Why Employee Retention Is Important Even in a Recovering EconomyAugust 02, 2013
“The grass is always greener on the other side,” as the saying goes. This is generally true - people tend to focus on new possibilities as they become bored or dissatisfied with their current situation. That is, unless there are no available alternatives - no “other side” in sight. Such has been the nature of the job market in recent years - as companies began cutting back in the midst of an economic recession, employees were thankful just to keep their jobs, and companies could generally count on keeping the employees they had.
Now, slowly but surely, the economy is creeping back to recovery. But for employers to take for granted that employees will continue to stay in their current positions - without adapting to a gradually improving job market - would be akin to the proverbial frog boiling in water. It's time for employers to understand why employee retention is important, so as not to be caught by surprise when opportunities arise for their top talent to move on to greener pastures.
Why Employee Retention Is Important: Cost of Turnover
Here's why employers need to start taking steps to retain the employees they currently have. The turnover cost for a single employee, as a general rule, amounts to one-fifth of an individual's yearly wage (Source). That includes lost productivity, opportunity cost, recruiting, training, and administrative expenses. For individuals in higher-paid, higher-responsibility positions, these costs only increase.
While it might have made sense in the short-term for businesses to let seasoned employees go in favor of hiring replacements at lower salaries, such an approach presumes that employers won't have to compete for the talent they need when business demands increase with a recovering economy. Better for employers to keep the talent they have, and keep them engaged with the organization, while they have the chance.
There are, basically, two approaches to retaining employees during times of economic growth:
1. Employee Recognition Employers can provide employees immediate incentives to stay by offering competitive compensation, positive recognition, merit increases, and advancement opportunities.
2. Company Culture and Employee Engagement Employers can work to improve the way the organization and its employees engage with each other, thereby improving employees' long-term commitment to the organization and its success.
Both of these strategies are complimentary and crucial to the success of any employee retention initiative. However, they don't guarantee that every one of your talented employees will stay. Employees leave because they can and they have a reason to do so. These strategies will help ensure that you have done everything you should to retain your most talented people.
Incentives and Employee Retention
As the economy recovers, employers may have access to additional capital. Providing incentives by way of compensation, benefits, and financial rewards are commonly cited as effective ways for employers to communicate that they are committed to their employees, which in turn helps employees commit to the long-term success of the company.
Consider the following incentive strategies:
- Strategic and competitive compensation - Tie a part of your employee's wages to the company's performance, and link employees' pay increases to their own performance.
- Benefits - Offering health care, flextime, and telecommuting options make it easier for employees to care for themselves and their families over the long-term, and subsequently improves long-term employee reliability.
- Financial rewards - Consider stock options, performance bonuses, meaningful merit increases, and retention bonuses for excellent performers to keep them committed to performing their best.
- Hold leadership accountable - If it's true that employees are most often motivated to "quit their supervisors" when they quit their jobs, consider linking supervisors' pay to how well they retain their people.
Employee Retention through Engagement
Monetary incentives aside, getting employees engaged and committed involves satisfying their needs to learn, advance, and make progress for themselves within the company. An effective strategy for increasing engagement involves providing employees with resources for career development and opportunities for mobility within the organization. New hires can be better retained through engaging mentoring for onboarding programs, and leadership plays a significant role in engaging and retaining employees by providing consistent feedback.
Consider the following strategies for improving employee engagement:
- Career planning - Provide current employees with resources to plan their career paths with the company, and promote from within to fill needed roles.
- Self-directed career development - Foster continued skill development and career growth through self-directed and company sponsored training and assessments.
- Mentoring for new hires - New hires can be retained through engaging onboarding activities supported by mentoring programs that help new employees acclimate faster, reducing attrition.
- Develop leaders - Who actively work to engage their people through consistent and constructive feedback.
Career development and mentoring programs can serve as key components of any employee retention initiative. A strong career development program provides employees with the tools and resources they need to plan their career paths and direct their own ongoing development with the company, and an effective mentoring program keeps employees plugged into the company culture by fostering productive relationships between people in diverse roles at the organization.
Retaining employees can be as simple as giving them the right reasons to stay. Those reasons can come in the form of incentives and benefits, better engagement practices and programs, or both. How a specific organization should go about incentivizing and engaging its people will ultimately depend on aligning the needs of the company with the needs of its employees on an individual basis. Here we've offered some general information to help organizations better prepare for a gradually improving job market, with the hope that companies can strategically incentivize, engage, and retain the talent they need to stay competitive in a brighter economy.