Employee retention - measurement and significance

Employee retention is the percentage of people who remain in the company throughout the entire measured period – the higher the percentage, the less the company loses on recruitment, onboarding new employees, and team breaks. According to Gallup, the cost of replacing one employee is between half and twice its annual salary, which is why measuring and improving retention is a financial issue, not just a personnel one.

Employee retention – definition

Employee retention It measures how many employees remain in a company for a certain period of time – usually a year, but the measurement period can be any length. Unlike the turnover rate, which counts departures, retention counts those who remain. Both measures complement each other: high retention usually goes hand in hand with low turnover, but not always – a company can have low turnover overall and at the same time lose exactly the employees it cares about the most.

A low retention rate is not a problem in itself – it is a symptom. Usually, there is a specific, identifiable reason behind it: a weak onboarding process, a lack of a development path, a salary that is out of line with the market, or an organizational culture that looks different in a job interview than in day-to-day work. Therefore, measuring the retention rate alone is just the beginning – the next step must be determining which of these reasons applies to the specific company in question.

How to calculate the employee retention rate?

The basic pattern for employee retention rate It's simple:

(the number of employees employed throughout the measurement period ÷ the number of employees at the beginning of the period) × 100

Example: In January the company employed 100 people. In December of the same year, 83 of those original 100 people are still working – newly hired people during the year are not counted. The retention rate is therefore (83/100) × 100 = 83%. Only those employed on both the first and last day of the measurement period are taken into account in the calculations.

Retention and the employee turnover rate – the difference

Retention and employee turnover rate They look at the same phenomenon from two different angles. Turnover counts how many employees left during a given period – including those who were hired and laid off at the same time. Retention does not take this into account, because it only tracks the fate of those who were already working at the beginning of the measurement period. Therefore, a company can have both high turnover (the permanent core of the workforce is leaving) and high retention (many people leave shortly after being hired) – a sign that the problem lies more in recruitment and the first weeks of work than in the long-term retention of the team.

Warning signs that an employee is planning to leave

Before an employee formally submits a notice of resignation, they usually give it a signal in their daily behavior. A manager who knows their team can notice it earlier than the survey results:

• a sudden decline in engagement in projects that previously sparked enthusiasm,
• withdrawal from group discussions and meetings that are not formally required,
• more frequent departures during the workday than usual, or a change in login times,
• questions about formal conditions – notice period, accrued leave, settlement of benefits.

None of these signals alone is decisive – they may have completely different causes. However, having several at once in an employee who was previously involved is a good time for a frank conversation before the decision becomes irreversible.

It is worth remembering that such a conversation only makes sense if the manager is ready to hear an uncomfortable answer and do something about it. The question „Is everything okay?” after which nothing changes anyway, only confirms the employee’s belief that the decision to leave was the right one.

How much does it cost to let an employee go?

The cost of employee departure is not only a recruitment advertisement. According to Gallup (Shane McFeely, Ben Wigert, „This Fixable Problem Costs U.S. Businesses \$1 Trillion”, 13.03.2019) The cost of replacing one employee is between half and twice the annual salary of that employee. – this sum includes recruitment, onboarding of a new employee, a drop in team productivity during the transition period, and the time the manager spends on the entire process. For an organization employing 100 people with an average salary of $50,000 per year, Gallup estimates this to be $660,000 to $2.6 million per year in lost revenue due to voluntary departures.

To this are added costs that are more difficult to calculate: a drop in team morale, knowledge that leaves with the employee, and the impression of instability that high turnover creates among clients who work with specific individuals within the company.

It is worth calculating this cost for your own company, instead of relying solely on average foreign data – it is enough to sum up the recruitment time, the cost of advertisements, the time of the manager and the decrease in the team’s productivity in the first weeks of the new person’s work in the given position. Such a self-calculated number is a better argument in a conversation about the retention budget than any other outsider’s report.

What influences employee retention?

The Gallop Q12 meta-analysis (11th edition, May 2024, survey of 183,806 teams in 347 organizations) compared business units with the highest and lowest employee engagement. The teams in the top quartile (the best quartile) achieved, on average: by 10% higher customer loyalty, by 23% higher profitability and by 18% higher sales productivity than teams from the lower quartile (the weakest quartile). In organizations with high turnover, the difference in the number of departures between the most and least engaged teams reached 21%, while in organizations with low turnover – as much as 51%.

