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Today, employee retention is a bigger area of focus for HR professionals than hiring.
That’s because hiring new talent is costly and time-consuming, whereas retaining and nurturing existing talent helps to increase productivity, boost workplace morale, and achieve long-term growth. Consistent turnover also damages a company's reputation, making it harder for them to attract top-tier candidates. In contrast, a stable workforce denotes a positive work environment and fosters institutional knowledge, teamwork, and improved customer relationships.
In this article, we explore the reasons why employee retention is important, why employees leave, and the steps companies can take to retain their employees. Let’s get started.
Why is employee retention important?
Employee retention saves money, preserves institutional knowledge, and boosts organizational reputation. By prioritizing retention, you can directly influence productivity, morale, and the overall success of your organization. Let’s explore why employee retention is important for the success of a company.
It costs you money every time an employee quits
Employee turnover isn't just a logistical nightmare, it's a considerable financial burden. When an employee departs, the organization has to bear both direct and indirect costs.
The cost of replacing an employee ranges anywhere between 50% to 2x of their annual salary. So when you lose someone that you pay $60,000 per year, it can cost you anywhere between $30,000 to $120,000. While some costs are apparent, others lurk beneath the surface, affecting long-term growth and sustainability. Let’s look at these direct and indirect costs:
- When an employee leaves, you pay to find another. Ads, agencies, interviews — the costs add up, often in thousands of dollars.
- New hires need training. They take time to learn the ropes, the tools, and the culture. They're not fully up to speed for months, and the company pays for this slow start.
- Employees don't just leave with a box of their belongings. They take their unique skills and deep knowledge with them. Without them, the company has to relearn, potentially missing out on nuances that affect the bottom line.
- A worker's exit can stop projects, delay deliverables, and disrupt the flow of work, causing significant financial setbacks.
- Employee morale is closely linked with turnover rates. Seeing their coworkers leave makes people uneasy. They question the company's future and their place in it.
- Customers notice when seasoned employees go.
- Each worker shapes the team's spirit. When they leave, the team feels it.
While the immediate costs of replacing an employee are clear, it's the subtle, indirect costs that can snowball and considerably impact an organization's growth and profitability. Investing in retention strategies offers substantial ROI by curbing these expenses.
High turnover affects your reputation
High employee turnover is not just an internal issue, it has external ramifications as well. A consistent pattern of employees leaving can tarnish a company's reputation in multiple ways.
- Potential hires often view high turnover rates as a red flag.
- Consistent staff changes can be unsettling for customers. They value consistency, particularly if they interact with the same employees regularly.
- In tight-knit industries, word travels fast. Consistent departures can feed negative narratives, making partnerships or collaborations more challenging to establish.
While a company might view turnover as a primarily internal concern, its ripple effects can significantly harm a company's public image and growth prospects.
Sean Winter, VP of Strategy at LumApps, discusses the evolving landscape of Employee Experience in the post-pandemic world.👇
Why do employees leave?
Employees leave organizations for many reasons, some deeply personal and others more universal. By addressing these factors, you can create an environment where employees feel valued, understood, and motivated to stay.
Mismatch with corporate culture
An organization's culture can deeply influence an employee's satisfaction and sense of belonging. If employees feel out of sync with the core values, ethos, or practices of the company, it can become a primary reason for departure.
52% of employees would quit a job — and only 25% would accept a job offer — if company values do not align with their own.
This shows that values serve as a guiding compass in people's lives. People seek workplaces that resonate with their beliefs, and prioritize authenticity and a sense of purpose over mere employment opportunities. That’s why it is important for you to have the kind of values that resonate with your employees.
Better opportunities: growth, salary, benefits
Many employees seek environments where they can progress in their careers. A stagnant position with no clear path to advancement can push them to explore opportunities elsewhere. They can also start exploring other options if they feel they can earn a higher salary or get better benefits for a similar role elsewhere, it might entice them to make a move.
63% of employees that quit their jobs in 2021 did so because of low pay. The same amount also quit due to lack of opportunities for advancement.
Employees today value not only a fair wage but also a clear pathway to progress in their careers, indicating a blend of immediate monetary needs and longer-term aspirations in their decision-making processes. That’s why it’s important to provide your employees a clear path forward and continuously work with them to help them grow.
Lack of appreciation and recognition
Feeling undervalued can erode job satisfaction. Employees desire acknowledgment for their efforts, and the absence of such recognition can lead them to seek appreciation elsewhere.
A McKinsey study found that 54% of people quit their jobs because they didn’t feel valued at work. This underscores the critical importance of recognition and appreciation in the workplace. When organizations overlook this human need for validation and purpose, they risk alienating their workforce, leading to increased turnover rates. Make sure you have a thorough rewards and recognition program in place to celebrate your employees’ achievements.
