Employee Retention - Definition and Importance
Employee retention refers to an organization's ability to prevent employee turnover. It includes policies, best practices, and critical strategies designed to prevent top talents from quitting their jobs voluntarily or involuntarily. In fact, it is one of the key focus areas of the HR department.
Every organization wants to retain its top employees for the business to thrive, and that's the main objective behind designing any employee retention strategies. They help mitigate the risks of employee turnover, keeping critical talent for longer.
What is employee retention in HR?
Employee retention is one of the key focus areas of the HR department, and it's this team that comes up with innovative strategies, practices, and policies to scale down the number of people quitting an organization by improving the overall conditions and critical processes.
Why is employee retention important?
Employee retention is important because it helps:
- Ensure productivity flow
- Lower turnover rates
- Save on hiring costs
- Reduce training time
- Improve morale and engagement
- Build a positive company culture
- Increase business revenue
What are the ways to increase employee retention?
Retaining good employees requires more than just paychecks. It’s about building a culture where people feel valued, supported, and seen.
- Build a positive, respectful workplace culture
- Encourage honest, two-way communication
- Promote work-life balance with flexibility and time-off
- Recognize employees regularly and meaningfully
- Map out clear career paths for growth
- Provide skill-building and learning opportunities
- Set up mentorship or coaching programs
- Offer fair pay aligned with the market
- Give access to strong healthcare and perks
- Add wellness support through EAPs or mental health programs
- Help employees feel purpose in their work
- Involve them in team decisions and planning
- Run regular team-building initiatives
- Make onboarding warm, clear, and structured
- Gather insights with exit interviews
- Train leaders to retain, not just manage
- Use performance reviews to guide and support growth
Why is employee retention important?
Retention supports business continuity and morale while saving hiring costs. It’s a long-term investment in productivity and culture.
- Keeps productivity consistent
- Reduces cost and time of hiring
- Cuts down on training hours
- Boosts employee morale
- Strengthens internal culture
- Improves revenue and customer experience
What are the best employee retention ideas?
Simple changes can make a big impact. Here are some of the most effective and creative retention strategies.
- Keep communication open between all levels
- Invite feedback and encourage problem-solving
- Offer hybrid or remote work setups
- Allow flexible working hours and breaks
- Set up employee recognition programs
- Focus on positive feedback and appreciation
- Create mentorship opportunities between peers
- Offer sabbaticals for career reflection and rest
- Involve staff in decisions that impact customers
- Build trust with transparent and fair policies
What is a good employee retention rate?
As a thumb rule, an employee retention rate of 90% or higher is considered good, meaning a company should aim to maintain its average employee turnover rate at least 10% or even lower.
Retention (number of employees who stay) and turnover (number of employees who leave) are two sides of the same coin, which are crucial HR KPIs.
A 100% retention rate may not be achievable because some employees who quit might be poor performers too, which only paves the way for high-performing talents to spend less time on training and be more engaged.
According to BLS, the average retention rate in 2021 was around 47.2%, but the individual rate differs by industry and sector. Food services, high-tech, and retail businesses typically have higher turnover rates than other industries.
An organization's ideal turnover rate and retention rate depend on various factors. These include your:
- Historical turnover rate
- Internal promotion rate
- The industry you are in
Unless you don't take the time to factor in these metrics, you won't have an accurate picture of how your business handles its retention and turnover.
What is an employee retention strategy?
An employee retention strategy is an organization's plan to reduce turnover rates, increase retention, prevent attrition, and foster engagement.
Although turnover at any company is inevitable, creating a retention strategy helps prevent voluntary turnover as much as possible. It also saves an organization on time and cost. After all, it is easier and less expensive to develop your current employees than to hire new people.
What are the best practices for improving employee relations?
Good employee relations foster trust, motivation, and stronger team dynamics. When people feel respected and heard, they stay committed to their roles.
- Build a culture of trust and respect
- Encourage two-way communication channels
- Offer learning and career growth programs
- Recognize and celebrate contributions
- Promote work-life balance through flexibility
- Empower employees with autonomy
- Enable cross-functional collaboration
- Create inclusive and diverse workplaces
What are the main drivers for employee retention?
