Employee retention and its importance to your business - in depth - Gateley
In depth

Employee retention and its importance to your business

Gateley Legal

“People are your most important asset” or so the saying goes. Most employers would regard the retention of key employees as integral to their business success. As the employment and labour market is continuing to change, with unemployment rates falling in the UK and the supply of labour being impacted by Brexit, employers will need to consider strategies for increasing employee retention.

What is employee retention?

Put simply, it is a measure of an employer’s ability to keep its employees. The usual calculation is:

No.of employees with > 1 year's service x 100
Total no. of employees in post 1 year ago

This is, however, something of a crude measure as it does not take into account reasons why employees may have left the business or indeed whether their leaving was unwelcome.

How does employee retention and turnover affect your business?

High levels of employee turnover will inevitably increase a business's costs. But what do we mean by "high"?  

Conventional wisdom is that a “good” level of employee turnover is around 10%, but this ignores the fact that, in some industries, the average will be much higher due to the nature of the business and the roles within it.

For example, employee turnover in call centre environments can be as high as 30% as people often go into such roles as a “stepping stone” into a company, with a view to moving quickly on to another role. That level of turnover may well be no bad thing for a large company looking to develop in-house talent.

On the other hand, very low staff turnover may lead to stagnation and, ultimately, an ageing workforce causing a demographic time bomb.

As with so many things, businesses need a balance of new people coming in with new skills and ideas and long-serving employees who know the business inside-out and continue to add value.

What should businesses consider?

The first step is to carry out some analysis of your people data. You will need to understand not just the level of turnover in your business but when, why and how this is happening.

For example, is your highest rate of turnover amongst employees with one year's service or less? If so, you might want to look at your recruitment practices. Are you selecting in candidates who are the wrong fit for the role, or who do not have the right skills and competencies for the job?

If your employees are staying with you for more than the first two to three years, what is motivating them to leave? It could be that they are reaching a stage where they expect to develop their careers by moving into a bigger job. Carrying out exit interviews can be a helpful way to find out what the issues are.

Similarly, looking at whether there are any particular “hot spots” can give an insight into what the factors driving retention or turnover are.  You could find that there is an especially high level of turnover in one particular part of the business, which could be down to leadership style, culture within the team or a perception that development opportunities are being blocked by long-serving employees who are unlikely to move on.

Once you understand what the underlying issues are, you can put in place a retention strategy that will work in the context of your business.

Employee retention strategy

There is no “one size fits all” model for employee retention. What matters is what your business needs. Some businesses may want to increase employee turnover in order to bring in new ideas and new ways of working.

The following are some ideas for an effective employee retention strategy:

  • People analytics. You will need to know where you stand in terms of employee retention, whether there are any particular areas of the business that need special attention and what other indicators there may be, such as absence rates, that could inform you what action you need to take. It may be that you need to consider moving some people on or out in order to address poor leadership or blockages in the organisation.
  • Hire the right people. Using effective selection techniques, such as competency-based interviews, can increase the likelihood that you will get somebody who has what it takes to be successful in the role.
  • Develop managers to be better leaders. There is a saying that people don’t leave companies, they leave bosses. Make sure managers are aware of their people responsibilities and have the capability to carry them out. Feedback, coaching and training can help managers be better bosses.
  • Provide development opportunities.  Most employees want to know how they can develop their skills and move up the career ladder. Even in the flattest structures where there are few actual opportunities for promotion, if employees can see how they can enhance their skills and increase responsibility they are less likely to look outside the organisation.
  • Be flexible. Often, it is not the most obvious things that encourage employees to stay with your business. People will even trade higher pay for the ability to be flexible about how, where and when to do their work. Offering the opportunity to work from home, or to flex start and finish times around family commitments for example can increase job satisfaction and improve retention.
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