A 2019 report from Gallup revealed that US businesses lose 1 trillion dollars each year due to employee turnover. Since then, employee turnover has increased exponentially. Over half of the US workforce suffers from workplace burnout, a significant contributor to turnover across all industries. Yet, for employers to reign in the growing costs of turnover, they'll need to understand the benefits of employee retention and find strategies to convince employees to stay with their organization.
What Is Employee Retention and Why is it Important?
Employee retention is the ability of an organization to retain its current employees. High employee retention is typically achieved through various methods and compensation efforts, including benefits, competitive pay, a positive workplace culture, access to quality mental health and medical care, and development opportunities. Employee retention cuts costs and improves business performance by decreasing hiring and training costs, improving company morale, maintaining experienced employees, retaining organizational and process knowledge, etc. Employee retention improves company performance and lowers unnecessary costs and roadblocks to growth.
The Value of Employee Retention
An effective employee retention program targets employees' unique needs and builds organizational resilience in times of change. While natural turnover is an expected part of business, effective employee retention strategies can significantly decrease voluntary turnover. Business costs related to turnover include a loss of productivity due to lack of employee engagement, recruitment costs, administrative costs, training and onboarding costs, the loss of experienced employees with proprietary organizational information, and the time spent on these activities. High voluntary turnover can also cause a decline in company morale due to the absence of coworkers and increasing workloads for staff.
Why Employee Retention Matters to HR
Your organization's human resource department plays a critical role in employee retention. These professionals manage employee relations, compensation, benefits packages, and disciplinary needs and support employee development. However, HR staff is also responsible for recruitment tasks like finding, screening, interviewing, onboarding, and training new employees. Without an effective retention program, HR professionals are inundated with the costs and time-consuming tasks of constantly recruiting and onboarding new employees.
As a result, there is less time available to take care of the human-centered duties of assisting employees facing challenges in the workplace. Deprioritizing HR's role to focusing entirely on hiring and administrative tasks leads to increased burnout in the industry. New data reveals that 53% of HR leaders are burned out, and 48% are looking for a new job. Designing an effective employee retention program is essential to the performance and retention of HR professionals in your organization.
ROI of Retaining Employees
In some areas, the return on investment (ROI) of retaining employees is evident. For instance, an organization can calculate the direct costs of recruiting, hiring, and onboarding a new employee. However, it can be more challenging to calculate the value an experienced employee could provide for your organization in the future.
Similarly, it can be difficult to provide hard numbers to define the value specific services bring to your organization. A retention program does more than simply keep employees from leaving. It builds an environment that engages employees and makes them more productive. For example, improved healthcare and wellness programs can lead to decreased employee absenteeism, offering a valuable ROI annually. A recent McKinsey study revealed that effectively treating anxiety and depression could lead to a 4:1 return ($4 back on every $1 spent), and addressing health inequities between employees of different races could result in a savings of around $80 billion for US employers.
Our study at Modern Health analyzed records of 149,451 unique employees across 104 customers and found that retention was 5.5% higher among employees who engaged with Modern Health versus those who did not. For an employer with 10,000 employees, turnover savings of 5.5% would result in an additional 137 employees retained. Assuming an estimated replacement cost of $28,155 to $42,233 per employee, employers would save $3,857,235 to $5,785,921.
Value on investment (VOI) is an umbrella term that considers the hard costs associated with ROI and the value your organization can get from implementing a specific service. VOI can include:
- Employee Engagement and Satisfaction
- Improved Productivity
- Reduced Health Claims
- Reduced Burnout
By offering your employees services that provide value in multiple ways, your organization can see improvements across various areas that increase your bottom line. As a result, it's essential to determine the value of each service you offer employees to improve retention.
Benefits of Employee Retention
Retaining top talent isn't only about minimizing the direct costs of turnover. It also creates opportunities for companies to grow and thrive due to the performance of engaged experienced employees. Employee retention provides these benefits for organizations across all industries.
- Cost Reduction: The costs of hiring new employees include advertising, screening, interviewing, onboarding, training, and sometimes supplies. Staff members who conduct hiring activities spend time creating job listings, reviewing applications, conducting reference checks, preparing interview questions, and creating onboarding materials. Effective recruitment eliminates the costs of all of these resources and activities.
- Experienced Workforce and More Skilled Employees: The loss of experienced employees with organizational knowledge of processes and products leads to diminished production. The effects of such a loss have an immediate impact as well as the potential to impact succession planning and the potential value the employee could have delivered in the future.
- Increased Productivity with Fewer Transitions: Persistent turnover inhibits productivity through ongoing training, and the time it takes new employees to reach their peak. Effective retention leads to higher engagement and improved collaboration for increased production across multiple employees.
- Improved Corporate Culture and Morale Improvement: High employee turnover disrupts coworker relationships and creates heavier workloads due to staff shortages. Improved retention allows employees to build professional relationships and promotes collaboration among teams to boost a positive atmosphere in the workplace.
