With unprecedented rates of job turnover during the so-called Great Resignation, many companies are struggling to hold on to employees. As a result, employee retention has become even more important in today’s rapidly changing workplace.
In March 2022, 4.5 million American workers voluntarily left their jobs, close to last November’s record. And according to a January 2022 Willis Towers Watson survey, 44% of employees said they were planning to seek new roles early this year or were actively looking for new jobs at the end of 2021.
This kind of turnover can be damaging to companies for many reasons. And as companies work to engage employees, it’s important to build strategies with a clear understanding of why employee retention is important.
Benefits of Employee Retention
While many companies claim to prioritize loyalty, too often, the importance of employee retention is not fully understood or communicated to managers. Key benefits of employee retention include the following.
1. Cost Savings
Losing employees isn’t just a logistical challenge; it’s also a financial one. On average, it costs one-half to twice an employee’s annual salary to replace them, including recruiting, onboarding, and the time it takes to get up to speed.
As Gallup points out, a 100-person organization paying an average salary of $50,000 per year could lose $2.6 million to the cost of replacing employees, given a fairly standard turnover rate of about 26%. That means cost savings can quickly mount for organizations that retain their employees for the long term.
2. Increased Productivity
Open roles due to employee turnover are a major drain on productivity and output. But even when those roles are filled, it takes time for employees to get up to speed on their work and reach peak productivity.
According to the Harvard Business Review, it often takes about six months for an employee to acclimate to a new position after an internal transfer and a year or more after joining a company from the outside. Once companies have put time and training into an employee, retaining them is essential to achieve a return on that investment.
3. Stronger Customer Relationships
A company’s relationships with its customers are essential to its success. In many industries, one-to-one relationships are especially effective in driving business (for example, the relationship between a software sales representative and a company’s tech director).
Customer trust takes time to develop, and many buyers are more comfortable having a trusted contact if they run into trouble with a product or service. Retaining employees, therefore, can be central to retaining customers.
4. Higher Employee Engagement
Just as it takes time for new employees to get up to speed on the nuts and bolts of their roles, becoming engaged with a company’s work and mission is also a long-term process. Employees who feel invested in their company’s future and plan to stay are more likely to put their best foot forward at work. And engagement pays dividends. Gallup found that highly engaged companies are 23% more profitable than those with low engagement.
5. Improved Trust and Collaboration
The longer employees work together, the more likely they are to develop relationships built on trust and understanding of each other’s strengths. When colleagues know they can count on one another, they are likely to communicate and collaborate more effectively, driving the company forward.
6. More Positive Workplace Culture
Long-term working relationships between colleagues don’t only lead to improved business outcomes; they also make employees happier and more engaged, showcasing another reason why employee retention is important. Gallup has found that having a “work best friend” is a solid predictor of how connected employees feel to their jobs. Without strong employee retention, it’s impossible for those bonds to flourish.
7. Preservation of Institutional Knowledge
Institutional knowledge—the ins and outs of a company’s operations and processes, nuances of customer and vendor relationships, and history of successful and failed initiatives—is invaluable. But by nature, employees with the most longevity in an organization hold that knowledge. Retaining those employees keeps the company running smoothly and allows them to pass down key insights.
8. Narrowed Skill Gaps
When critical employees with highly specific skill sets leave organizations, that can cause skill gaps to develop, risking the company’s ability to achieve key objectives. And since it’s generally more expensive for organizations to hire externally to fill those gaps than to develop their employees internally, loss of critical skills can also prove costly.
9. Higher Employee Morale
Researchers have documented a phenomenon known as “quitting contagion,” in which one or more employees leaving a company triggers others to start looking elsewhere, even when external factors like poor management don’t come into play.
When employee turnover creeps higher, morale suffers, stress rises, and employees naturally start to question their company, creating a vicious cycle. Prioritizing retention can help avoid this dangerous pattern.
10. Reduced Stress and Burnout
Stress and burnout have reached critical levels across industries during the COVID-19 pandemic, with serious negative consequences for employees and companies. When employee turnover spikes and positions sit unfilled, the employees who remain must often pick up the slack. This increases burnout and can lead to negative health and productivity consequences.
11. More Effective Recruitment
Strong employee retention can be a huge boon to a company’s brand and its recruitment efforts. Today’s employees research companies carefully when considering an offer. And high rates of turnover can be a serious red flag, especially when the position they are being hired for is frequently unfilled. Companies with high employee longevity, on the other hand, project a positive image that can be a strong draw to talent.
In today’s hyper-competitive marketplace, the importance of employee retention is clear. Savvy companies will take that knowledge and use it to drive engagement and retention efforts that improve morale, drive productivity, and ultimately grow the company’s profits.
Are you working to improve employee retention? Data shows that investing in employees’ professional development and growth has powerful retention benefits. Contact Emeritus Enterprise today to learn how we can build online employee training programs that grow your employees’ skills while increasing engagement and retention.