Employee engagement doesn’t come out of nowhere – it’s built through the company’s concrete, repeatable actions:

• Onboarding of an employee – the first few weeks decide whether the new person will feel part of the team or will start looking for another job before the end of the trial period.
• Clear path of development – the opportunity for advancement and development of skills, not just repeating the same tasks for years on end.
• Organizational culture consistent with what the company declares – the gap between values on the company website and daily practice is one of the most common reasons for leaving.
• Employer branding – an employer image that attracts and retains people who fit the company, rather than anyone who happens to respond to the advertisement.

It is worth noting that some of these factors depend directly on the immediate supervisor, and not on the entire organization. An employee may be satisfied with the company as a brand and at the same time leave because of a specific manager – lack of feedback, unclear expectations, or the feeling that their work is not being noticed. Therefore, conversations about retention should be held at the team level, rather than ending with a general survey of the entire company’s satisfaction.

How to increase employee retention – step-by-step actions

1. Improve the implementation process. Check out what it looks like employee onboarding in the first month – whether the new person knows to whom to turn with a question, and whether someone checks on their well-being after the first week.
2. Conduct an exit interview with every departure – a conversation in which you ask directly what prompted the employee to make the decision. One answer is an anecdote, but several similar responses in a row are already a pattern that is worth changing.
3. Measure engagement regularly, Not just once a year – a short, cyclical survey detects a drop in team morale before it turns into a wave of departures.
4. Talk to key employees before they start looking for another job – a conversation about development and expectations once a quarter is cheaper than recruiting a replacement.
5. Ensure consistency between what the company promises in recruitment and what the day-to-day work looks like – the gap between them is one of the main reasons for quick departures after employment.

Exit interview – how to conduct an exit interview?

An exit interview only makes sense if the employee feels that they can answer honestly. The conversation should be conducted by someone outside the immediate line of subordination of the departing employee, preferably after the formalities related to the departure have been settled, so that the honesty of the answers does not affect the terms of the separation. It is worth asking specifically: what prompted them to seek another job, what the company could have done differently, or whether the departure stems from the work itself, the team, or the employment conditions. Responses from several subsequent conversations within the same department, repeating the same theme, are more valuable than a single, emotional opinion.

Exit interview findings only have value if they lead to more than just one file in the HR department. It is worth collecting them in one place and reviewing them together with the managers every quarter – only then can it be seen whether a single opinion was an exception or a recurring pattern that requires change.

Employee retention – how Commplace helps

Employee retention starts long before the first day of work – from how the company communicates with candidates and how consistent its employer image is with what employees experience on a daily basis. At Commplace, we build employer branding strategy, which combines recruitment communication with reality organizational culture companies – because the promise without coverage in everyday practice harms retention more than the lack of it. We write more about building the employer image in the article about employer branding.

Progress on employer branding communication, tasks and indicators are visible in the platform on an ongoing basis. Commwork®AI – The decision about any publication is always made by a human being.

Retaining employees is not a project that can be closed with a single campaign – it is a constant point of work for HR and communications departments, measured monthly, rather than once a year during a performance review. Companies that treat it this way are less likely to discover the problem only when another experienced employee resigns.

It is also worth remembering that retention is one of the few HR indicators that can be compared between departments within the same company – if one team has a significantly lower retention rate than the others, the problem is likely to lie in a specific area, not across the entire organization at once.

Such a functional analysis is also more honest towards the teams that perform well – instead of putting all departments into one, averaged number, it shows where there really needs to be improvements, and where current practices are working well and worth replicating elsewhere.

Ultimately, employee retention comes down to one question that is worth asking regularly: would we ourselves choose to join this company today, knowing what we know about working in this particular company and team? The honest answer to this question says more than just any carefully calculated figure from the HR department’s spreadsheet.

Sources: Gallup, Q12® Meta-Analysis, 11th edition, May 2024 (Andy Kemp; survey of 183,806 teams in 347 organizations); Gallup, Shane McFeely, Ben Wigert, „This Fixable Problem Costs U.S. Businesses \$1 Trillion”, 13.03.2019.