- Higher Employee Engagement and Satisfaction: High retention organizations create a positive employee experience that gives team members a reason to care about their work and the company. Effective retention strategies give employees a sense of belonging and provide them with a level of attachment to their role. As a result, employees are more productive and perform at higher levels.
- Better Customer Experience: Long-term employees are familiar with company processes and can often provide customers with efficient services that meet their needs. They also provide a sense of familiarity for long-term customers. New employees may take longer to complete a job or make mistakes impacting customer experience.
- Improved Customer Service: Employees who are content with their jobs are more likely to provide quality customer service. Employees who are frustrated with the company or experiencing burnout are less likely to focus on how customer retention affects the organization. A company that suffers from high turnover also means customer service is typically slower and less efficient due to lack of experience.
- Increased Revenue: Reduced hiring costs, increased productivity, improved employee engagement, and better customer service all lead to increased revenue for your organization.
How to Retain Great Employees
- Mental Health Support: Our recent study conducted by Forrester Consulting revealed that 79% of employees are likely to stay at a company that provides high-quality mental health resources. 85% of C-level and HR leaders believe mental health is not just about mental illness but is something every employee experiences. 67% of leaders cited improved productivity when offering their employees mental health support.
- Health and Retirement Benefits: While a competitive salary is essential, other compensation types are likely equally important. High-quality healthcare benefits that eliminate barriers to physical and mental health care are crucial for employee well-being. A position with a good retirement plan offers employees a way to invest in their future by staying with the company.
- Improve Workplace Culture: A positive environment that fosters a sense of belonging for all employees builds engagement and a desire to contribute. As a result, employees enjoy showing up for work and remaining a part of the organization.
- Recognize, Reward, and Respect: Recent research shows that 57% of employees who quit their jobs in 2021 did so because they felt disrespected at work. Showing employees consistent recognition communicates that their work is valuable, which can help prevent them from seeking employment elsewhere.
- Competitive Pay: 63% of employees who quit their jobs in 2021 were seeking better pay. As inflation continues to make it harder for employees to make ends meet, a competitive salary will be essential to retaining top talent in any organization.
- Provide Job Security: During uncertain economic times, job security gives employees peace of mind. Providing job security also benefits businesses by grooming experienced employees for succession planning.
- Training and Career Development: No opportunities for advancement tied with low pay as the top reason 63% of employees left their job in 2021. By creating a retention program that recognizes employees' career paths and individual strengths, you can provide opportunities for advancement within the company. These policies can help your organization retain critical knowledge and prepare experienced employees for leadership positions.
- Offer Flexible Working Options and Leave Policy: Remote work due to pandemic restrictions introduced employees to more flexible schedules to meet their needs better. According to Gallup, 32% of employees prefer an exclusively remote position, and 59% prefer a hybrid role in the future. Developing flexible schedules and leave policies can help retain employees likely to seek more flexibility elsewhere.
- Improve Trust Between Employees and Management: Transparency is critical for a positive workplace culture. By developing an open-door policy and providing multiple avenues of communication, you can create a culture of feedback where employees feel comfortable voicing their opinions.
Strategies to Improve Employee Retention
To improve employee retention, you must first know where you stand and what you hope to achieve. These strategies can help you examine measurable data to gauge and improve employee retention.
- Analyze Turnover: Is your organization's turnover rate above average for your industry? To determine your employee turnover rate, divide the number of employees that left your organization within a specific time period (like a month or year) by the number of employees you typically employ, and multiply the result by 100 to get a percentage. Compare that percentage to industry averages, and study internal data to determine how much turnover is voluntary.
- Employee Feedback Analysis: Employee feedback offers valuable solutions for existing problems and an opportunity to show your employees that they have a voice in the company. When leaders create a culture of feedback that offers employees both positive and constructive feedback and avenues for employees to give feedback, transparent relationships are built between management and employees. Practice continuous listening and provide multiple avenues of communication to create a feedback loop.
- Use Insights from Exit Surveys: By gathering direct feedback from employees leaving the company, you can get insight into their reasons for leaving. Such data can generate ideas for improvement or determine whether you can make a last-ditch effort to retain a valued employee.
- Employee Needs Assessment: An employee needs assessment can analyze problems within a business and determine whether the company is failing to meet the needs of employees. For instance, an entire department that frequently fails to meet production goals might not have adequate training. You can improve retention by meeting the needs of employees in the workplace.
- Create Employee Retention Plan: Your employee retention plan should include processes that improve company culture, pay structure, medical and mental health benefits, leave and holiday policies, development opportunities, compensation, retirement, and flexible scheduling.
- Execute Employee Retention Strategies: Having a plan in place is only half the solution. It's vital to execute the strategies and analyze the success they bring.
Importance of Mental Health Benefits on Employee Retention
Comprehensive mental health benefits can significantly impact an employee's decision to stay with an organization. By creating a culture of support and open communication, employers can provide the resources employees need to reduce anxiety, improve engagement, and reduce workplace burnout. To learn more about valuable employee retention methods, download our e-book, Employee Retention Strategies for Organizational Success.