Every organisation needs to have a strategy in place to retain talent. It gives the organisation a competitive edge and can affect productivity, profitability and customer satisfaction. HR practices and programs can directly impact the ability of an organisation to keep talent.
Why is Employee Retention Important?
There are many reasons why employee retention is critical for a successful business. Retention of skilled employees is a very important issue for organisations because high rates of turnover can result in loss of knowledge, skills, productivity and profits. In addition, there is even greater pressure on small businesses which have to compete at times for talent against larger organisations.
High turnover of staff can cost the business time, effort and money and it can become very expensive. The cost of replacing an employee is approximately 1.5 times their annual salary.
Companies that understand the priorities for their employees can help shape the organisation’s policies and culture to support retention of employees. Today the emerging workforce is developing different attitudes about work and how it is designed to fit into their lives. Today’s employees may place a priority on:
- Family time
- Sense of community
- Autonomy in their roles
- Flexibility in where, when and how they do their work.
Successful organisations make it a strategic initiative to understand what their employees want and require in their workplace so that they can design a workplace and implement programs that retain and engage their employees more effectively.
Common Reasons Employees Leave Their Jobs
Understanding why people leave their jobs can help organisations improve their retention rates. Many managers believe that most people leave their jobs for an opportunity that pays more money, but the real reasons are often more complex.
Even when an exit interview is conducted, some employees will not be forth coming as to the real reasons for their departure and this may be so they stay in good standing with their company in case their require a reference.
Understanding why employees leave can help organisations identify what the problems are and how to address them. It is important to realise that every employee is different. Their reasons for staying or leaving will be different, and may even change over time.
An employee’s decision to leave can be motivated by a number of “push” or “pull” factors. ‘Pull’ factors are those motivations that are outside the control of the organisation, for example needing to care for elderly relatives, moving to another location, changing careers, or deciding to retire. The ‘push’ factors are those which the organisation can control. The ‘push’ factors play a bigger part in the reason for employees to leave an organisation than most employers think.
Common examples of ‘push’ factors include:
- A poor relationship with their direct manager
- Lack of development opportunities
- Lack of appreciation
- Lack of support
- Lack of meaningful and challenging work
- Inadequate compensation
- Toxic workplace culture
Good management is critical for retention. Front-line managers, in particular play a critical role and their behaviour relates directly to employee retention, engagement, jobs satisfaction and performance.
How HR Can Influence Improved Retention
There are several key factors which affect employee retention and many of these (if not all) fall within the sphere of HR programs and practices. Being aware of the different factors that affect employee retention and understanding which are more relevant to an individual organisation makes it easier for HR practitioners to focus on the areas they can influence and change.
Leadership and Management
There is a distinction between leadership and management. Leadership involves setting the vision and direction to move forward. Management involves the management and direction of people and resources to make the vision a reality. Great leadership skills can increase retention and productivity as people are more motivated and happier to give more to their roles.
A good leader may:
- Ensure good communication within the team and all employees so that they feel valued
- Involve others in the decision-making process to ensure what everyone is required and expected to do in their roles
- Provide encouragement, reward and recognise good performance.
The style of leadership will depend on the personality and experience of the leader, but strong interpersonal skills, good emotional intelligence and the ability to inspire trust and confidence are important.
Managers place a critical role in employees feeling valued and fulfilled in their jobs. In general, people respond well to managers who are consistent, clear, fair, firm but understanding and flexible. When employees feel trusted, respected and valued by their manager it encourages them to perform well and they are less likely to leave their roles. This helps to retain staff and encourage productivity.
It is important to note that people can be motivated by different things so the manager must also understand what gets the best out of their staff and what recognition and reward would suit the individual.
A well prepared induction program is critical in helping new employees better settle into and become effective in their role as efficiently as possible.
New employees need to understand the organisation, the culture, the systems, the team and what is expected of them in their role. Employees who settle well in their roles tend to stay longer in their positions. As turnover can be high within the first three months of a new hire, organisations should actively invest in effective induction activities.
For small businesses, a simple way to remain connected with the new employee is to have regular catch-ups and discussions with employees on how they are tracking and feeling in their new role. The induction process should ideally begin on the first day of employment and spread over several weeks or months.
HR professionals are a key point of contact during the induction process, and HR should work closely with line managers to monitor new hires as they settle in.
Managing Staff Performance
One of the best ways to improve retention is to have a robust and strong culture which supports ongoing performance management and feedback.
Employees are likely to stay with the organisation when they understand their role in helping the organisation achieve its objectives, are treated fairly, feel supported and are provided with development opportunities.
Ongoing performance reviews or one on one meetings (with manager and staff) must be held often to be effective. Regular review meetings provide opportunities to provide feedback, recognition and to discuss work tasks. Other benefits of these meetings include; improving moral, motivation, a greater understanding of work goals, and discussion of training needs and areas for improvement. Regular performance discussions should be held both formally and informally throughout the year.
Rewards And Benefits
Retention can be greatly improved with reward programs and a range of employee benefits items. Effective reward systems can help an organisation be more competitive, enhance employee motivation, retain key employees, and reduce turnover.
Rewards that are linked to organisation, team and individual goals can encourage employees to gain the skills that are necessary to help them and the organisation grow. This can also increase their desire to continue being part of the organisation.
Managers need to understand their employees’ perceptions of the importance and fairness of the reward and then clearly communicate what needs to be done to receive the reward. Understanding how each employee perceives and values different rewards is essential for managers in getting the best out of their team. Managers also need to understand both extrinsic and intrinsic rewards.
Extrinsic rewards are external rewards tied to certain employee behaviours, skills, time, or roles in an organisation. For example, a well-paid but overworked employee may value additional holiday leave or a reduced workload more than a few extra dollars. Money, praise, recognition, awards, and other tangible incentives are all examples of extrinsic motivators.
Intrinsic rewards see people act because it feels good or provides them with some form of internal satisfaction. Intrinsic rewards are often more highly valued and more effective over time, yet using them is a difficult managerial task.
Whatever type of reward the manager chooses, the employee must see the reward as a motivator for it to be effective.
Flexible Working Arrangements
For many employees, flexible working arrangements are a key benefit in their employment. This is particularly effective in retaining high performers as they move through different life and career stages, including study, parenthood and other carer responsibilities.
Most common types of flexible working include:
- Part time
- Flexi time: choosing when to work, normally there is a core period during which you work
- Staggered hours: different starting, break and finishing times
- Job sharing: one full time job split between two workers
- Remote/Working from home: working from any physical/geographic location that provides the employee with access to the equipment and resources required to perform their work
Training, Development and Learning
Research has shown that training and development opportunities can improve retention of staff within an organisation as people feel they are growing and building their skill base. Such activities also boost confidence, knowledge, skills, experience, performance and productivity.
Another reason why people leave their organisation is due to lack of advancement/career and development opportunities within the organisation. By defining career paths within an organisation and being transparent about the requirements to move into higher positions, organisations can manage employee expectations. Talent management and succession planning programs can also boost retention of top talent by ‘earmarking’ them for future promotion. Career pathways should also be incorporated into performance management discussions at all levels.
Succession planning is important in managing talent within an organisation. It is a process by which employees are identified for key posts, career moves and/or development activities. Employees may be ready to do a job right now or be seen to have longer term potential.
Individuals identified are often provided appropriate training and development plans to ensure they are given the skills, abilities and qualifications to support them with their career development. Succession planning assists with retention when employees can see where future opportunities lie ahead if they stay with the organisation.
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Updated February 2022