Employee retention can increase costs and negatively affect the morale of the entire workforce. Therefore, it is very important to maintain positive and motivated employees. An effective way to ensure that key employees are willing to stay with the company while balancing and maintaining work efficiency and productivity is to implement an employee retention program.
First and foremost, companies and managers need to understand the difference between a valuable employee and one who adds little to the organization. Then, they should make every effort to encourage the former to remain in the company's structures. In the next step, they have to prevent employees from looking for happiness with their competitors. Meanwhile as much as Employees 31% only resigns from work within the first six months of the year. On the other hand, long-term employees are more loyal to management and the organization. They are also better acquainted with the company's policies and identify more with its values. Moreover, the potential of such employees contributes to the company's development. Hiring new people is not only expensive, but also time-consuming. According to Gallup, replacing an employee generally costs between half and more than twice their annual salary. So let's take a look at what the retention of employees in the company looks like.
Employee retention - definition
Retention of employees is a critical issue at a time when competition is just lurking in order to take over the greatest talent. The costs of employee retention are also increasing. Depending on the function performed by him, they can be up to 2.5 times the employee's remuneration. There are other "soft costs" associated with it. Low retention means reduced productivity, less commitment, higher costs of training new employees and destructive influence on organizational culture. He also suffers employer branding.
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According to the American Society for Human Resource Management (SHRM), the benefits to companies that focus on employee retention are worth the time and effort spent on it. What are these benefits? M. in. increased efficiency, better productivity, higher employee morale and better quality of work, not to mention reduced turnover. The bottom line is that companies focus on key people when trying to retain employees. As a result, talented and motivated employees remain in the company. Moreover, they are the ones who really want to be part of the company and are focused on contributing to its success.
How to measure employee retention?
There are employees in every company who have key skills. These are the ones the whole company is based on. The thought of their possible departure of owners or managers is terrifying. Meanwhile, research shows that as much as 25% of all employees these are the employees. This can be considered "high risk" in terms of retention.
Many employers use the terms "retention rate" and "turnover rate" interchangeably, while others believe that one is the inverse of the other. In fact retention rate, sometimes referred to as the "stability index", measures the detention of individual employees over a period of time. It complements the turnover rate meter, giving you a more complete picture of the flow of employees. The basic formula for calculating retention is:
Number of employees remaining in employment throughout the measurement period / Number of employees at the beginning of the measurement period x 100
For example: company X employed 100 employees in January 2020. As of June 2020, 83 of the original 100 are still working. Employee retention is calculated as (83/100) * 100 = 83, ie the retention rate in the first half of 2020 is 83%. In determining how many employees remain in employment throughout the period measured, only include those who were employed on both the first and last days of the period. Employees hired during the measurement period are not counted as the purpose is to track the retention of working persons on the first day of the measurement period.
The retention rate is often calculated on a one-year basis, but the period of measurement can be any. Shorter measurement periods can be used, e.g. to know the results of measures taken to retain employees. On the other hand, measurement over a longer time horizon may provide insight into the level of retention of employees who stayed in the company, e.g. after a reduction in the workforce a few years earlier. Employee retention, and more precisely its measurement, is useful in determining job stability. However, it says nothing about employee turnover, that is, it does not take into account those who joined and then left in a given period. Therefore, the retention rate is supplemented with the calculation of the turnover rate, indicating the level of employees departing over time.
What factors influence employee retention?
The Work Institute report stated that since 2009 the number of vacancies increased by 141%. This means that employees interested in leaving their jobs have many more opportunities than just a few years ago. In turn, the PayScale study found that the 66% of all organizations agrees that employee retention is a growing problem. There are many reasons why retention rates suffer. A LinkedIn study found that high turnover is often the result of "a very healthy, very unhealthy, or a changing industry."
What does it mean? In "healthy" industries, high turnover results from high demand with growing profits. Employees can use many of the resulting benefits. The boom in the market is often followed by higher wages, better benefits and allowances. In turn, in the case of an "unhealthy" industry or company, the main reason for leaving the job is no possibility of professional advancement and development. Employees in unhealthy industries may not even say goodbye to a specific company, but abandon the entire industry for a different career path.
Employee retention depends not only on external factors. If your employees are leaving while your industry is in its prime, your business is probably to blame. If employee retention rates are low because staff are leaving, you may find that there is a need for revision the hiring process. It is also good to verify that communication strategy in this regard, it is appropriate. It is also worth making sure that people are hired who match the position and company. Few people want to be leaders, but everyone wants to be the boss. However, please note that people follow leadersand the bosses ... they abandon. If you find that employee retention is low because most people leave voluntarily, it's time to take a look at the company's culture, values, mission and vision.
Given that according to research 71% currently employed people are actively looking for another job, retention of employees is a big problem for companies. What should be worrying? Some of the red flags are quite clear. Reasons for suspecting that the employee is about to leave the deck may be, among others. excessive absence, change of attitude, deterioration in the quality of work, late coming to work and early departure.
Influence of employee retention on engagement
One forecast predicts that by 2030 the global talent shortage will exceed 85.2 million people. In the US alone, that equates to $ 1.75 trillion in unrealized annual revenues. Employee retention is important not only in minimizing the costs associated with their rotation. It gives the opportunity to increase sales and employee morale. It is important to your bottom line and plays a large role in another key area that drives your business - employee engagement. Many scientific studies have confirmed the importance of employee involvement in achieving success by companies. It turns out that those with highly committed employees perform better in terms of customer loyalty (an increase of 10%), productivity (20%) and profitability (21%) than other companies.