Employee Retention

Employee Retention Overview

Nowadays, it is largely an employees' market. Job seekers are well-equipped to find greener pastures in the job market and with greater ease than ever before. Even highly competitive fields are susceptible to poor employee retention. It is simply a matter of time for the determined job hunter to find another job, because keeping an active resume in circulation takes little effort.

Further, more individuals are turning to self-employment, whether starting a business or freelance work. However, this group can be inspired by motivations such as independence and flexibility, incentives which differ from the majority of employees.

While some businesses retain employees solely by providing higher pay, this is not the norm. The most successful employee retention efforts involve a broader effort and a deeper understanding of the needs and desires of employees in this ever-changing workforce. Yet, as the saying goes, money does talk, at least to some degree.

Truth Behind Employee Retention

Salary.com conducted a survey on employee retention finding that employees are happiest overall when the top three conditions are fulfilled:

• Friendly co-workers
• Good management
• Reasonable commute

Yet, when employees were pressed further on their plan to leave a job, they cite lack of compensation, no advancement potential, and lack of recognition, as the top three reasons for moving on. Surprisingly, perhaps, is that employee benefits are not in the top three priorities for employees. Though human resource professionals often list company benefits as priority one, followed by friendly co-workers, and compensation respectively.

Cost of Losing an Employee

Studies vary but show overwhelmingly that it is more economical to give an employee a moderate raise than it is to replace the employee. A raise of 10 to 15 percent is often enough to retain an employee who is otherwise moderately dissatisfied with their workplace conditions. Frequently, when employees have been offered another job, employers do not go so far as to attempt a counteroffer and, if they do, it is often under 10 percent.

Conversely, the cost of losing an employee averages over $15,000 on the low end and potentially $30,000 or more for employees earning $60,000 plus annually. How are these losses calculated?

According to the Division of Cooperative Extension, University of Wisconsin, these costs include four primary areas:

Separation Costs

The cost for an employee to leave a company involves the administrative work of termination, potentially severance pay, and even an increase in unemployment compensation. Exit interviews, if performed, are another consideration.

Replacement Costs

Replacement costs will depend on how difficult the position is to fill, but include items such as finding applicants, interviews, testing, background checks, and employee orientation. Other possibilities include medical exams and relocation expenses.

Training Costs

Depending on the position, there may be both informal and formal training. The former includes materials and time spent getting a new employee acclimated to the new environment, while the latter involves structured training which employees receive during the course of employment. Additional training obviously adds more to these costs.

Vacancy Costs

Though savings may occur fulfilling vacancies with overtime or temporary help, these costs should be considered in the total cost of losing an employee.

Advice for Small Business Employers

Common sense may dictate that it will cost less to replace a house painter then it will to fill the position of an IT professional. Generally, this is true, but as a small business owner, the costs may be more than expected to replace a laborer or entry-level position.

Small business relies heavily on word-of-mouth, and finding employees you can trust and depend on are worth their weight in gold. These priorities should factor into your employee retention efforts.

This does not mean, as a business owner, you need to accommodate all the whims of your employees, but rather try to see eye-to-eye and come to an understanding of what they really want. For example, it is possible the employee really wants more time with their family, rather than a large increase in pay. Try to be as accommodating as is reasonable, expecting the same from your team members.

If needed, keep abreast of employee retention strategies and both success and failure stories in your industry. Some small business owners will benefit from professional human resource assistance and/or taking a seminar on the topic.

For More Employment Information

The aforementioned Division of Cooperative Extension offers an online calculator designed to calculate the costs of employee turnover. Leading publications such as Enterpreneur.com, Forbes.com, FastCompany.com, and Inc.com are also useful.

Lastly, LoveToKnow maintains additional information on employee retention, such as, Employee Retention Incentives and Employee Motivation.