Employee Retention Rate

Definition of Employee Retention Rate

The Employee Retention Rate is a metric that indicates the percentage of employees who remain employed within an organization over a specified period. In other words, it measures a company’s ability to retain its employees over a certain timeframe (e.g., a year).

The Importance of the Employee Retention Rate

The value of the retention rate reflects workforce stability and employee satisfaction. A high retention rate suggests that employees are satisfied with their working conditions and development opportunities, feel valued, and are not considering changing employers. Furthermore, by expressing their satisfaction, such as through the organization’s social media channels, they can attract new talent. These employees are an incredibly valuable resource!

Conversely, a low retention rate is a warning sign for managers and the HR department that employees may be dissatisfied with their job, compensation, management, or lack of development opportunities. Low retention can lead to higher costs associated with recruiting and training new employees and potentially result in the loss of knowledge and experience within the company. This, in turn, negatively impacts the company’s image in the labor market and weakens its reputation in the eyes of customers.

How to Calculate the Employee Retention Rate?

The Employee Retention Rate can be calculated using the following formula:

Retention Rate = (Number of employees at the end of the period / Number of employees at the beginning of the period) × 100%

New hires are not included in this calculation.

Example 1

Company X employed 125 employees in January 2019. By December of the same year, only 65 of them were still employed. The retention rate is therefore (65 / 125) × 100 = 52%.

❌ Oops! The HR department should investigate the reasons behind such a low value. There could be serious issues within the company that need to be addressed.

Example 2

Company Y employed 83 employees in January 2022. By December of the same year, 75 of them were still employed. The retention rate is therefore (75 / 83) × 100 = 90.4%.

✅ Wow! This is an excellent result, indicating stable workforce conditions. This company truly cares about its team!

How to Accurately Measure Employee Retention?

1. Determine the measurement period based on the company’s needs.
2. Consider the specific characteristics of the organization and analyze retention in the context of the industry, type of work, seasonal turnover, or team characteristics (e.g., retention among new employees, retention in key departments).
3. Regularly collect data on the reasons employees leave.

Why Do Employees Leave Their Jobs?

According to the Work Institute’s 2023 report, the reasons for employee departures can be divided into several categories. In the report, they were distributed as follows:

• 18,7% of employees cited career reasons (e.g., lack of development opportunities, lack of promotion, feeling unappreciated, etc.).
• 12,4% pointed to working conditions (e.g., stress, limited resource availability, inadequate training, job characteristics, etc.).
• 11,9% mentioned inadequate total compensation (including base salary, benefits, bonuses, or commissions that were unsatisfactory).
• 11,3% indicated health or family reasons (e.g., inability to balance work with childcare or eldercare, health issues related or unrelated to work, etc.).
• 10,8% cited work-life balance issues (e.g., travel requirements, commuting, mismatched schedules, etc.).
• 8,8% cited the need for relocation (initiated by the employee, company, or spouse).
• 7,9% pointed to management issues (e.g., unprofessional behavior, lack of support, lack of knowledge, skill deficiencies, or communication breakdowns between employee and employer).
• 7,8% cited environmental conditions (e.g., inappropriate organizational culture, unattractive work environment, unattractive mission and values, lack of security, lack of diversity, or improper behavior of coworkers).
• 5,7% decided to retire.
• 4,0% voluntarily resigned or left due to the expiration of the employment contract.
• Less than 1% cited general employment conditions as their reason for leaving.

The more detailed the data on the reasons for departures that can be gathered, the easier it will be to implement appropriate retention strategies.

Steps to Improve Employee Retention Rate

To effectively improve the Employee Retention Rate and build a stronger, more motivated, and loyal team, follow these three steps:

Step 1

Start by identifying the reasons for employee turnover. Tools such as pulse surveys, regular eNPS surveys, and data collected during exit interviews will help you in this process.

Step 2

Develop an appropriate strategy to address the issues raised by employees. You can:

• Improve the recruitment process and select candidates more carefully to better match the profile of your team and organizational culture.
• Enhance communication quality and team integration.
• Expand training offerings, provide mentoring, and ensure transparency in career development paths.
• Improve working conditions to help employees better balance their professional and personal lives.
• Enhance the ergonomics of workspaces.
• Review compensation and benefits policies to ensure they are competitive and meet employee needs.
• Introduce a system of rewards and recognition for achievements to motivate employees to perform better.

Step 3

Regularly gather feedback from employees and provide them with the necessary communication tools to express their ideas or concerns. This way, you will stay up-to-date with the team’s situation and ensure that all procedures are functioning properly. This is your opportunity to retain employees in the company for as long as possible.

Employee Retention Rate – Summary

The Employee Retention Rate is an important metric that helps assess whether a company is effectively taking care of employee satisfaction.

• High retention indicates team loyalty and engagement, leading to higher efficiency, lower operational expenses, and a better reputation in the job market.
• Low retention is associated with high turnover, reduced productivity, and a decline in team morale.

Regularly monitoring the retention rate and continuously adjusting employee retention strategies are key components of long-term business success.