Employee Retention Basics

Employee Retention Basics

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Syed Aquib Ur
Syed Aquib Ur Rahman
Assistant Manager
Updated on Feb 20, 2024 18:35 IST

Employee retention isn’t just a feel-good concept. It’s a strategic approach that offers tangible benefits for organisations. When skilled and dedicated employees choose to remain within the company fold, a cascade of positive outcomes ripples through the organisational fabric.

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Let’s consider this scenario of an owner with a new startup

Though the startup owner is motivated to grow their business, they are unable to make the employees productive or satisfied in the job. The workers are voluntarily leaving after one or two months of joining, as they say, they are either having a burnout or are getting paid less. Now this owner is at a loss for finding newer replacements. 

This scenario of employees leaving is not just present in a startup. 

Big organisations like KPMG and Spotify have had high attrition rates recently. They overcame this by raising the pay to do away with burnout and letting employees work from anywhere for flexibility, respectively. 

These were some great strategic moves that benefitted the organisations. Because employee retention pays off than hiring new ones. 

So, if you are in the same boat of wanting to boost employee engagement in your startup venture or are aspiring to join the HR department in the future, learn about what employee retention is with benefits. 

What is Employee Retention?

Employee retention is a strategic process of encouraging talented workers to stay in an organisation for the maximum time to offer the best of their skills and productivity.  

This is a key focus area of the HR department and involves motivation through offering competitive compensation and appreciating and rewarding efforts. 

Understanding What Causes Employee Turnover

In order to learn more about employee retention, it is also important to understand the concept of employee turnover and the reasons that cause it. 

Employee turnover is a metric that measures the number of employees leaving the organisation over a certain period. There are two types of employee turnover – voluntary and involuntary.

In voluntary turnover, the employees leave the organisation of their will. On the other hand, in involuntary turnover, employees are let go due to issues with their performance or due to organisational changes. 

Factors such as inadequate work-life balance, lack of growth opportunities, and unsatisfactory compensation packages can collectively catalyse an employee’s decision to seek greener pastures.

Explore the importance of leadership

These causes can start right from the moment new employees are onboarding. According to a recent study from Harvard Business Review, 60% of companies do not set clear short-term goals for new employees. 

The Goal of Employee Retention

The primary goal of employee retention is to reduce turnover or workers leaving the organisation voluntarily (of their own will) over a specific period.  

The process, however, ideally goes beyond just metrics. It looks into creating a symbiotic-like relationship between the employee and the organisation because none can succeed without the other. 

Why Retention of Employees is More Difficult for a Startup Firm

It is particularly daunting for retaining employees in startups. 

Startups operate with limited financial resources, especially during their initial phases. 

The post-COVID times have even been more difficult for startups without outside investors. This has been due to mass lay-offs and the ‘global economy slowing’ as stated by Crunchbase.  

This can lead to constraints in offering competitive compensation packages and comprehensive benefits that larger, established organisations may provide. 

According to Anshul Lodha, head of recruitment firm Page Executive, India, on Live Mint, “Many who left traditional firms to join startups are returning to established companies. They are moving at the same pay scale and, in some cases, even taking a 15-20% pay cut.

Continuing in this logic, the fear of business failure or downsizing may lead employees to explore more stable job options, contributing to higher turnover rates in startups.

It is also important to note that in the early stages of a startup, the workload can be intense as employees wear multiple hats and take on diverse responsibilities. This can lead to burnout and impact work-life balance. 

Compared to established companies with well-developed employee support programs, startups may struggle to allocate resources for them. 

How to Retain Employees: Top 5 Ways

  1. Offer competitive compensation and benefits: Ensure that your employees are fairly compensated for their work and provide benefits packages that are attractive and competitive within the industry.
  2. Provide opportunities for growth and development: Offer training programs, mentorship opportunities, and clear career paths to help employees grow within the organisation.
  3. Foster a positive work culture: Create a supportive and inclusive work environment where employees feel valued, respected, and appreciated for their contributions.
  4. Offer work-life balance initiatives: Implement flexible work arrangements, such as remote work options or flexible hours, to help employees balance their work and personal life responsibilities. You can also explore the difference between job enrichment and job enlargement to learn about best practices related to balancing work and life for employees. 
  5. Recognise and reward achievements: Acknowledge employees' hard work and accomplishments through regular feedback, praise, and rewards, such as bonuses, incentives, or employee recognition programs.

