

Human capital management (HCM) software, such as NetSuite Suite People, plays a critical role in an effective employee retention strategy. HCM software is useful for collecting and analyzing key employee retention metrics. It also helps manage overarching goals for employee retention programs and correlates metrics to overall business performance.

In addition, HCM software can provide analytics that streamline the creation and presentation of reports, helping HR leaders highlight the strategic impact of investments that increase employee retention. This is becoming even more important given the constant changes in workforce needs, economic pressures and market fluctuations.

An effective employee retention strategy is a crucial component of a comprehensive human capital management practice in all industries. Focusing on improving employee retention and addressing preventable involuntary turnover pays dividends across the organization.

Creating a successful employee retention approach takes significant effort, executive oversight and targeted investment. Organizations that fail to focus on employee retention can suffer significant costs related to finding, recruiting and training replacements, as well as reduced productivity, lost knowledge and lower morale.

Conclusion: 

Employee retention is not only about saving costs but also about ensuring the stability, productivity, and long-term success of a company. It's an investment that can yield significant returns in terms of efficiency, innovation, and overall company performance.

References: 

https://www.linkedin.com/pulse/importance-employee-retention-aaron-m-brunDriving Transformative Solutions: Implementation & Consulting Expertise for Your Success

Driving Transformative Solutions: Implementation & Consulting Expertise for Your SuccessPublished