Employee retention: 10 things you need to know

Employee Retention Customer Thermometer

Employee retention: 10 things you need to know

What is employee retention?

Employee retention is generally accepted to be the sum total of efforts that go into retaining, or keeping, staff working within a business or organization.

Employee retention and churn are measured and tracked by most companies. Employee churn is, essentially, the opposite of your staff retention rate. So if you have 10% employee churn per year (ie you are losing 10% of your employees in a given year) you will basically have 90% retention rate, because you are measuring the number or % of employees you keep hold of.

Why is employee retention important?


Losing staff, especially in large numbers, is disruptive to a business and very expensive to boot. High employee attrition is expensive to the business because it needs to spend time and money filling the vacant positions and training up new employees. High turnover can also make the remaining employees more stressed out because they have to fill in the gaps until a new employee is hired and trained.

It’s no wonder a recent survey of human resource managers shows that employee turnover remains one of the most critical workplace issues. Sixty percent say that skilled-person power is “scarce”. Forty six percent say that worker retention is a “very serious” issue and another 28 percent believe it to be “serious”. – Switch and Shift blog (now discontinued)

Add to this that, with recruitment and training costs, it can often add up to 30 percent of that position’s annual salary to re-recruit for it. Losing staff in great numbers can often dramatically lower employee morale and cause a wave of people leaving because they see their colleagues doing the same thing.

Harvard Business Review cites a case from MCI, where MCI’s management [wanted to] determine what affected job satisfaction at its service centers. The factors they uncovered, in order of importance, were satisfaction with the job itself, training, pay, advancement fairness, treatment with respect and dignity, teamwork, and the company’s interest in employees’ well-being.

In general, the old adage by Dale Carnegie is still a great one: “People work for money but go the extra mile for recognition, praise and rewards.”

Dale Carnegie Quote employee retention

When should companies start retaining employees?


Before the interview even starts! One of the biggest keys to keeping people in the long term is ensuring that you hire right in the first place. Too many employment interviews are about personality: whether the job candidate matches the manager’s personality. Focus more on job skills and you’ll get a better fit, which is more likely to lead to a long employment tenure.

There are many interesting approaches to good hiring and interviewing. Topgrading is one such text we find interesting at Customer Thermometer and is a good place to start in more generally hiring for skills and fit than straight out personality along.

If you assess your own hiring approach and find it may be contributing to employee attrition, it’s worth considering a complete overhaul. Whilst it may be offputting considering a new hiring and interviewing process, the alternative will only bring with it a high risk of attrition, or even more damaging, the hiring bad employees who will in turn even more negatively affect your employees.

Which companies have great reputations for retaining their employees?


There are also a number of global and local best employer and best company to work for listings. These are independently assessed and rank and score companies on a number of factors, from talent retention through to whether employees would recommend working there.

We’ve linked to some of the major lists below.

Fortune 100 Best Companies to Work For

Sunday Times Best Companies to Work For

America’s Best Employers list

Glassdoor’s Employee’s choice listing

Great Place to Work’s list of Best Multinational Workplaces

Great Places to Work by country listings

In some of these major lists or benchmarks, it’s often seen as very much the domain of companies who can afford the flashy perks like office slides, free yoga and Friday hot dogs – companies like the Apples and Microsofts of the world.

But this isn’t always the case. Dig into the listings above and you’ll see that employee satisfaction and retention can be high at very outwardly “boring” companies. It’s a subtle mixture of many different types of activity which ultimately goes into employee retention rate.

How should we measure employee retention rate?


Employee retention rate is most frequently measured as follows:

Take your total number of employees in the business. Then take your number of employees who left during the period you want to measure. Divide the number who stayed in the business by the total number, and express that as a percentage.

So if you had 200 employees at the start of 2015, and 17 of them left in that time, you were left with 183 at the end of the year. You then you divide 183/200 to get 91.5% retention rate.

 Employee retention rate formula

Do employee satisfaction and retention have an impact on customer satisfaction?

Research by Heskett et al at Harvard Business School has demonstrated a clear link between how employees are treated within an organization employee and customer retention, and profit or value generated. In an article for the HBR entitled “Putting the Service-Profit Chain to Work” they lay out more detail on how this works. Ultimately, focusing on employee satisfaction and retention kick starts a chain reaction that has a strong effect on customer retention. The lifetime value of customers, even for smaller items, can be significant, claim Heskett et al, “For example, the lifetime revenue stream from a loyal pizza eater can be $8,000, a Cadillac owner $332,000, and a corporate purchaser of commercial aircraft literally billions of dollars.”

