Employee Retention

Employee retention refers to the ability of an organization to retain its employees. Employee retention can be represented by a simple statistic (for example, a retention rate of 80% usually indicates that an organization kept 80% of its employees in a given period). However, many consider employee retention as relating to the efforts by which employers attempt to retain employees in their workforce. In this sense, retention becomes the strategies rather than the outcome.

A distinction should be drawn between low performing employees and top performers, and efforts to retain employees should be targeted at valuable, contributing employees. Employee turnover is a symptom of a deeper issue that has not been resolved. These deeper issues may include low employee morale, absence of a clear career path, lack of recognition, poor employee-manager relationships or many other issues . A lack of satisfaction and commitment to the organization can also cause an employee to withdraw and begin looking for other opportunities. Pay does not always play as large a role in inducing turnover as is typically believed.

In a business setting, the goal of employers is usually to decrease employee turnover, thereby decreasing training costs, recruitment costs and loss of talent and organisational knowledge. By implementing lessons learned from key organizational behavior concepts employers can improve retention rates and decrease the associated costs of high turnover. However, this isn’t always the case. Employers can seek “positive turnover” whereby they aim to maintain only those employees who they consider to be high performers.

The Cost of Turnover

Studies have shown that cost related to directly replacing an employee can be as high as 50-60% of the employee’s annual salary, but the total cost of turnover can reach as high as 90-200% of the employee’s annual salary. These costs include candidate views, new hire training, the recruiter’s salary, separation processing, job errors, lost sales, reduced morale and a number of other costs to the organization. Turnover also affects organizational performance.

Herzberg’s Theory

An alternative motivation theory to Maslow’s Hierarchy of Needs is the Motivator-Hygiene (Herzberg’s) theory. The theories have overlap, but the fundamental nature of each model differs. While Maslow’s Hierarchy implies the addition or removal of the same need stimuli will enhance or detract from the employee’s satisfaction, Herzberg’s findings indicate that factors garnering job satisfaction are separate from factors leading to poor job satisfaction and employee turnover. Herzberg’s system of needs is segmented into motivators and hygiene factors. Like Maslow’s Hierarchy, motivators are often unexpected bonuses that foster the desire to excel. Hygiene factors include expected conditions that if missing will create dissatisfaction. Examples of hygiene factors include bathrooms, lighting, and the appropriate tools for a given job. Employers must utilize positive reinforcement methods while maintaining expected hygiene factors to maximize employee satisfaction and retention.

Equity Theory

Equity theory has been widely applied to business settings by industrial psychologists to describe the relationship between an employee’s motivation and his or her perception of equitable or inequitable treatment. In a business setting, the relevant dyadic relationship is that between employee and employer. As in marriage and other contractual dyadic relationships, equity theory assumes that employees seek to maintain an equitable ratio between the inputs they bring to the relationship and the outcomes they receive from it (Adams, 1965). Equity theory in business, however, introduces the concept of social comparison, whereby employees evaluate their own input/output ratios based on their comparison with the input/outcome ratios of other employees (Carrell and Dittrich, 1978). Inputs in this context include the employee’s time, expertise, qualifications, experience, intangible personal qualities such as drive and ambition, and interpersonal skills. Outcomes include monetary compensation, perquisites (“perks”), benefits, and flexible work arrangements. Employees who perceive inequity will seek to reduce it, either by distorting inputs and/or outcomes in their own minds (“cognitive distortion”), directly altering inputs and/or outcomes, or leaving the organization (Carrell and Dittrich, 1978). These perceptions of inequity are perceptions of organizational justice, or more specifically, injustice. Subsequently, the theory has wide-reaching implications for employee morale, efficiency, productivity, and turnover.

Retention Programs

It is important to first pinpoint the root cause of the retention issue before implementing a program to address it. Once identified, a program can be tailored to meet the unique needs of the organization. A variety of programs exist to help increase employee retention, which are

• Career Development – It is important for employees to understand their career path within an organization to motivate them to remain in the organization to achieve their personal career goals. Through surveys, discussion and classroom instruction, employees can better understand their goals for personal development. With these developmental goals in mind, organizations can offer tailored career development opportunities to their employees.
• Executive Coaching – Executive coaching can be used to build competencies in leaders within an organization. Coaching can be useful in times of organizational change, to increase a leader’s effectiveness or to encourage managers to implement coaching techniques with peers and direct reports. The coaching process begins with an assessment of the individual’s strengths and opportunities for improvement. The issues are then prioritized and interventions are delivered to target key weaknesses. Assistance is then provided to encourage repeated use of newly acquired skills.
• Motivating Across Generations – Today’s workforce includes a diverse population of employees from multiple generations. As each generation holds different expectations for the workplace, it is important to understand the differences between these generations regarding motivation and engagement. Managers, especially, must understand how to handle the differences among their direct reports.
• Orientation and On Boarding – An employee’s perception of an organization takes shape during the first several days on the job. It is in the best interest of both the employee and the organization to impart knowledge about the company quickly and effectively to integrate the new employee into the workforce. By implementing an effective on boarding process, short-term turnover rates will decrease and productivity will increase.
• Women’s Retention Programs – Programs such as mentoring, leadership development and networking that are geared specifically toward women can help retain top talent and decrease turnover costs. By implementing programs to improve work/life balance, employees can be more engaged and productive while at work.

Retention Tools and Resources

• Employee Surveys – By surveying employees, organizations can gain insight into the motivation, engagement and satisfaction of their employees. It is important for organizations to understand the perspective of the employee in order to create programs targeting any particular issues that may impact employee retention.
• Exit Interviews – By including exit interviews in the process of employee separation, organizations can gain valuable insight into the workplace experience. Exit interviews allow the organization to understand the triggers of the employee’s desire to leave as well as the aspects of their work that they enjoyed. The organization can then use this information to make necessary changes to their company to retain top talent. Exit interviews must, however, ask the right questions and elicit honest responses from separating employees to be effective.
• Employee Retention Consultants – An employee retention consultant can assist organizations in the process of retaining top employees. Consultants can provide expertise on how to best identify the issues within an organization that are related to turnover. Once identified, a consultant can suggest programs or organizational changes to address these issues and may also assist in the implementation of these programs or changes.