Benefits of Employee Retention 

Enhanced Productivity and Performance

A stable and experienced workforce contributes significantly to heightened productivity and performance. 

Retained employees have a deeper understanding of the company’s operations, culture, and objectives. They can seamlessly navigate tasks and deliver consistent results than new ones. 

Cost Savings and Efficiency

High turnover rates can be financially draining due to the expenses of recruitment, onboarding, training, and lost productivity during the transition period. 

Effective employee retention helps organisations save on these costs. Instead, the saved up resources work towards strategic initiatives, innovation, and growth. 

Stronger Employer Brand and Attraction of Talent

Organisations with a reputation for employee retention and satisfaction are more attractive to potential jobseekers. 

Think of a positive word-of-mouth endorsement from existing employees. It is helpful when you are drawing in top-tier talent who aspire to be part of a stable and supportive work environment. This, in turn, leads to a stronger and more competitive employer brand.

4 Employee Retention Metrics 

Overall Retention Rate

Tracks employees retained over time, balancing turnover’s benefits and drawbacks.

Turnover Rate 

Calculates separations’ percentage, revealing potential problems in management or culture.

Voluntary Turnover Rate

Assesses voluntary departures’ impact, considering replacement costs.

Involuntary Turnover Rate

Examines lay-offs or firings, indicating hiring process evaluation needs.

How to Retain Employees

Here are some effective employee retention strategies to consider. 

Foster a Positive Work Environment

Cultivate a company culture that prioritises open communication, mutual respect, and collaboration. 

When employees feel heard, appreciated, and part of a cohesive team, their attachment to the organisation deepens.

Example: Squarespace, Inc is a website building and hosting company that has a flat structure for easy and collaborative decision-making. 

Learn and explore different leadership styles that can help in this area of boosting employee engagement. 

Provide Growth Opportunities

Offer avenues for professional development and advancement. Employees are more likely to stay when they see a clear path for skill enhancement, career progression, and personal growth within the organisation.

Example: IBM fosters a robust company culture through an innovative employee feedback approach. 

Unlike traditional 1-10 ratings, this system encourages a holistic performance evaluation, enabling IBM to gather valuable insights into support team requirements. Empowering employees to collect and leverage their own feedback fuels a dedicated drive for continuous enhancement.

Recognise and Reward Achievements

Implement a robust recognition and reward system that acknowledges employees’ contributions and accomplishments. 

Regularly celebrate their achievements, both big and small, to reinforce their value to the company.

Example: Cisco cultivates ongoing employee engagement through a regular peer recognition initiative, featuring frequent small rewards. Rooted in core values, this program has sparked over a million recognitions in five years, averaging 600 daily awards.

Competitive Compensation and Benefits

Provide competitive and fair compensation packages that align with industry standards. 

Additionally, offer attractive benefits, such as health insurance, retirement plans, and wellness programs, to enhance overall employee satisfaction.

The compensations must also be beneficial in various regards.

Example: Netflix offers unlimited vacations to its employees as part of the compensation package. Read more about it on our blog on transformational leadership.

Learning Employee Retention in Your HR Management Journey in 2024

You can find many relevant online courses to learn the strategic process of retaining employees. Even better is you can learn independently without an obligatory formal background in human resources. Check out courses such as Recruitment and Retention Strategies on Universal Class or Reigniting Employee Engagement on Coursera.

About the Author
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Syed Aquib Ur Rahman
Assistant Manager

Aquib is a seasoned wordsmith, having penned countless blogs for Indian and international brands. These days, he's all about digital marketing and core management subjects - not to mention his unwavering commitment ... Read Full Bio