Employee Retention:
Definition, Benefits, Uses & Comparison

Employee retention is an organization's ability to keep productive and talented workers by reducing turnover through strategies that foster a positive work environment, competitive compensation, and employee engagement. It represents the organizational goal of maintaining a stable workforce by creating conditions where employees choose to remain with the company rather than seek opportunities elsewhere.

Employee retention starts from the first interaction during the application process and continues through orientation, assignments, performance ratings, awards, promotions, and overall working conditions. High employee retention is typically achieved through various methods including competitive pay and benefits, access to quality mental health and medical care, development opportunities, and a positive workplace culture that promotes engagement and work-life balance.

Related terms: employee turnover, employee engagement, talent management, workforce retention

Employee retention is critical because high turnover costs US businesses approximately $1 trillion annually. The business costs related to turnover include loss of productivity due to lack of employee engagement, recruitment costs, administrative costs, training and onboarding costs, the loss of experienced employees with proprietary organizational information, and the time spent on these activities.

Diminished productivity and competitive advantage are among the biggest losses when talented employees leave an organization. High employee turnover rates can harm an organization's ability to carry out its mission due to impairments to continuity, loss of institutional knowledge, and the high costs of replacing departing workers. Employee departures can also lower morale and prompt more employees to leave the organization.

For example, an organization might experience much slower progress on a project if it must continuously deal with the time, cost and lack of productivity that comes with continually onboarding and training new employees to fill vacant positions with high turnover rates. High turnover typically signals to consumers that there's something wrong with the organization or brand.

Employee retention provides 10 significant benefits for organizations across all industries:

• Cost Reduction: Eliminating the costs of advertising, screening, interviewing, onboarding, training, and supplies associated with hiring new employees
• Experienced Workforce and More Skilled Employees: Maintaining organizational knowledge of processes and products that directly impacts production and succession planning
• Increased Productivity with Fewer Transitions: Higher engagement and improved collaboration through stable teams rather than ongoing training cycles
• Improved Corporate Culture and Morale: Allowing employees to build professional relationships and promoting collaboration among teams
• Higher Employee Engagement and Satisfaction: Creating a positive employee experience that gives team members a sense of belonging and attachment to their role
• Better Customer Experience: Long-term employees provide efficient services and familiarity for customers
• Improved Customer Service: Content employees are more likely to provide quality customer service compared to frustrated or burned-out workers
• Increased Revenue: Combined impact of reduced hiring costs, increased productivity, improved employee engagement, and better customer service
• Better Process Efficiency: Longer-term employees possess institutional knowledge they can draw on, leading to greater work efficiencies
• Reduced Staffing Costs: Curbing the significant amounts of money spent each year on recruitment and training

Exit interviews and employee surveys reveal 13 common reasons why employees quit their jobs:

• Poor compensation and inadequate salary
• Insufficient employee benefits and non-competitive perks packages
• Lack of remote work and work-from-home opportunities
• Minimal career development opportunities and no advancement path
• Lack of work-life balance and feeling overworked or unsupported
• Poor or undefined company culture
• No sense of belonging with team members or the company at large
• Lack of recognition or rewards and feeling disrespected
• Concerns about the company's financial health or direction
• Better job opportunities elsewhere and more compelling offers
• Unhappiness with management and bad managers or leaders
• Boredom and lack of purpose in their work
• Low morale from recent layoffs or negative public image

Research shows that 63% of employees who quit their jobs in 2021 cited low pay tied with no opportunities for advancement as the top reason. Additionally, 57% of employees who quit felt disrespected at work, while over half of the US workforce suffers from workplace burnout.

Organizations use 14 proven employee retention strategies to keep talented workers:

1. Demonstrate leadership commitment and accountability: Agency leadership creates a work environment where employees want to establish careers by clearly communicating that EEO is integral to the mission, ensuring employees feel accepted and fairly treated, and holding managers accountable
2. Onboarding and orientation: Providing adequate training about company culture, opportunities to ask questions, and flexible or hybrid work schedules to ensure good work-life balance
3. Mentorship programs: Pairing employees with mentors who offer guidance and training in specific areas of expertise
4. Employee compensation: Using employee compensation management software to ensure competitive pay that compares favorably with benchmarks for given regions, job titles, and performance ratings
5. Perks: Offering flexible work schedules, time off, shorter work weeks, telecommuting via work-from-home schedules, and remote work opportunities
6. Wellness offerings: Providing mental health support, physical wellness programs, and healthcare benefits that eliminate barriers to care
7. Communication: Developing an open-door policy and providing multiple avenues of communication to create a culture of feedback
8. Continuous feedback on performance: Holding frequent one-on-one meetings to provide constructive feedback, discuss professional interests and goals, and encourage new ideas
9. Training and development: Offering upskilling, succession planning, and attendance at conferences and webinars for career advancement
10. Recognition and rewards systems: Using systematic recognition strategies, employee engagement software with gamification, and rewards like retail discounts
11. Work-life balance: Training managers to encourage employees to take vacations and providing adequate time off
12. Flexible work arrangements: According to Gallup, 32% of employees prefer exclusively remote positions and 59% prefer hybrid roles
13. Effective change management: Managing transitions smoothly to maintain employee confidence and stability
14. Acknowledgement of milestones: Celebrating both big and small employee achievements to show appreciation

