The HR department in your company is one of the most important departments. The role of HR is to make sure that employees remain satisfied and happy with the services. They are also responsible for the hiring and play an integral role in employee engagement.
One of the key metrics that HR management evaluates is the employee retention rate. The employee retention rate simply showcases the rate at which an organization is able to prevent its employees from leaving the company.
However, this is a pretty crude explanation. Let’s talk about the role it plays in modern organizations.
Understanding Employee Retention
The ability of an organization to ensure that its employees don’t leave is known as employee retention. In most cases, this is usually shown as a statistic.
For instance, if a company has an employee retention rate of 80%, it simply means that the business is able to retain eight out of ten of its employees within a specific period of time.
In a different way, you could say that the employee turnover rate of the company was 20%. Depending on the business industry and the occupation, the turnover rate is likely to vary.
According to LinkedIn, the global turnover rate is 10.9% annually.
The Depth of the Problem
There are several other statistics that you should know about employee retention that highlight the seriousness of the problem. For starters, the Work Institute came to the conclusion that most companies were paying a considerable $600 billion in costs related to turnover.
This is not all. According to an independent survey that was conducted by one of the biggest media organizations, The Washington Post, it was found that 71% of employees across the United States are interested in finding a new job and are actively looking.
Then, PayScale, a private research think tank, released its own study that showed organizations were beginning to realize just how important retention was to the growth of their businesses. Improving employee retention was a major concern for almost 66% of the respondents.
Why Is it So Important?
The high turnover in a company can have pretty devastating consequences for the long-term growth of a company. In the following paragraphs, we will talk about some of the most important reasons why you should focus on keeping the retention rate as high as possible.
Hiring Isn’t Simple or Easy
The biggest reason why you should focus on your company’s retention rate is because the hiring process isn’t as simple as you might think. There are several steps involved in hiring a new employee. These include:
- Spending on advertising and posting requirements on multiple job boards
- Going through resumes
- Setting up interviews
- Background checks
- Legal paperwork
According to a reputable organization, it takes around 42 days on average for a company to find a suitable candidate. This is almost six weeks. During this time, you will also need to get work done for the person who is not available.
Then, you should know that turnover expenses are also considerably high. For an entry-level position, you might end up spending almost 50% of the employee’s annual salary. These expenses can rise to almost 300% for executive level positions.
High Turnover Affects Teamwork
Teamwork and synergy are both difficult to build when the turnover rate remains high. When employees in the company know that others are leaving on a constant basis, it’s obviously going to have an impact on the overall mood.
This is ultimately going to affect performance across the board, and you will notice the mood inside the workplace dampening with the passage of time. More importantly, the older employees will know that they will have to train the new employees again and again, and this further impacts their performance.
A Competitor’s Gain
Did you know that losing an employee essentially means you are losing one of your people to another organization? They might find employment with someone else who values their skills and talent, and is willing to reward them for it.
Ultimately, they will employ their time and efforts in competing with your business. If they are really talented employees, they will improve on what they have learned with your company and do things better with your competitor.
You Lose Ideas and Talent
This is a deadly combination and losing both in one go is obviously going to have a drastic impact on your business. An important thing that you should know is that employees bring lots of fresh ideas to the table.
These are your soldiers in the trenches, and no one knows better about business processes than the one who is tasked with executing them. As you continue to lose employees, you also lose a great deal of talent in the process.
More importantly, you also lose out on a bunch of fresh ideas that these employees would bring to the table.
Customers Take Notice
Your frontline employees play an important role in improving the company’s overall outlook. These are the employees who engage with your workforce, so it’s important that you retain them.
Customers are going to take notice when they realize that names have changed, and this is going to have a dire impact on your company’s overall growth.
There have been cases where customers have approached employees who recently left a company and asked for the reason. Some customers are incredibly loyal to the employees that they work with, and if these companies continue name-changing on a frequent basis, it really doesn’t fill them with confidence in your company.
Jobseekers Take Notice as Well
Websites such as Glassdoor now play an important role in helping prospective jobseekers find out which company they should join. They have made it easy for jobseekers to figure out which company is a good fit and which ones they should stay away from.
Jobseekers pay close attention to these figures because they help them figure out the overall employee satisfaction rates. If a company has a considerably high turnover ratio and the retention rate is very low, you might not be able to attract top talent.
There are a number of different things that you need to take into account when it comes to calculating the company’s turnover rate. It’s important for your business to make sure that you keep it as low as you can to avoid problems and pitfalls later on.
There are several strategies that you can use to ensure that your company keeps its retention rate. If you notice the retention rate rising quickly, it might be a wise idea to take a look at what you are doing wrong.
Employee satisfaction is something that you need to take seriously, so you have to make sure that you calculate the rates on a consistent basis and then compare them with past periods.
This will give you a better idea about what you are doing right and the steps that you need to avoid in the long run.