Why should you care about employee retention? Turnover hurts your organization’s bottom line. Recruiting new employees has a high cost, and the time it takes to train a new employee eats into profits. In addition, you may not even find the perfect candidate.
Today’s various industries are so specialized that you might not be able to find someone who meets your exact qualifications, meaning you’ll spend even more time and money training the applicant you do choose.
The Financial Impact of Employee Retention
By some estimates, replacing an employee can cost as much as 50-60% of an employee’s annual salary. Suppose you add considerable indirect costs, like disruption to team-based work, lost clients, and decreases in service and product quality. In that case, total costs typically range from 90-200% of an annual salary.
One study estimated that turnover-related costs represent more than 12% of pre-tax income for the average US company.
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Why Employees Leave
To prevent these massive losses, you need a good understanding of why employees leave before they walk out the door. Consequently, waiting until the exit interview won’t help you.
The single most significant factor in employee turnover is managers who are unappreciative and set vague, unclear goals or don’t bother to communicate goals at all.
In addition, employees leave if they are not challenged. They have a lack of meaningful work and are bored. Furthermore, employees leave for better compensation. However, money is usually not the main reason employees look for work elsewhere.
Factors in Employee Retention
Devising effective employee retention strategies requires you to understand why employees leave and why employees stay with you.
Employee Retention Factor 1: Management
Employees leave managers, not jobs. Therefore, effective managers play a critical role in the success of every organization’s retention strategy, and they are essential to the organization’s bottom line. But what makes a great manager?
Employees want a boss who lets them work independently but also gives guidance when necessary. Good communication and the ability to listen are among the top features employees seek in a manager. Secondly, employees want a manager who trusts that the employee will perform their job well. Several studies suggest that fair treatment by a supervisor is the most important factor of employee retention.
Other important manager qualities are flexibility and understanding, intelligence, teamwork skills, even temperament, interest in the employee’s development, and the ability to share credit for success.
Finally, according to the Kenexa Research Institute’s findings, effective managers are respectful, considerate, and fair. They are good organizers who communicate their work expectations and provide workers with constructive feedback when warranted.
Subsequently, when evaluating whether or not their supervisor meets their expectations, employees will be asking themselves the following questions:
- Do I have clear expectations at work?
- Do I have the opportunity to do what I do best every day?
- Have I received recognition or praise for doing good work in the last week?
- Does my supervisor care about me as a person?
- Are my co-workers committed to doing quality work every day as well?
Happy employees are productive employees, and that’s great for your bottom line. Employees with high morale consistently perform at a higher rate than employees who report having low morale. Increasing employee retention means making sure employees are valued, appreciated, and recognized for their contributions to your organization.
Employee Retention Factor 2: Engagement
In addition to feeling valued and appreciated, employees need to be engaged. In other words, they need to be excited about what they do every day. One study found that highly engaged employees are five times less likely to quit than employees who reported not feeling engaged.
How do you know when employees are engaged? Engaged employees report feeling satisfied with their jobs, enjoying work and the organization. Likewise, they take pride in their work and believe that their employer values their contributions.
Employees want to enjoy their work. Employers should keep employees excited, challenged, creative, and performing at their peak capacity. Fail to do this, and you will lose them to an employer who does
How do you create engagement? Here are some ideas:
- Ask your employees for their goals and ideas
- Challenging your employees, help them meet their goals and the organization’s goals.
- Check-in with your employees often, and be on the lookout for signs of boredom or complacency
- Be ready to act if you spot a problem.
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Employee Retention Factor 3: Compensation and Benefits
Wages are important, but non-monetary compensation can be just as crucial to employee retention. Non-monetary compensation includes company culture, like an employer who respects a healthy work-life balance and allows employees time to have a life outside of work.
Effective organizations don’t let employees burn out. They offer adequate vacation or personal time off. They may also provide a flexible schedule or the option to work remotely. Non-monetary compensation measures often make the difference in whether a good employee stays or looks for a job elsewhere.
On the other hand, don’t lag too far behind your market in paying employees. Employee salary has a big impact on retention, so be competitive with your employee compensation levels. If you’re not sure about your compensation strategy, consider conducting an employee compensation survey. Our HR partners frequently use this strategy when setting employee pay rates.
Measuring Employee Engagement.
To retain employees, make sure you have an ongoing plan to measure employee morale and engagement. For example, have bi-weekly one-on-ones with each of your employees. These check-ins provide a place to ask about your employees’ current projects and workloads, address any concerns, and generally see how employees are doing.
Most importantly, these meetings reinforce to employees that you care about them and their goals. Also, annual performance reviews are much more formal but just as critical to the employee-supervisor relationship. Performance reviews provide an opportunity to measure and celebrate success and set goals for the upcoming year, keeping employees engaged and excited.
Consider conducting office-wide focus groups or employee satisfaction surveys. These tools can give you an idea of the organization’s general morale, and employees may be more comfortable sharing their thoughts in a group setting or anonymously.
Employee Retention Recap
In conclusion, the best retention strategy takes into account employee management, employee engagement and employee compensation. The best approach allows you to get to know your employees as individuals and find out what motivates them. If you need help with employee retention, you can find additional resources in our On-Demand Webinar Library.