The Importance of Retention

I have always said that as important as selecting the right person for a job is making sure that they are retained once they are on board. Sometimes, after months of effort in the search process, perhaps the cost of a recruiter, applications, interviews, and background checks, once the employee is on board, the level of effort seems to come to a standstill. The effect of the time, energy and expenditures on a company for a loss of personnel can add up, and in today’s economy, where every penny counts, it is an area that should be paid attention to. I am of course not talking about the employee who is not doing their job or is a poor reflection on the organization that they work for, but rather the good, and solid employee that does their work, doesn’t make waves and for the most part goes unnoticed that is lured away by the promise of greater reward (financial or emotional).

The attached article describes the effect that poor retention can have on a company.


David Lammert

Retention Still Goes Mostly Unmeasured

Abridged:, By: David Earle

Poor retention is expensive and that expense is most often unrecognized and understated. Few companies measure either the causes or effects in a systematic way. A best practices program here needs at least six elements: on-boarding interviews, comprehensive employee satisfaction interviews, general worker environment surveys, exit interviews, a calculation of turnover costs and a demonstrated link to the strategic and tactical business discussions of senior management and the corporate board.

On-Boarding Interviews

The first of two measurements that help assess the quality of the candidates recruited and the efficiency of the on-boarding process. Are we bringing 1000 people (@ $1800 each) through the funnel only to lose 15% of them (a waste of $270,000) within 90 days?

Employee Satisfaction Surveys

Call this what you will – follow ups, evaluations, reviews, assessments or surveys – these tell you how employees feel about their workplace. For new employees this is especially critical because 86% of them decide whether or not to stay with the firm within their first six months. As a general rule, the longer people stay with a company the less apt they are to leave, but there are some important caveats: 1) the more senior they are, the more expertise, experience and institutional wisdom they take with them if they do leave; and 2) regardless of what they say in surveys, our research shows that half the currently employed workforce is looking at job opportunities on the Internet and almost everyone will consider a new job if the benefits are great enough. As we have reported elsewhere, the social contracts binding employer and employee are a shadow of what they used to be. Very few employees any more, no matter how tenured, are locked in for life.

Worker Environment Surveys

Less personal than satisfaction surveys, these measure structural and process issues that need reassessment or improvement. Regardless of how much it affects them personally, people like being able to point out a problem and see it fixed. They dislike not having that input and seeing the status quo drag on indefinitely. These surveys can also be used to inform future actions such as changes in benefit plans or pending corporate mergers and acquisitions.

Exit Interviews

If you can’t save an unexpected and inconvenient run of voluntary terminations, at least you can, and need to, find out why the people left. A certain number will be unavoidable but what’s that number? Are you losing people for avoidable reasons, reasons that can be fixed? A systematic debriefing program will provide that information. A general, fill-in-the-blanks survey will not help very much. People on their way out the door have little investment in their answers and will seldom say what’s really on their minds, which is precisely what you need to hear. Do as many actual interviews as you can afford and have pros handle these. If you don’t have pros on staff, contract the work out.

Employee Turnover Costs

If it doesn’t increase or decrease the bottom line, senior management isn’t going to pay much attention. So make the case that’s there to be made. Most companies, if they measure turnover costs at all (and the chart shows it’s not all that many), only measure the direct costs to recruit a new employee (marketing, vetting, interviewing, transportation, relocation, etc). But that’s not where the big money is for most positions; instead, it’s in lost productivity and opportunity costs. These can be calculated. There are a number of benchmarks for vacancy costs. One we published in 2007 put the average for employees in the $40,000-$60,000 range at 150% of salary. If you want management to pay attention to your focus on turnover, put the proper cost on it.

Management Compensation Tied to Turnover

Nothing quite focuses the mind of a manager like a target linked to his performance review, advancement prospects and compensation. A goal that isn’t linked is just “nice to do,” while one that is linked becomes a “must do.” Best practice retention programs almost all establish that link. If managing a firm’s human capital is truly important, the firm’s core management initiatives must support it.

Links to Tactical and Strategic Corporate Plans

Best Practice turnover initiatives have executive support. They have that support because they link to the priorities of the company as a whole. They are not good to have because HR says so, but because the company understands that it can’t get where it wants to go unless it factors turnover/retention into meeting its objectives.

Final Note

Some amount of employee turnover is inevitable. There are three kinds: turnover you desire and precipitate (layoffs, underperformance); turnover you can’t avoid (death, retirement, changes in family status); and turnover you wish you could prevent (competitor poaching, compensation, advancement, boredom, burn out, management conflicts). Best in class companies do a much better job with the third kind than their peers. FORTUNE magazine’s annual list of Best Companies to Work For cites these standouts as well as some of the specific programs they use.

It is clear that these companies, for their overall variety in addition to their different approaches and different programs, share a common perspective: that hiring good people, engaging them, developing them and retaining them is good, bottom-line business. Any extra resources it takes to accomplish this are well spent.

Turnover is one of the valuable markers of workforce health. Like high blood pressure, high cholesterol or insomnia it is an indicator. Ignoring it has consequences, negative ones. Heeding it has demonstrable benefits.

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