Employee turnover is perhaps the most commonly produced, published, and discussed of all HR metrics. It is a longstanding proxy in many employees', leaders', and board members’ minds for the quality of management, satisfaction with the work environment, and workforce stability. At the same time, it is a reasonable sign of labor market restlessness, differentiated industry attractiveness and draw, and even rising consumer costs and financial pressures. The turnover numbers themselves are so regularly reported that individual managers often dismiss them as temporary or insignificant trends. However, as will be demonstrated, the organizational costs of turnover are substantial, often underreported, and have significant, often more serious, negative impacts on operational effectiveness and goal achievement. As a result, having a robust and comprehensive employee retention strategy is a business imperative.

An employee retention strategy is defined here as a disciplined, comprehensive, and continuous approach to maintaining a stable workforce that is sufficiently sized, properly skilled and proficient, engaged, productive, and motivated over time. It is an approach that addresses essential employee needs and preferences while supporting their ability to meet work requirements and enterprise objectives. It is designed to understand and adapt to changing internal and external environments to meet the organization's mission, market objectives, financial goals, and operational requirements.

How employee retention is a critical concern

The unintended, unplanned, and “regrettable” resignation of any individual employee can be viewed through various lenses, from not critical (“she is easily replaced") to significant (“that one hurts our ability to do x”). And managers often become dismissive or defensive when explaining the causes and effects of such a loss, thereby minimizing its impact. However, when considering turnover at a larger organizational level, the impact is often substantial. With U.S. voluntary turnover reported by Mercer, BLS, and others averaging 13% (and new hire losses averaging 22%), the impact adds up quickly. The major issues include:

Loss of productivity

Losing a highly skilled, trained employee who is knowledgeable about the nuances of “how to get things done” in an organization is time-consuming and difficult to replace with external hires. The resulting impact on the remaining team members who must pick up the slack is inefficient and stresses their subsequent production quantity, quality, and speed.

High replacement costs

SHRM and others have published estimates of replacing experienced workers at 50-200% of their annual salary (up to 400% for senior roles). Consider the combined costs of:

• Recruiting (sourcing, screening, team interview time and effort).
• Lost productivity during the job vacancy.
• Reduced post-hire production during new-hire ramp-up.
• Added time it takes for the replacement to learn all the nuances of getting the job done.
• Direct manager and coworker productivity drops due to onboarding and training the new hire.
  
  

New hire turnover is even costlier

Consider the added costs of replacing replacement hires within their first year, as new-hire turnover averages 25-35%. This is created by poor or rushed candidate assessment practices, selection decisions that fail to accurately match candidates to cultural and career aspiration fit, and non-comprehensive onboarding processes and programs that inadequately support new-hire technical/task coaching and cultural/team assimilation.

Indicator of poor or ineffective management and value

Perhaps the worst impact of poor employee retention rates is how it reflects on the quality of direct supervision, trust in top leadership, and the effectiveness of the various benefits (policies, programs, incentives, plans) designed to encourage and reward continuing employment. Elevated turnover rates serve as a gauge of poor or declining organizational health and employee well-being. 

While it is often blamed on managerial ineffectiveness, people leave jobs for many reasons, and a bad relationship with their manager is only one of them. A lack of sufficient value that employees derive from compensation, benefits, learning, and career development policies, practices, structures, and programs is often called out in exit interviews and surveys.

The price being paid at an enterprise level

The need for a robust employee retention strategy becomes apparent when considering that 34.7% of companies report lost productivity due to turnover and 25% experience a decline in employee engagement. In fact, Gallup recently reported that global employee engagement levels are now at a low of 20%. It further estimates that those low levels of engagement are resulting in estimates of $10 trillion in lost productivity across the global economy, representing 9% of worldwide GDP. 

A likely driver of this issue is the finding that manager engagement is reported at an equally low 22% worldwide, as employee engagement most often follows their managers' disengagement. The problem that is screaming for creating a solid employee retention strategy is Gallup’s reporting that disengaged employees are 2.5x more likely to leave within 12 months, while high-engagement organizations experience 18% lower turnover.

