The Importance of Employee Retention To Your Company And Your People

Retaining employees is a constant challenge for companies in a highly competitive job market. Finding and hiring talented employees is only half the battle; keeping them happy, motivated, and engaged is equally important. In fact, 45% of organizations consider employee retention their top priority in the coming year, and 62% of HR teams agree, according to an AJG study. 

Yet, nearly half (46%) of employees are considering leaving their jobs in 2024. Our guide explains the importance of committing to employee retention as one of your core people initiatives. We’ll provide a formula to calculate your existing retention rate and key strategies to improve your situation if you’re struggling. 

Why is employee retention important?

Is it really the end of the world to lose an employee? In a buoyant job market with plenty of job seekers, it might seem straightforward to keep sliding the next new hire into position. Yet, the goal is to avoid getting to this point. Why? Hanging onto your talent is critical as it: 

Saves money on recruitment and training costs 

Recruitment is rarely cheap. SHRM prices the average cost per hire at $4,700, but the actual figures can vary wildly depending on: 

• The annual salary of the position you need to fill
• Recruitment agency costs
• Training and onboarding costs 
• The cost of lost productivity before new employees are up to speed

Boosts employee morale and job satisfaction

Employees working for an organization with high turnover can feel unsettled. There’s a sense of dissatisfaction with the employer and negative energy permeating every corner of the company. The opposite is also true: In companies with high employee retention rates, workers have peace of mind knowing they’re in the right place and that others want to work there, too. 

Enhances team chemistry 

Strong retention also impacts team collaboration. When employees work alongside each other over long periods, they develop an understanding of each other’s personalities, working styles, and levels of expertise. Khushii Pandey, Senior HR at Dr. Mantra, believes in the power of employee retention for building stronger teams: 

“As an HR professional, I always try to retain the employees instead of hiring new. Employee retention is like holding onto your best friends. It’s way better than constantly making new friends who might leave after a short time. When you keep your current team happy and fix any problems, they’ll work hard to help your company succeed. It’s a win-win situation as it’s also great for employees because it means job security and a stable, supportive work environment.”

Preserves institutional knowledge 

When long-serving employees depart the organization, they take a wealth of knowledge and expertise with them. This institutional knowledge is so hard to replace, particularly if the employee has been with your company for many years. 

Improves customer experiences 

Customer service should be the heartbeat of any company. And that’s easier to accomplish when you have a steady crew of regular faces interacting with your potential and existing customers. These employees can provide a consistent quality of service and will also be highly knowledgeable about your products and services—they know what they’re talking about. 

Bolsters your employer brand 

The ebb and flow of employees joining and exiting an organization isn’t great for your employer brand. That’s a problem when trying to secure interest from top-caliber candidates, but it can also negatively impact your reputation with customers. Put simply, customers may not choose a company that can’t hang onto its staff. 

Unfortunately, Gallup research finds that only 28% of people would recommend their company as a great place to work. Many employers could invest in employee retention strategies to improve their reputation in the wider community. 

What causes high employee turnover?

Companies trying to hang onto their staff may wonder where they’re going wrong. Here are some ideas:  

Employee burnout 

Employees working round the clock and juggling the workloads of team members who have already departed the organization may succumb to employee burnout. Deloitte reports that 77% of employees have experienced burnout in their current job, and over half cited more than one occurrence. Burnout symptoms may include sleep problems, difficulties with concentration, increased sickness, irritability, and more. Understandably, employees struggling with any of these physical or mental health issues may seek employment elsewhere. 

Employee disengagement

When employees are engaged, they’re excited to tackle their workload and motivated to deliver exceptional results. It’s one of the reasons why companies with high levels of employee engagement consistently outperform those without. In particular, Gallup research found that companies scoring in the top quartile on employee engagement saw the following advantages compared with bottom-quartile companies: 

• 18% lower turnover for high-turnover organizations (those with more than 40% annualized turnover)
• 43% lower turnover for low-turnover organizations (those with 40% or lower annualized turnover)

When employees feel disengaged, some will “quiet quit” or “act their wage,” while many others will simply seek other opportunities that energize them better. 

Poor leadership 

Employees can feel disheartened when they work under the direction of a bad manager. Gallup reports that 70% of the variance in team engagement can be attributed entirely to the manager. 

Whether through micromanagement, poor communication, or a lack of support and recognition, a negative leadership style can cause employees to seek greener pastures.

External market factors 

Sometimes, employees leave for reasons outside the organization’s control. For example, if there is an economic downturn or a particular industry becomes less profitable, employees may seek employment in more stable or lucrative fields. Similarly, an employee with a particularly niche skill set may suddenly become in demand due to their industry’s sudden growth, leading them to leave for a better opportunity. 

Unattractive compensation packages 

Unsurprisingly, compensation is the top reason to seek a new role with a different employer. Payscale research shows that 14% of business leaders say employees have quit after seeing job postings with higher pay elsewhere. Money talks, so if your employees see a job advert with a more lucrative salary on offer, this could be the motivation they need to apply. 

Lack of growth opportunities 

Employees must progress continuously to remain relevant and safeguard their professional careers. A survey from INTOO and Workplace Intelligence finds that 25% of employees say they’ll likely quit their jobs within the next six months due to a lack of career development support from their company. The good news is that companies can turn this situation around—those with a strong learning and development culture boast exceptional 57% retention rates, according to LinkedIn. 

How to measure employee retention

Before implementing a series of employee retention strategies in your organization, it’s worth benchmarking your current ability to hang onto staff. Here’s how to calculate your employee retention rate: 

1. Select the period you want to measure, such as a month, quarter, or year. 
2. Collect headcount data for the period. 
3. Take the number of people working for your company at the end of the period and subtract the number of new hires during this period.
4. Divide this by the number of employees working for your company at the start of the period. 
5. Multiply this number by 100 to create your retention percentage. 

