Why Employee Retention Is Important
December 21, 2023
Consistency is king for driving success at any company and that’s especially true when it comes to people power. Reducing employee turnover and retaining top talent is a central component of ensuring a consistent, stable work environment.
A great team that can trust and depend on one another to produce outstanding work isn’t just built on hiring the right people. You need to keep them.
There are so many reasons why employee retention is important and should be a top priority for all organizations. From the high costs of backfilling roles to reduced productivity and slumping team morale, turnover can dramatically impact both your bottom line and culture.
If strategic talent retention initiatives are not on your radar, they should be. Let’s dig into why.
The Cost of Employee Turnover
There is no doubt about it: employee turnover is expensive.
For one, there are the costs associated with recruiting and hiring a replacement. Job postings, interviews and onboarding processes all take time and money. And, until the role is filled, there may be costs related to lost opportunities or productivity.
Then, there’s the time and resources it takes to bring a new employee up to speed. In some cases, the knowledge and expertise of the departing employee isn’t easy to replace. Even if it can be passed on with a robust training program, the learning curve for new employees can be steep.
In general, those costs can be broken down into:
- Cost of hiring a replacement
- Cost of onboarding that person
- Lost productivity
- Errors or missed opportunities due to lack of experience
- Ongoing training costs
- Organizational culture impact and lowered team morale
- Domino effect of other employees leaving
How much does turnover cost? As an estimate, according to Gallup, replacing an employee usually ranges from one-half to two times the employee’s annual salary once all the hard and soft costs are tallied up.
Other studies show that the financial burden fluctuates depending on the individual’s level of seniority. For hourly workers, it costs an average of $1,500 per employee. For technical positions, the cost jumps from 100% to 150% of the salary. At the high end, C-suite turnover can cost 213% of salary.
Retaining Knowledge and Expertise
A major reason to focus on staff retention solutions is to preserve knowledge and expertise.
Long-term employees can be a repository for institutional wisdom of the company's operations, culture and industry nuances gleaned over the years of services. On top of this, they may have important connections and relationships with others in the industry.
When employees leave, their valuable knowledge and network leave with them.
Of course, it is possible to create systems and processes to codify institutional knowledge as much as possible. Even so, new hires will still have to spend time learning what their predecessors knew intuitively, leading to a slump in productivity.
Retaining seasoned employees helps keep critical knowledge within the organization while giving those employees opportunities to continue developing their niche expertise.
Maintaining Consistency and Productivity
Nearly 38 percent of employees quit within the first year of employment and of those, more than 40 percent will do so within the first 90 days.
You can imagine how challenging such frequent turnover can be for a team undergoing constant personal changes. Each new team member has been brought up to speed, disrupting the workflow. Each time a role is vacant, there may be delays or unfinished tasks.
Such disruptions are common in organizations with high turnover rates and can be extremely detrimental to all aspects of the business.
On the other hand, teams that work together over an extended period tend to develop an inherent synergy. They can better anticipate each other's moves and communicate more effectively. In turn, that means more efficient work processes and higher productivity levels.
Impact on Company Culture
Company culture is a reflection of an organization's values, ethics and beliefs. But frequent turnover can erode even the most robust company cultures, demoralizing those who remain. In some cases, this can even cause a domino effect where, once one employee leaves, others follow suit.
That’s because employees who witness colleagues leaving regularly may begin to question their own job security and the stability of the organization. This, in turn, can lead to anxiety and a sense of detachment from the company's mission.
On the flip side, organizations that prioritize employee retention tend to foster a positive workplace culture of loyalty, trust and shared values. When employees feel secure and valued, they are more likely to invest in the company's long-term success because it goes hand-in-hand with their own.
A positive company culture becomes a magnet for top talent, creating a self-reinforcing cycle of growth.
Employee Engagement and Morale
Employee engagement and talent retention are inextricably intertwined. Engaged employees are more likely to stay with their current employer and, similarly, employees who stay longer tend to grow more engaged over time.
Over three-quarters of employees say they have experienced burnout at their current job. Those feelings of exhaustion, under-appreciation and reduced motivation are clear signs of disengagement. And when employees feel burnt out, they are far more likely to leave for opportunities elsewhere.
Instilling a sense of purpose and community with a great company culture, offering better work-life balance and making sure employees can get the support they need can help address potential burnout triggers, improving job satisfaction and workforce retention.
Long-Term Organizational Stability
Organizational stability is a significant competitive advantage, which is why employee retention plays such a pivotal role in ensuring an organization's long-term viability.
Companies with low turnover rates are simply better equipped to weather external challenges, whether that’s economic downturns, industry disruptions or other unexpected crises.
That’s why keeping talent isn’t just an HR issue – it’s everyone’s concern, but especially leadership. And that means building a strong corporate culture and a meaningful employee experience that will attract and retain employees.
How do you accomplish this? Get actionable strategies in the in-depth guide “9 Transformational Insights Exclusively for the C-Suite” here.