What is Employee Retention?

Employee retention definition and meaning

The definition of employee retention is the ability of a company to maintain its employees.  Employee retention also refers to the strategies that a business uses to try and retain top-performing employees.

What is employee retention rate?

Employee retention rate is the percentage of employees that a business keeps during a given period.  For example, if your company has 100 employees and 30 leave the company during a given year, your employee retention rate for that period would be 70%.

Most businesses aim at having as high an employee retention rate as possible. In some cases, however, a high turnover rate may be misleading. 

For example, a company with a 70% employee retention rate that loses its worst-performing employees would provide the business with the chance to recruit better talent, which over time would have positive benefits.  On the other hand, if a company has a 90% retention rate but loses its best, most-tenured employees then this could have a very significant impact on the business’s bottom line.

Why is employee retention important?

Your business’s employee retention is an indicator of employee satisfaction, which can have a big impact on business growth and profitability. 

Employee turnover can be indicative of issues within your workplace culture including low employee morale, dissatisfaction with wages, poor career advancement opportunities, lack of recognition, and poor employee relationships with management.

Employee retention is important to business owners because of the costs of losing employees, which include:

• Loss of your most talented employees
• Loss of organizational knowledge
• High costs to find, hire, and train new employees
• Impact of turnover on the business’s customers
• Lower morale among remaining employees

In some cases a company’s employee retention strategy may include trying to weed out the lowest performing employees, so the effects of a lower retention rate may not have such a negative long-term impact.

Some industries are more likely to have high employee turnover.  These include jobs in retail, food services, call centers, and sales positions.  While typically these industries find it less expensive to replace workers, they still can have negative consequences for the employer.

How to improve employee retention and motivation

Many companies use talent management software to improve relationships with employees. This software helps simplify finding and hiring employees along with many other benefits such as reduced hiring costs, increased employee engagement, and improving employee satisfaction.  

Here are some employee retention strategies that your business can use to improve employee retention and ensure they stay motivated.  These include:

• Competitive wages, employee benefits packages, and other incentives
• Better employee recruitment processes including honest representation of a role’s expectations and challenges
• Proper employee orientation and a solid onboarding process
• Employee performance reviews and emphasis on career development
• Effective relationships with managers
• Ongoing training and development
• Improved employee engagement