This same research cites the MCI study quoted in the first section of this article. “in a study of its seven telephone customer service centers, MCI found clear relationships between employees’ perceptions of the quality of MCI service and employee satisfaction. The study also linked employee satisfaction directly to customer satisfaction and intentions to continue to use MCI services.”

Forbes also makes a strong case for the link between the two in this article: “Respecting Employees Helps Transplace Satisfy And Retain Customers

And this graphic by OfficeVibe from their excellent blog post covering employee engagement visually demonstrates a Service-Profit chain at work.
employee retention profit cycle
“Doing the right thing by our people is very important to us and it impacts directly on customer service levels and on profits. If we look after the people who directly serve our customers, we not only attract goodwill internally, but we also find that we enjoy more referrals to customers’ friends and family, and ultimately a healthier bottom line.” says Helen Scott, Director of People at Virgin Media

Is it possible to stop employees from leaving?


Yes, but the attempt to do so needs to take place well before the employee has decided to leave! Many companies try to stop employees from leaving at the point of resignation by offering more money. But as Amanda Menahem, HR Director, Hastings Direct says “More money may engage you for the short term, but if you can’t communicate with your manager and don’t feel reasonably autonomous at work, then no amount of pay rises will be sufficient.”

This is echoed in academic studies too: Steve Miranda, Managing Director of the Center for Advanced Human Resource studies at Cornell University says “Employees don’t quit jobs, they quit managers.”  Citing research which shows a direct correlation between the impression a manager gives and an employee’s job satisfaction, Miranda estimates up to 80% of employee turnover is caused directly by ineffective or overtly hostile management.

What are some good examples of talent retention programs?


First and foremost – ensure that retention of employees is fully tracked and reported. It’s critical to have this measurement mechanism in place before you embark on (or stop any) program to retain employees.


Business.com has a great list of more “unusual” perks offered by companies like Dropbox, Disney, Google and AirBnB including family dinners, unlimited vacation time, hikes, beer tasting and even open vacation policies. It’s important to review the culture and values of our own organization and choose activities and programs that are a good fit, especially when they are a little off the wall like those above.

More widespread and generally-accepted talent retention programs tend to include the following:

  • Benefits packages such as health insurance, life insurance and a pension/retirement savings plans
  • Flexi- or flex-time, allowing employees to flex their work and life around each other
  • In-office life-assistance perks such as a sandwich delivery service, or dry cleaning pickup
  • Competitions and incentives such as feedback reward programs and recognition.
  • Regular “retention” Many organizations ask their top performers why they stay, so they can feed this information into retention programs for the future.
  • A clear commitment to advancement and promotion. This allows staff to see where their career could go within the organization.
  • Training and development. Ranging from job-specific training, to soft skills and professional qualifications.
  • Clear management-employee communication policies and plans so that employees understand the bigger picture about how they fit and why they are important.
  • Coaching and buddying programs. Both coach and coachee get real growth opportunities through the relationship.
  • Bonuses and/or stock options. Additional financial compensation can take a number of forms and is a popular retention program component.
  • Appraisal and reward systems. Appraisal processes are almost universally disliked because of the intensive paperwork required, but run well they can be motivational and contribute to retention.
  • Overtly training managers in softer skills: Appreciation is one cited by Inc.com in this article, “100 ways you can express love as a leader”

How do I know if my employees are happy

Quite simply, asking them is a good start!

As Entrepreneur magazine says “study after study confirms that people have a deep desire to feel they’re succeeding and that their talents and capabilities are being used in a way that makes a difference to the business.  When people sense their actions are fulfilling this desire, they begin to develop a sense of belonging and a feeling that your company is their company.”

The magazine goes on to say, “it’s not enough for you to give vague (if well-intentioned) feedback.  Your employees actually want to see the results of their work.  They want to have that concrete object that they can rest their pride on.  They need to see the results with their own two eyes.”

Consider implementing a more regular employee survey, whereby employees are asked for quick-and-easy-to-give feedback more often during their employment year.

HBR says that “Taco Bell studies employee satisfaction through surveys, frequent interviews, and roundtable meetings.”

Keeping employees and employee surveys.

Remember… you can’t stop employees leaving unless you have a plan for them to stay!

Pick and choose from the perks, benefits, assessments and surveys that feel right for your business. If you’re not yet on the path to retain your employees, why not start today by implementing a simply monthly pulse to check how they’re feeling and get their feedback.

Tired of losing employees? You’ve come to the right place.

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