At the enterprise level, the costs of poor or ineffective employee retention are substantial. For example, a 10% turnover rate for a company with 500 employees, an average annual salary of $50,000, and a 100% salary replacement cost amounts to $2.5 million in added annual expenses. An effective employee retention strategy can be designed to address and control those costs that are often hidden or unseen by corporate leaders.

Adding to the concerns is the observation that younger workers, especially Gen Z (born 1997-2012), who will exceed 30% of the total workforce in the coming years, are staying on their jobs for only 1.1 years, significantly less than millennials and GenX counterparts. The issue is bigger for organizations with shift workers, as the BLS reports that Gen Z fills 41% of all U.S. shift-work jobs, most notably holding 84.8% of all healthcare roles with those schedules.

Understanding the reasons why employees voluntarily resign

Developing an effective employee retention strategy requires an understanding of why people choose to leave the organization, and benchmarks can offer valuable insights. Consider the reasons that were reported by 1200 U.S. job seekers in a talent retention report as one representative sample where respondents were able to choose any option as to why they voluntarily left their prior job:

• 26.8% Toxic or negative work environment
• 24.2% Poor company leadership 
• 22.8% Dissatisfaction with manager or supervisor 
• 18.8 % Poor career growth/advancement opportunities
• 17.6% Personal reasons (family, health)
• 15.5% Poor work/life balance 
• 15.1% Unsatisfactory pay
• 15.1% Burnout/stress
• 14.6% Job secutiy/company stability concerns
• 14.1% Misaligned personal and company values
• 12.9% Lack of professional development oppy’s
• 9.2% Job offer better-aligned to career goals

Further, 57.2% of workers reported a poor sense of belonging and inclusion, which led to job dissatisfaction and influenced their decision to leave.

Other reasons for leaving that have been observed in many organizations are event-driven trends that lead to subsequent spikes in turnover, particularly in the aftermath of: layoffs, performance evaluations, merit pay or bonus decisions, promotions announced, reorganizations implemented, business unit closings, significant drops in business results, changes in mission or strategy, or after public (news, media) reporting that damages the organization’s market and community perceptions. 

One critical observation from this report highlights a significant issue for employers seeking reliable insights to act on when designing an effective employee retention strategy: obtaining honest and valid data from departing employees. When the same questions related to reasons for leaving were asked of both employers and employees, the results were strikingly different. To many seasoned HR professionals, major employers' responses will sound all too familiar:

• Toxic or negative work environment: 26.8% of employees vs. only 13.4% of employers 
• Personal reasons (family, health): 17.6% of employees vs. 48.4% of employers 
• Unsatisfactory pay: 15.1% of employees vs. 29.0% of employers
• Job offer better-aligned to career goals: 9.2% of employees vs. 42.5% of employers

Why they differ is a common phenomenon: employees tell the company something different from what they are willing to share with a third party. The reasons come down to a reluctance to be open, honest, and fully transparent with their HR representative or direct supervisor, due to a:

• Fear of burning bridges, harming their reputation, or getting a poor job reference
• Lack of trust in their management and/or leadership
• Unwillingness to blame an individual manager or peer(s)
• Discomfort reporting poor treatment, toxicity, or unfair behaviors
  
  

Factors that support employee retention

Interesting data providing insights into factors to consider when developing a comprehensive employee retention strategy comes from an SHRM survey on workplace culture and its relationship to talent retention. The data provides useful insights into what employees value and what factors they consider when deciding whether to continue their employment with an organization. Those include: 

• Positive work environment (83.4% of surveyed employees)
• Work/life balance (68.1%) 
• Quality health insurance (68.1%)
• Professional development opportunities (60.6%)
• Retirement plans (59.9%)
• Clear promotion pathways (56.3%) 
• Flextime scheduling/policies (54.7%) 

Furthermore, over half of the surveyed employees would accept a lower salary or trade extra pay for improved work/life balance, 44.6% for a better work environment, and 40.6% for greater work flexibility. The value proposition of those elements is substantially higher for many workers, although additional insights from workers themselves would be needed to clarify how employees at any given organization define “improved” or “better” in each. 