To retain top talent, companies must align purpose, rewards, and feedback. These key drivers help employees feel connected and committed long-term.
- Align personal roles with company goals
- Recognize and reward high performance
- Appreciate efforts publicly and on time
- Run regular employee feedback surveys
What are the best employee retention strategies?
Strong retention strategies go beyond perks. They focus on well-being, appreciation, and long-term career growth.
- Pay fair, market-aligned salaries and benefits
- Promote physical and mental wellness programs
- Celebrate employee efforts and milestones
- Provide training, mentorship, and upskilling options
- Create a respectful, positive work environment
Employee pulse surveys:
These are short surveys that can be sent frequently to check what your employees think about an issue quickly. The survey comprises fewer questions (not more than 10) to get the information quickly. These can be administered at regular intervals (monthly/weekly/quarterly).
One-on-one meetings:
Having periodic, hour-long meetings for an informal chat with every team member is an excellent way to get a true sense of what’s happening with them. Since it is a safe and private conversation, it helps you get better details about an issue.
eNPS:
eNPS (employee Net Promoter score) is one of the simplest yet effective ways to assess your employee's opinion of your company. It includes one intriguing question that gauges loyalty. An example of eNPS questions include: How likely are you to recommend our company to others? Employees respond to the eNPS survey on a scale of 1-10, where 10 denotes they are ‘highly likely’ to recommend the company and 1 signifies they are ‘highly unlikely’ to recommend it.
Based on the responses, employees can be placed in three different categories:
- Promoters
Employees who have responded positively or agreed. - Detractors
Employees who have reacted negatively or disagreed. - Passives
Employees who have stayed neutral with their responses.
What are the different employee retention programs?
Retention programs help employees feel valued and supported, encouraging them to stay and grow within the organization.
- Recognition programs: awards, shout-outs, gift cards
- Learning programs: tuition help, training sessions
- Wellness programs: gym perks, mental health EAPs
- Work anniversary and milestone celebrations
What factors affect employee retention?
Here are some key factors that affect employee retention:
- Low employee morale: Lack of employee morale is highly contagious. It rapidly spreads to others and brings down their productivity levels too.
- No career growth: No employee enjoys doing the same old tasks every day, especially when there's no scope for growth or progress. Eventually, it creates career insecurities, triggering them to hunt for other better opportunities.
- Lack of timely recognition: Organizations that don't recognize employees' efforts must be prepared to see their top performers walk out for other opportunities.
- Poor relationships with managers and peers: A good paycheck and a few perks won't cut it. Employees spend most of their time at work, and a healthy business relationship is crucial to thriving in a workplace.
- Ignoring employee wellness: If an organization fails to offer proper well-being, they won't hesitate to look elsewhere.
Pro Tip:Retain your top talent by creating the Best Place to Work. Listen to your employees, resolve their concerns, and engage them with Empuls so they are happy, motivated, and stay longer. Talk to our engagement expert today!
How to improve employee retention?
Improving retention takes ongoing effort. From culture to compensation, every element contributes to how long employees stay.
- Shape a culture people enjoy working in
- Offer fair compensation and non-monetary perks
- Provide remote work and flexible hours
- Actively engage employees through feedback and trust
- Map out clear growth and learning opportunities
- Recognize contributions and provide regular feedback
- Keep communication honest and consistent
- Support mental health and overall wellbeing
How to measure employee retention?
Employee retention is generally expressed as a statistic where the percentage signifies the number of employees who prefer to stay in an organization for a fixed duration (example: a quarter/half year/yearly).
Here’s the formula to measure employee retention:
Employee retention rate = (Total no. of employees: Total no. of employees who quit ÷ Total no. of employees) X 100
Example: Assuming that you have 350 employees in your organization with 40 employees quitting every year on average, then your employee rate will be the below:
- Employee retention % = (350 - 40 / 350) x 100
- Employee retention % = (0.88) x 100
- Employee retention % = 88.57
- Employee retention rate= 88.57%
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