Why is 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 must compete at times for talent against larger organisations.
High turnover 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.
There are several elements which can help encourage employees to stay with an organisation longer. Companies that understand what their employee’s priorities are; can help shape their organisation’s policies and culture to support retention of employees.
Today the immerging 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 their work
Successful organisations make it a strategic initiative to understand what their employees want and require in their workplace so that they can retain and engage their employees more effectively.
- Retaining employees involves several processes;
- Understanding why your employees are leaving;
- Developing strategies to get them to stay
Common Reasons for Employees Leaving Their Jobs
Understanding why people leave their jobs can help organisations to improve their retention rates.
Many managers believe that most people leave their jobs for an opportunity that pays more but the real reasons are often very different.
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 to stay in good standing with the company in case of a reference later down the track.
Understanding why employees leave can help organisations identify what the problems are and how to address them. Employees leave for many different reasons. Sometimes it could be a change of career, time out to raise a family or care for relatives or retirement. These reasons are called ‘pull’ factors where it is outside the control of the organisation. The ‘push’ factors are those which the organisation can control.
It could be an unfavourable organisational culture where employees are not valued, dissatisfaction with the role or the manager, bullying etc. The ‘push’ factors play a bigger part in the reason for employees to leave an organisation than most employers think.
Good management is critical for retention. There is even greater importance of front-line managers and how their behaviour relates directly to employee retention, engagement, jobs satisfaction and performance.
There are many reasons why employees leave a job, including:
- A poor relationship between their direct manager
- Lack of development opportunities
- Lack of appreciation
- Lack of support
- Lack of meaningful and challenging work
- Inadequate compensation
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.
How HR Influences Retention
Being aware of the different factors that affect employee retention makes it easier for HR practitioners to focus on the areas that they can influence and change. There are 9 key factors which affect employee retention. Human Resource practitioners can use the information presented below as a checklist and a way to measure their own organisation’s performance.
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.
One of the key factors responsible for retaining staff is the role of the manager. Managers need to be effective and have a good working relationship with their employees.
- A successful manager requires numerous skills;
- Good organising and planning;
- Good communication with staff and an ability to explain work requirements and tasks clearly;
- Effective delegation;
- Good interpersonal skills to act as a leader, motivator, coach and figure of authority;
- Financial awareness and how to manage budgets effectively;
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.
Once a new employee has been recruited it is important for managers and supervisors to allocate time and resources to make sure the staff member has an effective induction. Organisations that go to the effort to advertise, interview and appoint new employees sometimes forget that induction is also an important activity.
A well-prepared induction program is critical. The reason for a structured and comprehensive induction program is that it helps 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.
The Induction checklist
An induction checklist can be useful when a new employee commences in their role.
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 are treated fairly, feel supported and provided with development opportunities. These are key areas which can lead to successful retention of staff.
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;
- 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.
Tips for managers – What your employees seek to discuss in their one on one meetings:
- Understanding work priorities and how they are progressing
- Formally acknowledge and celebrate success
- Discuss performance, training and career progression opportunities
- Provide regular feedback and open communication
Training and Development
Research has shown that training and development opportunities can improve retention of staff within an organisation. Such activities also boost confidence, knowledge, skills, experience, performance and productivity.
Rewards and Benefits
Retention can be greatly improved with reward programs and a range of employee benefits items. Reward systems can serve several purposes in organisations. Effective reward systems can help an organisation be more competitive, retain key employees, and reduce turnover. It can also enhance employee motivation.
Effective use of rewards 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. Managers should try to understand how much value each employee places on specific extrinsic rewards. 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 do not have an obvious external incentive. This means that people are not acting to get a tangible reward, be it time off or money. Instead, they act because it feels good or provides 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 which the manager chooses, the employee must see the reward as a motivator for it to be effective.
Developing an effective reward system is a challenging task but the return on investment can be significant for the business.
Benefits can play a big part in retention of employees. The types of benefits that organisations offer can be deemed by employees as an additional advantage for staying at the organisation. A benefits program needs to be designed and tailored to suit both the organisation and the employees to be effective.
Note – Not all ideas will be sustainable or suitable to every business.
Flexible Working Hours
For many employee’s flexible working arrangements is a key benefit in their employment.
Most common types of flexible working:
- 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; and/or
- Teleworking/Working from home: working from home if it fits the business.
Another reason why people leave their organisation is due to lack of advancement/career and development opportunities within the organisation. By increasing the learning and development opportunities for staff, organisations will raise their skills and knowledge, motivation, morale, loyalty and thus retain their staff.
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 or be seen to have longer term potential.
Performance management discussions and training needs analysis help organisations to identify those who may be future managers or be able to move into different roles. 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.
Employee Engagement can be linked to higher retention rates and it is a key item in building talent, reducing turnover and increasing productivity and profits.