Important details that flow from surveys like the one above can be used to further understand what makes each element important to employees across organizations and demographics. Some major factors that emerge from those include:

Work environment

Covers the workplace culture and how people are treated by their managers and colleagues, including alignment between company and personal values, feeling free to express one’s ideas, being treated with respect, a sense of belonging and membership, being recognized for contributions, and having work-life balance (including schedule/location flexibility). The quality and effectiveness of the manager-employee relationship are well-established predictors of employee retention, and the best managers consistently understand and address each worker’s unique aspirations and needs for feedback, coaching, development, and growth/advancement.

Career growth

The extent to which employees are encouraged, enabled, and resourced to develop their skills, explore and move into different kinds of roles, make increasingly more impactful contributions, and advance to positions of greater responsibility. This includes coaching and feedback from direct managers and other experts, access to meaningful skill training, mentoring from experienced and influential others, within- and cross-functional project participation, and formalized transfer/mobility and career advancement opportunities.

Quality employee benefits

These encompass the standard and traditional (health/welfare, retirement, savings) benefits that are affordable and provide good coverage, those that address contemporary employee concerns (mental health, physical wellness, and financial well-being), as well as specialized ones that support employees with different needs (child/elder care, transportation subsidies, onsite exercise or food facilities).

Developing an employee retention strategy and framework

Given the negative operational and financial impact of turnover, a formalized employee retention strategy should be developed to address the needs of workers across functions, job levels, demographic segments, and locations. The primary objective of such a strategy should be clearly articulated as enhancing employees' opportunities to contribute most effectively to the organization's mission and goals. A retention strategy and framework can be developed and evaluated by the presence of a number of crucial elements:

1. Design a comprehensive solution

In many ways, an employee retention strategy mirrors and supports a robust employee value proposition (EVP). An EVP includes how well they are managed, paid, developed, treated, included, and supported, which has been shown to lower turnover by up to 70% and increase new-hire commitment by nearly 30%. The elements of a retention strategy should address both work/task and individual needs. It should address and integrate each of these drivers across company policies, programs, benefits, and standards. It should address job and workflow design to emphasize process efficiencies and job autonomy, as well as leadership culture, work/life balance, skill and career development, total rewards, employee experience, employee listening, and measurement, tracking, and reporting.

2. Establish and communicate a business case 

The best strategies engage top leaders and middle managers by communicating the business value of creating, implementing, and reinforcing the focus and its benefits. Developing a business case involves objectively assessing the impacts of turnover on business, financial, operational, and talent outcomes, and establishes a clear value proposition for making the necessary investments in time, effort, training, and tracking.

3. Tailor employee segment solutions 

Different employee segments have differing needs that motivate them to stay or seek other employment. For example, lower-level employees often prioritize pay over long-term investments (e.g., retirement), while mid-careerists might be more concerned with benefits coverage, child care, and opportunities for advancement. A one-size-fits-all solution is thus not effective, driving consideration for differences in employee retention strategy elements focused on employees in segments such as 1) critical skills, 2) high potentials, 3) key role holders, 4) named successors, 5) high performers, 6) essential skills players, and/or 7) life cycle and family status.

4. Assess comprehensively and continuously

Retention and turnover are measurable and thus amenable to tracking, trending, and analyzing. It is therefore crucial to develop an objective, reliable assessment process and program to understand who is leaving, when they leave, and why. The measurement process needs to go beyond the who, how many, and when to develop a more accurate understanding of why they are leaving and of factors that may seem unrelated but contribute to turnover.

At the most basic level, both quantitative (turnover by manager, role, function, facility, timeframe, or event) and opinion metrics (employee surveys, exit interviews) should be leveraged. These generate a core understanding of what is happening, where, and why. 

A more robust and meaningful approach is to predict turnover before it occurs, so that remedial steps can be taken to prevent it. That involves developing statistical models that leverage behavioral and sentiment data from employees (absenteeism, engagement, productivity, upward manager feedback, learning program participation) and their managers (performance check-in regularity, employee recognition frequency and distribution, employee transfers in/out) to predict turnover risk.

Further measures that can indicate risk that drive employee retention strategy solutions include those related to the employee experience (EX), burnout and wellness, toxicity in the work environment, and employee assistance program (EAP) inquiries and activities.

