Why Does Employee Retention Matter?

Whatever type of turnover—voluntary or involuntary, regrettable or not— there is a cost.

Any time an employee leaves a vacant role, there is the time, money, and effort associated with recruiting, hiring, and training a replacement. There may also be separation costs like severance pay.

Clipboard Team

According to Gallup, replacing an employee generally costs between one-half to two times their annual salary. Based on Gallup’s finding that 52% of voluntary turnover is avoidable and the average voluntary turnover in the U.S., there is a potential savings of over half a trillion dollars every year. 😳💸

In addition, there is the cost of lost productivity while the position is vacant. It can take a year or two for a new hire to equal the productivity of the employee who left.

Furthermore, it can impact the morale and productivity of the team that’s left, which can lead to lost revenue, less efficiency, and further turnover.

Another cost is the knowledge, skill, and relationships that you lose with a departing employee. Consider even the amount you directly invested in building that employee’s abilities that you may now have to start fresh with a new employee.

You also lose the potential value the employee could have brought to the company, particularly as it relates to succession planning. The higher this loss, the more likely this turnover falls into the regrettable category.

And finally, turnover can have a broader impact on the brand. Current and former employees can be valuable ambassadors for a company, or they can share their negative experiences with their personal, professional, and online network, putting both the employer brand and consumer brand at risk.

Want to see actual numbers? To put this in financial terms, try our free Cost of Employee Turnover Calculator for an estimate.

Retention and engagement

The importance of retention is not just to minimize cost—is also offers opportunity to increase sales and employee morale.

Retention on its own is important for the bottom line, on top of which it plays an important role in another key business driver: employee engagement.

Just take a look at the following common definitions of employee engagement:

  • Gallup: “those who are involved in, enthusiastic about and committed to their work and workplace.”
  • Aon: “the level of an employee’s psychological investment in their organization.”
  • IBM Kenexa: “the extent to which employees are motivated to contribute to organizational success, and are willing to apply discretionary effort to accomplishing tasks important to the achievement of organizational goals.”
  • Harvard Business Review: “Employee engagement is when employees want to come to work, are capable of doing their jobs, and understand how their work contributes to the success of the organization.”

The most basic requirement for an employee to be invested in an organization’s success is to contribute to the organization long-term. From there, engagement can grow as we build greater involvement, enthusiasm, and effort.

And many research studies have established the importance of employee engagement:

  • Gallup showed that companies with highly engaged employees outperform their peers in terms of customer loyalty (10% increase), productivity (20%), and profitability (21%)
  • Best Buy found that a 0.1% increase in employee engagement at a particular store was worth $100,000 to the company
  • Our Employee Engagement Handbook shares how disengagement costs the U.S. $500 billion in lost productivity every year, along with a practical guide to improve engagement

Korn Ferry predicts a global talent shortage over 85.2 million people by 2030. In the U.S. alone, that’s $1.75 trillion in unrealized annual revenue. Retention and engagement work hand-in-hand to keep the talent you need for business success.

When unemployment rates are lower, employees have more options and so turnover tends to raise while overall retention becomes more critical. Regardless of the external environment, regrettable turnover is always a concern because top talent always has options.

And even when unemployment rates are high and competition for labor is low, it’s plain prudent to prepare for a turn in the market. It will pay off in the long-run when you retain the people you invested in developing and those you rely on for key skills, knowledge, and relationships.

Every industry and job has its unique challenges. Read onward to Chapter 3 to find a detailed analysis of the causes of employee turnover.

We also invite you to learn more about Bonusly’s employee recognition and rewards platform and join us for a demo to understand how you can start building a recognition-rich organizational culture.

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