Resources How-to's Establishing an effective employee turnover and retention strategy


Establishing an effective employee turnover and retention strategy

Retaining top talent is a priority for every organization, in every industry and every part of the globe.

However, turnover isn't always a bad thing. It's important for any organization to see an ongoing, regular influx of new talent that brings fresh ideas and experience along with a different perspective. Turnover can help rejuvenate an organization and invites everyone to continually examine and challenge common practices and assumptions, looking for ways to improve.

But, too much turnover can harm the organization, resulting in:

  • Uneven workloads
  • Lower employee morale or engagement
  • Loss of corporate knowledge/memory
  • Lack of continuity, particularly in customer or supplier relationships
  • Problems with quality or productivity

The trick is getting the balance right. As a general rule, while turnover rates vary with the economic climate, most organizations try to keep turnover below 15%. In some industries, like hospitality or retail food, that number may be unattainable. In other industries, they struggle to raise their turnover above 3% in order to stay dynamic. Your organization will need to pay attention to turnover rates over a period of time to determine its optimal target rate.

Some common reasons for employee departures

While research shows that most managers believe people leave their jobs for an opportunity that pays money, most employees will tell you a different story.

But you're not likely to learn the reasons why in an exit interview. Departing employees are often reluctant to be forthcoming about the reason for their departure in order to stay in good standing with the organization, in case they need a reference or ever choose to return.

HCI reports that the top three reasons people leave their organization have remained similar for decades and across generations of workers. They include:

  • A poor relationship between the employee and their direct manager
  • A lack of opportunity for growth and development
  • A lack of challenging and meaningful work

What's important to realize though is that every employee is different. Their reasons for staying or leaving will be different, and may even change over time.

So what can your organization do to retain valuable employees?

Make a counter-offer

Most organizations resort to counter-offers to help retain valued employees. Yet studies show that 70-80% of the employees who stay as a result of a counter offer leave within nine months. The success rate is somewhat higher if they employee is given a different role or a different manager, but overall, counter offers aren't really effective as a long term retention tool.

Conduct exit interviews

Even though departing employees are often reluctant to tell you the reasons why they're leaving, it's still worth asking them. Some companies find they get better information by using third parties to conduct the interviews 60 or 90 days after an employee has left. It can also be helpful to ask the employee for their suggestions about ways the organization can improve and better retain staff like them, rather than directly ask them why they are leaving. Sometimes, managers and co-workers can also give you valuable insight. What's important is to let everyone know you're trying to learn from the experience and improve; and the best way to do that is to visibly take action as a result of what you learn.

Get to know what's important to your employees

To effectively retain valuable staff, managers need to know what's important to each individual and work to remain an "employer of choice" for them. This is especially important for your top performers or those with scarce skills; they typically have more opportunities open to them because of their skills and experience. But managers also need to focus on their solid, stable performers. These employees often feel overlooked or undervalued, yet they form the backbone of your workforce.

To do this effectively, managers need to develop strong working relationships with all their employees, and stay attuned to individual motivations, passions, frustrations, dissatisfactions, etc. Then they need to work with each employee to address working issues that could impact retention.

Hold regular "stay interviews"

Rather than holding exit interview with employees who've already made the decision to leave your organization, why not hold "stay interviews"? They can be a great way to learn what's important to each employee.

A stay interview is a meeting with an employee where you discuss things like:

  • What they like and dislike about their role
  • What are their top strengths
  • What things they'd like to learn or what experience they'd like to acquire
  • What, if anything, they would change about their job, department, company
  • What things satisfy them, ignite their passions, make them want to come to work every day
  • What would make a "great day" at work
  • What things demoralize them and make them long for the weekend
  • What forms of recognition do they most appreciate
  • What talents, skills, abilities do they wish they could make more use of
  • Is there any reason why this is not the "right" place for them to work

The goal is to gain a better understanding of what motivates and demotivates the employee so you can work with them to create an engaging and satisfying work environment.

Ideally, you should hold a stay interview with each employee after their first six months on the job. But it might also be a good idea to hold regular, perhaps annual, stay interviews with your top talent, and even your solid performers. This would help support better working conditions, and a better relationship and communication between managers and employees.

Focus on talent management best-practices

Ensuring all your managers are familiar with and practicing talent management best-practices is one of the best ways to retain valuable staff. Talent management programs help ensure you hire the right people from the start, then give employee get the direction, feedback, development and recognition they need to not only perform, but continually develop, improve and succeed.

You not only need to implement programs or processes that support these activities, you need to provide managers with training on things like setting effective goals, giving feedback, writing job descriptions, interviewing and selecting candidates, motivating employees, recognizing and rewarding employees, etc. These are not innate skills that come easily to most people; managers need to learn and practice them.

Ideally, talent management best-practices should be a part of your organizational culture; something your managements do every day.

Tracking your turnover metrics

One of the best ways to put an effective employee retention strategy in place is to track your turnover metrics. But it's not sufficient to simply measure average turnover. While this metric can give you a generally understanding of turnover trends, it doesn't give you sufficient information to take effective action.

What you really need is segmented turnover data. By examining turnover data by location, department and manager, you can identify trends, uncover root causes and take appropriate action. You also need to segment your turnover data by employee performance or value. Turnover of low performers might be a good thing for the organization; but you don't want to be losing an inordinate number of high-performing, high-potential employees, or even a large number of your solid performers.

HCI suggests you track turnover using a table similar to this one, in order to spot and address trends.

Top performers Solid performers Low performers
Avoidable departures By location
By department
By manager
Unavoidable departures
Uncertain of avoidability

Segmenting your turnover data in this manner will help you identify areas that seem to have a problem retaining talent. It may be a manager who requires coaching and training to improve their management skills, a department that is experiencing leadership challenges, or even a location that is proving unsatisfactory to staff because of accessibility. Once you see a trend, you can dig deeper to identify potential causes so you can take appropriate action and monitor progress. This approach also helps you identify areas with a stellar record for retention, so you can share best-practices across the organization.

One final metric that is important to track: turnover of your top talent compared to turnover for your solid and low performers. Higher turnover rates for your top performers can signal serious organizational problems that need to be addressed.

What is employee retention rate?

Employee retention rate is a statistic used by organizations to measure the effectiveness of how well they retain their employees. Employee retention rate is calculated by dividing the number of employees who left during a period by the total number of employees at the end of a period.

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