5. Focus on managerial behaviors and roles

As a source of retention risk, perhaps none is as well established as the manager. How managers and leaders treat, communicate with, develop, and direct the work of their subordinates directly impacts both their engagement levels and decisions to remain or leave. As a result, focusing on their actions, decisions, and treatment of their assigned workers is essential. An effective employee retention strategy includes better assessment and promotion of those with the traits, ability, skills, and motivation to lead others effectively. It involves generating better data on managerial effectiveness by installing upward employee feedback and more rigorous assessments and improvements of their capabilities. Reviewing their job design can free them up to spend the time needed on people management, for example by easing their workloads or by giving individuals and teams more autonomy.

6. Provide solid compensation and benefits

The proper, market-based pay for employees is always a financial challenge, as stakeholder pressures for increased profitability and lower expenses (with employee costs ranging from 20-70% of operating costs) continue to concern leaders. At the same time, market-based pay rates as an employee retention strategy can be supplemented by understanding and providing the benefits they most appreciate and need (parking and transportation, child care, wellness), low-cost but high-value recognition programs, and/or alternative rewards that are funded by employee-generated or influenced productivity, sales, or cost-reduction improvements. 

Similarly, offering well-being benefits and programming that address physical, psychological, and financial needs helps them manage burnout and personal crises, reduce stress, while demonstrating organizational care.

7. Offer flexibility 

Wherever feasible, offering policies and programs that provide occasional or regular flexibility in work schedules/locations, allow time (e.g., PTO) to address personal/family issues and needs, or provide easier access to conveniences can impact employee retention. Core to this is training and freeing managers to enable schedule flexibility, such as allowing work from home to address occasional family or personal issues, or identifying core team days in the office for hybrid models.

8. Deploy learning and development targeted to tomorrow’s requirements

An emphasis on continuous development is an essential element of an employee retention strategy. It starts by providing resources that employees are motivated to use and that have been shown to drive business impact. The value of personalization should not be underestimated, as AI-driven recommendations and learning pathways tailor content and make recommendations that recognize employee skills expected to become obsolete, anticipate changes in work/tasks, and address employees' job histories and aspirations.

9. Support career mobility and advancement

As a contributor to professional growth, experiential development is perhaps the most motivating and engaging method available. Leverage skills-based talent practices, processes, and programs to make career mobility a company capability development strategy, and communicate career lattices and pathways to reveal cross-functional possibilities and skills overlaps to feed employee aspirations. Train managers to coach; if they are ineffective, assign career coaching responsibilities to proxies.

10. Build a more positive and engaging culture and work environment

Use HRBPs, managers, and generalists to design and encourage more frequent team-building and social activities that foster a sense of belonging, collaboration, and employee connection/networking. Develop and drive managers to focus on team coordination and working harmony that creates a local environment of peer support, belonging, and engagement through exercises such as workflow optimization. Engage workers at all levels and functions in cross-functional project teams working on work and administrative process improvement, product/service design and delivery efforts that enhance the quality of their daily routines and deliver better business, operational, and customer outcomes.

Relevant Practices & Tools

Advanced Coaching and Mentoring Practices that Build Structured and Reliable Programs to Enhance Performance. >

Coaching and mentoring at this level gains structure and formalization as it is increasingly integrated into operations to guide employees at all levels in the performance management process and through assessment tools to support more objective identification of individual strengths and areas in need of development... more »

Creating an Employee Experience that Bonds High Performers to the Organization. >

The employee experience constitutes the entire journey an employee takes with the organization. This includes everything from pre-hire to post-exit interactions and everything in between... more »

Conducting Critical Workforce Segment Gap Analyses to Prioritize Future Talent Plans. >

A talent segment gap analysis identifies where shortages will likely exist in critical talent roles and provides the basis for replacement planning well in advance of the future loss of individuals in those positions... more »

Defining Career Lattices to Define Robust Lateral and Vertical Mobility. >

The ability to enable the movement of employees proactively and strategically from role to role at the leadership, professional, and operational levels is a key flexibility that advanced career development functions offer... more »

The Candidate Experience Survey: Capture Feedback Across Recruiting Stages to Identify Experience Gaps and Improve Selection Process Design

This tool helps recruiting teams assess how candidates experience the hiring process from application through first-day readiness... more »