Unfitting job roles and inaccurate job descriptions
Discrepancies between what an employee was promised during recruitment and their actual job responsibilities can lead to disillusionment. When the reality of the job doesn't match their expectations, it can be a precursor to resignation.
According to a study by ThriveMap, 48% of people left a job because the advertised job description did not match the actual job role. This statistic underscores the importance of transparent communication during the hiring process. Misrepresentations, whether intentional or accidental, can lead to mismatched expectations. That results in disillusioned employees who feel deceived and are more likely to seek opportunities elsewhere.
Negative work environment
In a survey by Flexjobs, 62% of respondents highlighted toxic company culture as their reason for leaving. That goes to show the significant impact of organizational culture and work environment on employee retention.
Toxic cultures, marked by persistent negativity, manipulative behaviors, and lack of support, can erode employee well-being, trust, and job satisfaction. As people increasingly prioritize mental health and positive interactions in the workplace, they are less tolerant of toxic environments, leading them to seek employment where they feel respected, valued, and aligned with the company's values and practices.
Lack of flexibility in work schedules
With the rise of remote work and the emphasis on work-life balance, flexibility has become a prime concern for many employees. Rigid schedules that don't allow for personal time or family commitments can push employees towards more accommodating employers.
62% of respondents that participated in a Flexjobs survey said they left or thought about leaving a job due to no work flexibility.
For many, flexibility represents a balanced approach to work and personal life. Without it, employees may struggle to manage family needs, personal obligations, or health concerns. This lack of balance can lead to increased stress and dissatisfaction. In an age where remote work and flexible hours have proven effective, not offering such options can make a company seem out-of-touch or uncaring about employee well-being, prompting many to consider other opportunities.
What can you do to improve employee retention?
A strategic approach to employee retention can go a long way in minimizing turnover. By prioritizing the needs and well-being of your employees, you build a committed, productive, and satisfied workforce.
Invest in training and development
Employee growth isn't just beneficial for the individual, it's vital for the health and advancement of the company. By dedicating resources to training and professional development, you can help your teams stay updated with the latest industry trends and best practices.
But beyond skill acquisition, such programs communicate a company's investment in its employees' futures. When workers see a clear pathway for progression and feel that they are gaining value beyond their paychecks, they're more likely to stay.
Furthermore, well-trained employees are more competent in their roles, leading to higher job satisfaction. Pairing newcomers with mentors can further enhance this experience, ensuring they not only grasp the technicalities of their role but also integrate seamlessly into the company culture.
Introduce perks
Perks are more than just fringe benefits, they're tangible demonstrations of how much you value your employees. By offering unique perks, you can differentiate your organization from competitors and make day-to-day life for your employees a bit more comfortable.
The perks you offer can range from health and wellness programs, discounted memberships, or even simple freebies like daily coffee. Such gestures, while seeming minor, can play a significant role in an employee's decision to stay with you. Over time, these benefits enhance overall job satisfaction and foster a sense of loyalty in your team. When employees feel they're receiving something special, they're more inclined to reciprocate that value through dedication and longevity in their roles.
Prioritize wellbeing
An employee's well-being directly influences their productivity, job satisfaction, and commitment to the organization. By putting employee well-being at the forefront, you can cultivate a nurturing environment that promotes both physical and mental health.
Simple changes, such as ergonomic office setups or access to green spaces, can have a profound effect on physical comfort. On the mental front, provide resources like counseling services, stress-relief workshops, or even regular check-ins to make your employees feel supported and understood.
A company that invests in its employees' health shows that it values them. By valuing your employees, you will increase your retention rate.
Mentoring: the cornerstone of effective employee retention
In all we've covered about keeping employees, one truth stands out — people need to belong, grow, and be seen.
Mentoring seamlessly weaves together these needs. When employees are mentored, they're more likely to understand and resonate with the corporate culture, reducing the odds of feeling mismatched. Mentors can guide employees to better opportunities within the organization, aiding in their growth, and ensuring they see the value in their roles. This mentor-mentee relationship directly addresses feelings of appreciation and recognition, often bypassing the pitfalls of negative work environments or feelings of isolation.
Furthermore, as employees grow through training and development, it's the guidance of a mentor that ensures this growth is channeled productively, aligning personal ambitions with organizational goals. When perks or flexible working options are introduced, mentors can be the ones to help employees navigate these benefits, ensuring they're utilized to the fullest.
Moreover, in prioritizing well-being, it's often mentors who can be the first line of support, recognizing when their mentees might need to access mental and physical health resources or when they need a word of appreciation.
In essence, while various strategies and mechanisms can be implemented to improve retention, it's the age-old tradition of mentoring that brings them to life, making them more than just organizational policies. Through mentoring programs, companies don't just retain talent, they nurture it, fostering an environment where employees thrive, not just survive. If you want to create such an environment, Together will help you do that.
