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Retention has become an HR buzzword in recent years, and for good reason. Over 47 million U.S. employees quit their jobs in 2021, causing employers to scramble to transform the Great Resignation into the Great Retention. Ambitious? Sure. Impossible? No.
Improving employee retention is not only beneficial to your company’s bottom line, but it can also be an attainable goal as long as you follow several strategic steps.
Here’s a look at what employee retention is, why it matters, and how you can create an effective employee retention strategy for your organization.
What is employee retention?
Employee retention refers to the rate at which an organization can maintain consistent staffing and avoid employee turnover. An employee retention rate reflects the likelihood that your employees will quit, get fired, or be laid off.
Improving employee retention not only saves businesses money, but it can also boost productivity and enhance company culture.
Retention can be assessed annually. The basic formula for employee retention is:
# of employees who stayed at a job during a specific time period
—--------------------------------------------------------------------------------------- X 100
# of employees at the beginning of the specific time period
As a general rule of thumb, a “good retention rate” is a rate of 90% or higher. But keep in mind, retention rate standards vary across industries.
For example, industries with the lowest turnover rates include government, finance, and insurance, and industries with the highest turnover rates include leisure/hospitality, retail, and food industries. Know what a healthy rate is for your industry, and aim for that.
Why does employee retention matter?
Employee retention is a barometer for employee engagement, leadership effectiveness, and general workplace satisfaction. Retention rates answer the question: Are your employees happy in their jobs? Considering individuals spend nearly a third of their life at work, retention matters.
It’s all in the numbers:
- According to Gallup, it costs U.S. businesses $1 trillion per year to replace employees who voluntarily leave. Or, to put it another way: replacing an employee can cost up to two times their annual salary.
- High turnover affects employee performance and morale. When workers leave, other team members must work to compensate for the labor loss, which can cause them to feel overworked, less engaged, and less productive. U.S. Companies lose up to $550 billion every year because of disengaged employees.
You are not alone: 61% of companies are struggling to retain their workforce, and 66% of them agree that retention is a growing concern.
What are the main drivers of employee retention and turnover?
Before we dive into the components of a strong employee retention plan, let’s explore some of the common reasons employees leave a company and what makes them stay. Understanding these whys can help inject your retention strategy with the fuel it needs to succeed.
Why Employees Leave
Here are three reasons employees give for quitting:
- Poor management. Over 50% of Millennials (the largest generation in the U.S. workforce) and Gen Z employees say they have quit their jobs because of a bad boss.
- Lack of upward feedback. Feedback is a two-way street. If employees feel they aren’t given the space to share their opinions, they may feel their ideas aren’t valued. This can lead to distrust between employees and management.
- More pay. During times of low unemployment, employees are more willing to risk leaving a job (even a job they like) for a better salary. Payscale discovered that 25% of people left their jobs for higher pay—this ranks above those who left because they were unhappy or wanted more work flexibility.
Read: How to Avoid High Employee Turnover
Why Employees Stay
Here are the three reasons employees stick around:
- Recognition: When managers acknowledge employee contributions, employees are five times more likely to stay at their organization.
Read: ROI of your employee recognition
- Purpose: Employees want to have a sense of purpose in their roles. In fact, nine out of 10 employees would be willing to make less money if it meant they could do more meaningful work.
- Learning and development opportunities: 94% of surveyed employees say they would stay longer at their company if their employer invested more in training and professional development.
How do you create a successful employee retention strategy?
Sometimes the best employee retention ideas are the simplest. Polling shows what employees want most from their employers isn’t creative perks like ping-pong tables or nap pods. What they want is fair compensation, recognition, and opportunities to grow.
To create a successful employee retention strategy, you’ll need to focus on five key areas.
1. Ensure a Positive Onboarding Experience
Onboarding isn’t only about paperwork and compliance training. An employee’s onboarding experience is often their first impression of your business, and the opinions they form in those first few hours and days on the job can color their future time with your company. Thus, retention efforts should start from the get-go.
- A BambooHR survey showed that 31% of people leave their jobs within their first six months of employment.
- 69% of employees will stay at a company for over three years if they have a positive onboarding experience.
- A strong onboarding process can improve retention by 82%.
Look at your current onboarding program—what are some ways you can improve it? Here are some ideas to get the ball rolling:
- Provide new hires with all the information and paperwork before their first day. Communication and management should start from the moment they are hired. The goal is to establish clear expectations, make them feel welcomed, and prepare them for success.
- Have frequent face-to-face discussions with new and seasoned employees and send out anonymous surveys to ensure you get honest feedback on the onboarding phase.
2. Prioritize Engagement
Finding the time to check in with employees or solicit their feedback can be tough, especially in today’s work environment, where everyone’s to-do list feels a mile long. But regardless of how busy they are, managers need to set aside time to chat with their teams, both one-on-one and in groups. Employees need to feel their supervisors and higher-ups value their opinions and care about how they are doing. If they feel like another cog in the machine, they will leave.
- Feedback. 77% of employees want to offer feedback more than once per year. Feedback is a two-way street. Make it an ongoing conversation with the intent to collaborate and invite individuals to be a part of company matters. Initiate 1:1 conversations and surveys to spearhead feedback.
- Work-life balance. A large part of nurturing employees involves respecting work-life balance; 95% of HR professionals believe burnout harms workforce retention.
- High-trust culture/high respect. Honoring the two points above can help your team develop a high-trust and respectful culture—the heart and soul of positive workplace relationships.
3. Provide Ample Rewards and Recognition
46% of U.S. workers have quit their jobs because they felt under appreciated. Moreover, reward and recognition can improve retention by 63%. Why? It illustrates how you value your employees, enhancing loyalty and boosting engagement.
You can easily utilize employee reward and recognition software to improve employee satisfaction and boost retention. With Awardco, you have the ability to create custom programs, automate processes, and choose from millions of rewards for the ultimate employee engagement experience.
4. Offer Learning and Development Opportunities
As we noted earlier, having a poor manager plays a large role in why people leave their jobs. Less than three in 10 workers believe they are managed in a way that inspires them to achieve quality results in their roles.
Leadership and development can be a pretty broad space. But one specific approach that can nurture engagement is coaching—working one on one with managers and employees on specific areas can help unlock their potential.
Everyone has their own set of strengths and weaknesses. Thus, coaching can be a productive way to address and leverage employee expertise. Not to mention, it has also proven to boost retention.
5. Offer Raises and Bonuses
According to Willis Towers Watson, employers are working to boost salary increase budgets in 2022. About 49% of organizations are looking to provide larger raises to help retain employees.
Ultimately, how much you pay your employees reflects their value. Start by conducting market research and creating salary ranges to provide fair compensation.
Salary ranges should cover three areas:
- Job family
- Job category
- Job title
Here’s an example, courtesy of SHRM:
From here, establish pay grades—minimum, midpoint, and maximum pay ranges. Most employers (depending on their compensation goals) choose to aim somewhere between the 25th percentile to the 75th percentile mark. Others will stick to the 50th percentile to ensure they meet market demands.
For additional ideas, read: Four Employee Retention Strategies for 2022
Get your free demo today: be a part of the 3.34 million!
At Awardco, our mission is to help businesses like yours recognize and reward the value your employees contribute. This is why 3.34 million customers have used our platform to distribute 9.1 million recognitions in the past year. So don’t miss out—-get your free demo today and improve your employee retention strategy!