Organizations track 8 key metrics to measure employee retention effectiveness:

• Retention rate: Percentage-based metric serving as a basic measurement of ability to retain employees over time (e.g., 85% retention means keeping 85% of employees over a specified period)
• Employee satisfaction: Indicates how content employees are with their jobs; low satisfaction suggests potentially low retention rates
• Retention rate per manager: Measures retention focused on rates per manager to investigate potential management-based problems
• Voluntary and involuntary turnover rate: Percentage-based metrics measuring the rate at which staff leave by choice or due to terminations and layoffs
• Turnover costs: Calculates costs such as hiring, onboarding, and training to determine turnover's financial impact
• Average employment length: Measures the average time an employee stays at a company
• Absence rate: Percentage of unplanned employee absences due to sickness or personal emergencies
• Absence rate per manager: Measures employee absence per manager to investigate potential management-based issues

Employee retention programs deliver measurable return on investment through both direct cost savings and value-added benefits. A Modern Health study analyzing records of 149,451 unique employees across 104 customers found that retention was 5.5% higher among employees who engaged with mental health services versus those who did not.

For an employer with 10,000 employees, turnover savings of 5.5% would result in an additional 137 employees retained. Assuming an estimated replacement cost of $28,155 to $42,233 per employee, employers would save $3,857,235 to $5,785,921 annually.

A McKinsey study revealed that effectively treating anxiety and depression could lead to a 4:1 return ($4 back on every $1 spent), and addressing health inequities between employees of different races could result in savings of around $80 billion for US employers. Additionally, improved healthcare and wellness programs can lead to decreased employee absenteeism, offering valuable ROI annually.

Mental health benefits play a critical role in employee retention by reducing burnout, increasing engagement, and supporting employee well-being. A Forrester Consulting study revealed that 79% of employees are likely to stay at a company that provides high-quality mental health resources.

Additionally, 85% of C-level and HR leaders believe mental health is not just about mental illness but is something every employee experiences. 67% of leaders cited improved productivity when offering their employees mental health support. Over half of the US workforce suffers from workplace burnout, a significant contributor to turnover across all industries.

Comprehensive mental health benefits can significantly impact an employee's decision to stay with an organization. By creating a culture of support and open communication, employers can provide the resources employees need to reduce anxiety, improve engagement, and reduce workplace burnout.

HR departments play a critical role in employee retention as they manage employee relations, compensation, benefits packages, disciplinary needs, and support employee development. However, HR staff is also responsible for recruitment tasks like finding, screening, interviewing, onboarding, and training new employees.

Without an effective retention program, HR professionals are inundated with the costs and time-consuming tasks of constantly recruiting and onboarding new employees. As a result, there is less time available to take care of the human-centered duties of assisting employees facing challenges in the workplace.

Deprioritizing HR's role to focus entirely on hiring and administrative tasks leads to increased burnout in the industry. New data reveals that 53% of HR leaders are burned out, and 48% are looking for a new job. Designing an effective employee retention program is essential to the performance and retention of HR professionals in your organization.

Employee retention is often compared to 3 related workforce management concepts:

Employee Retention vs. Employee Turnover

Employee retention measures an organization's ability to keep employees (expressed as a percentage of employees who stay), while employee turnover measures the rate at which employees leave (either voluntarily or involuntarily). Retention and turnover are inverse metrics: high retention means low turnover, and vice versa. Organizations typically aim for high retention rates and low turnover rates to maintain workforce stability.

Employee Retention vs. Employee Engagement

Employee engagement measures the degree of emotional commitment, involvement, and enthusiasm employees have toward their work and organization, while employee retention measures whether employees actually stay with the company. Engagement is a leading indicator of retention—highly engaged employees are more likely to stay—but engagement alone doesn't guarantee retention if other factors like compensation or work-life balance are inadequate.

Employee Retention vs. Talent Management

Talent management is a comprehensive strategic approach that encompasses attracting, developing, retaining, and optimizing employees throughout their entire employment lifecycle. Employee retention is one specific component within talent management that focuses exclusively on keeping current employees from leaving. Talent management includes broader activities like recruitment, onboarding, training, succession planning, and performance management, while retention strategies specifically address why employees stay or leave.