Employees who are committed to and engaged with their work and their organisation tend to stay longer with the business. They are also more likely to voice when they are dissatisfied and thus give management an opportunity to improve things in the workplace that the employee is disgruntled with. Such open communication can help rectify and improve the workplace. Engaged employees tend to be more connected with the business and are willing to go above and beyond in their roles and for customers. High levels of employee engagement are consistent with less absence and employees are less likely to leave their organisation. Retaining engaged employees makes good business sense.
What is an engaged employee? An engaged employee is one who has:
- A strong relationship with their manager;
- A strong relationship with their co-worker;
- Clear communication from their manager;
- A clear path for focusing on their outcomes.
A way to measure employee engagement is to conduct Engagement surveys. These can be conducted formally by an organisational wide survey or at line management level for teams and departments.
Employee Engagement Surveys
Organisations can benefit from conducting engagement surveys as they can see which areas they are doing well in and which areas can be improved upon. SBAAS can conduct these investigations on your behalf; contact us for more information.
Engagement surveys can be conducted as often as an organisation desires. Most commonly they are conducted every two years with large organisations and every year for smaller organisations. There are standard questions which are presented in engagement surveys to measure engagement and to obtain information from the employees on their views of the organisation.
Questions to measure employee engagement
- Do you know what is expected of you at work?
- Do you have the equipment and resources to effectively do your work?
- At work, do you have the opportunity to do what you do best every day?
- Have you received recognition or praise for a job well done over the last month?
- Does your manager seem to care about you as a person?
- Does your manager encourage your development?
- Are your co-workers committed to doing quality work?
- Do you have a best friend at work?
- Over the last year have you had opportunities at work to learn and grow?
Understanding What is Important to Your Employees
Understanding what is important to your employees gives the organisation greater clarity and direction when it comes to designing retention strategies. To retain employees, managers need to know what is important to everyone. This is especially important for the organisation’s top performers.
Managers can do this by developing strong working relationships with their employees and stay attuned to their motivations and frustrations, then work on addressing items that can improve retention.
What do Employees Want?
- A good working relationship with their manager;
- Career development and opportunities to grow in their chosen field;
- Regular feedback on their performance;
- An opportunity to contribute to the organisation’s success;
- Benefits tailored to their individual needs; and/or
- A competitive salary
Managers: Understanding Your Employees
Managers can try to understand their employees better by discussing items such as:
- What they like and dislike about their role?
- What are their top strengths?
- What things they would like to learn or experience?
- What, if any would they change about their job, department, company etc?
- What things satisfy them, motivate them and make them want to come to work?
- What forms of recognition they would most appreciate?
- What talents, skills and abilities could they make more use of?
Using the list below as a guide, try and find ways to address employee retention, can you:
- Increase learning and development opportunities;
- Improve Induction process;
- Improve selection techniques and process;
- Increase pay;
- Improve benefits;
- Improve Line management HR skills;
- Improve Senior management engagement and retention behaviours;
- Improve employee involvement;
- Make changes to improve work-life balance;
- Offer coaching/mentoring/buddy programs;
- Revise the way staff are rewarded so their efforts are better recognised;
- Improve physical working conditions;
- Make changes to the way the organisation approaches career management;
- Redesign jobs to make them more satisfying;
- Use recruitment and induction bonuses;
- Redesign bonus and remuneration packages;
- Increase diversity of staff; and/or
- See what your competitors are offering in terms of conditions, culture, workplace rewards, management etc and try to match or better their conditions.
Investigating Why Employees Leave
There are several ways to obtain data on why people leave an organisation. Understanding each method can assist in data collection for better analysis and recommendations.
One method of obtaining information on why people leave is to carry out exit interviews. These should be conducted as soon as the employee gives in their notice. Ideally the interview should not be conducted by the manager. Often HR can conduct the interviews or an outsourced provider of HR services can complete the interviews with the employees. This can be difficult for smaller businesses as there are limited staff members but it is important to be aware that the person conducting the exit interviews does so in a professional and confidential manner. Confidentially should be assured and the purpose of the interview clearly explained.
Conducting Exit Interviews
Although some employees may not reveal the real reason they are leaving their roles, it is still worth asking questions to all employees during the exit interview process. Some companies can use third parties to conduct the exit interviews. They can sometimes provide better information as the employee is more comfortable in answering questions.
Data from the exit interview can highlight issues such as:
- Workload – too much, need for additional resources, poorly defined job tasks and responsibilities.
- Poor management – poor direction, favouritism, bullying, inconsistent feedback
- Health & safety – stress or poor working conditions
- Lack of training and development or progression opportunities
- Rate of pay and benefits – below that of a similar role in another organisation
Tip – it is helpful to ask the employee for their suggestions as to what the organisation can do to improve and better retain staff. Their feedback can be relevant and insightful to their team or to the overall business.
It is important to use data gathered from exit interviews to implement improvements and change. Conducting exit interviews and not using the information collected to action changes or improvements adds to resentment and disengagement from employees. If there are actionable items that are viable to implement for retention improvements, then organisation should ideally do this.