Example: If your organization has 250 employees at the start of Q1 and 220 at the end, including 10 new hires, you have an employee retention rate of 84%. 

(220-10) / 250 x 100 = 84%. 

7 employee retention strategies to hold onto your best talent

Ready to improve employee retention in your organization? Here are some top ways to hang onto your valuable employees—many of them are much more straightforward than you’d imagine. 

1. Offer competitive compensation

First up, a no-brainer—your workers need to pay their bills. If you cannot offer a decent compensation package, your employees will find an alternative employer. 

Start by benchmarking your current offering against competitors in your industry. You might use a third-party company to provide the relevant data and consult resources like our 2024 Benepass Benefits Benchmarking Report to understand how your benefits stack up in the current market. 

Remember: Small to medium-sized companies may struggle to compete with bigger names in their field, but only one company is able to offer the most competitive compensation package. If you can’t afford high base salaries, consider how to bolster your overall compensation package with an assortment of attractive perks and benefits instead.  

2. Tempt employees with a retention bonus 

Another way to financially incentivize your employees’ loyalty to your company is to offer them a retention bonus in exchange for their employment with you for a set period. You might choose to pay them a lump sum upfront or in installments over the committed period. 

Example 1: Juan, an IT specialist, is offered an upfront $10,000 retention bonus if he chooses to remain with his employer for a minimum of five more years.

Example 2: Jason is offered the same retention bonus of $10,000, but he will receive $2,000 per year. In both cases, the employees receive their bonus in addition to their regular salaries and any eligible performance-related bonuses. 

3. Provide flexible work arrangements

The option to choose their hours and work location could swing the balance for many employees, even if you cannot provide a generous compensation package. Flexible work arrangements support: 

• Working parents who need to better balance family and professional commitments 
• Employees who prefer to work from home to avoid lengthy, expensive commutes 
• Different ways to achieve productivity; some employees may perform better early in the morning, while others may produce quality work late at night
• Employees with disabilities or health concerns that make traditional office work challenging 

Example: Awin, a global affiliate platform, recently implemented a flexi-week policy after an 18-month trial. Awin employees can take one full day off per week or split their day off by working three full days and two half days. 

4. Promote work-life balance 

A healthy work-life balance goes hand in hand with providing flexible working arrangements. If your employees are logging excessive hours every week, they have little time for their personal lives and will burn out quickly. The long-term cost of replacing an employee far outweighs any short-term productivity gains you might hope to achieve by overworking them. To promote work-life balance: 

• Discourage overtime unless it’s essential for business continuity 
• Encourage regular breaks throughout the day, particularly during busy periods 
• Allow your employees to switch off outside of office hours—avoid sending emails after 6 p.m. or on weekends if possible  
• Give employees the paid time off they need. Your policy should include ample time for vacation, sick days, compassionate leave, parental leave, and more. 

5. Recognize and appreciate your staff 

When workers feel appreciated by their employer and their peers, this profoundly impacts their employee experience. O.C. Tanner’s Global Culture report found that employees who receive frequent recognition are 149% likelier to remain with their employer for at least a year. 

Employee recognition can take many forms, including: 

• Shoutouts in a team meeting 
• Honorable mentions in an employee newsletter
• Regular employee awards, such as Employee of the Month or Year 
• A formal rewards program like Benepass Rewards and Recognition 

6. Build an irresistible work culture 

Employees who love the spirit and vibe of their organization will find it hard to leave behind. Company culture can be hard to put your finger on and almost impossible to replicate from one organization to another. Here, talent acquisition manager Jignesh Trivedi offers some ideas on what a thriving employee culture looks like: 

1. “People feel great about Monday morning. 
2. People can express their honest opinions. 
3. People feel comfortable asking for help. 
4. People feel a sense of a team effort. 
5. People have room to try new things. 
6. People celebrate each other’s wins. 
7. People have authority in their roles. 
8. People have a high level of trust. 
9. People are highly performing. 
10. People make friends at work. 
11. People are growing.” 

7. Provide professional development opportunities

On this last point, employers can choose from numerous professional development methods to advance their people. Companies with any type of budget or resources can find an appropriate type of growth initiative from the list below: 

• Mentorships: A junior employee is paired with a more experienced team member who passes on their skills, experience, and industry knowledge. 
• Formal training: Employees attend specialized workshops and courses related to the skills they need in their current roles or for future advancement.  
• Certifications: Some employers may pay for employees to get certified, while others give bonuses once they’re obtained. In either case, certifications verify an employee as having certain competencies that the organization values. 
• Online learning: Virtual courses or webinars allow employees to learn at their own pace. 
• Conferences and events: Employers can encourage employees to attend conferences as a way of networking with others in the industry, staying up to date on trends, and expanding their knowledge base. 
• Microlearning: Gamification, quizzes, and other bite-sized learning methods are gaining popularity as effective platforms for employee training. 
• Cross-training: Employees can learn various roles and skills by working on tasks or projects in different teams, providing a broader understanding of the company’s operations. 

Retain existing employees with Benepass

Benepass puts your people at the front and center of your business. Our flexible benefits administration platform enables you to create an enticing benefits package that will attract and retain the best employees in your field. 

We offer a wide range of pre-tax benefits, such as healthcare reimbursement arrangements, health savings accounts, flexible spending accounts, and commuter benefits, that maximize your employees’ pre-tax dollars.

Perks also form an important part of your retention-driven benefits package. Benepass offers a versatile Lifestyle Spending Account alongside separate wellness, food, and family and childcare benefits to support your employees. 

Want to learn more? Book a free Benepass demo today or contact sales@getbenepass.com to connect with a benefits specialist.