A look at why employee retention is so important

In a challenging economic climate, retention falls by the wayside for many organizations. Leaders may find themselves focusing all of their attention on productivity, revenue, and prioritizing their company’s bottom line.

However, the importance of employee retention is critical when it comes to maintaining a thriving, resilient business. It’s a major indicator of organizational health and makes workplaces more engaging, enjoyable, and successful. Hiring new top performers is also time-consuming and expensive, and with as much as half of employees potentially looking for a new job in 2024*, ambitious organizations just can’t afford to lose their best people.

This article will explore why retention is important by discussing eight top retention strategies, as well as detailing some of the most significant retention benefits and disadvantages associated with low retention. So, if you’ve ever wondered why staff retention is important and why everyone’s talking about it, this article is for you.

*Human Resource Executive, 2024

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8 key employee retention strategies

The importance of retention can’t be understated — and there’s no one way to keep your best people with your organization. Different professionals will stay with your company for different reasons, so let’s consider eight possible strategies and initiatives to boost your retention efforts.

1. Opportunities for career development — Upskilling employees and helping them develop new skills can boost job satisfaction. So, prioritizing development could help show that your organization recognizes the importance of employee retention and motivate team members to stay in their roles.
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2. Fair compensation — A survey by Hays indicated that higher salaries are one of the biggest drivers for retention. Look at your aims of compensation and consider implementing compensation management software to help you make better, data-driven pay decisions. You might also consider offering incentive pay or retention bonuses.
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3. Good leadership — 56% of employees quit their jobs because of poor relationships with their managers. So, encouraging team leads to improve their communication and management skills could have a significant impact on retention.
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4. Recognition and respect — Employees crave acknowledgment. When companies have an effective recognition program, team members are 56% less likely to look for other work.
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5. Comprehensive benefits — As 19% of employees say they’d like better benefits, you can reduce turnover by offering perks like extra paid time off (PTO) and stock options.
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6. More flexible working hours — Some professionals have to quit their jobs because of challenges with childcare arrangements, work-life balance, or commuting time. Help people stay at your company by allowing them to work from home or choose their hours.
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7. Promotion opportunities — Career advancement opportunities are the second biggest driver of employee retention — provided they’re handled correctly. Consider how to manage successful internal promotions to create a fair, transparent promotion process.
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8. Engagement — One of the most impactful employee retention strategies is boosting engagement levels. Engaged team members are more productive, more connected to their company culture, and more likely to stay. For organizations operating on tight budgets, tackling engagement is also one of the most cost-effective strategies. You may want to compare different employee engagement theories to find an approach that works best for you.

💡 You know why retention is important but feel stuck thinking about how to retain employees?

Then you may want to consider implementing holistic employee retention software like Leapsome. You don’t have to take our word for it, though — check out our list of the top eight options on the market right now.

The benefits of employee retention

There are many employee retention benefits that feed into one another. So, once you understand why employee retention is important and increase your retention rate, you’ll notice a cumulative effect.
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1. Lower turnover costs

SHRM estimates that it costs US$4700 to replace just one employee because of the time marketing and HR need to invest in finding new hires. However, this figure doesn’t account for the soft costs associated with hiring and onboarding, especially lost team productivity during training. Indeed, experts say that replacing an employee could cost up to three or four times their salary in total.

Keeping your turnover rate low helps you avoid these expenses and frees up money in your budget to invest in your people’s development, rewards, and benefits. In addition, because those initiatives are key drivers of employee retention, you may notice they make your turnover rate drop even lower.
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2. Closer professional relationships

Retention gives team members time to get to know each other, as long-term employees have more opportunities to build relationships with their colleagues. 

Gallup studies repeatedly show that professionals with close friends in the workplace are much more likely to stay at their jobs because their interpersonal relationships offer professional and emotional support. For example, work friends might vent to each other about managing a difficult project or struggling to learn a new system, providing a space for solidarity and reducing stress.
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3. More employee expertise

The longer team members stay with your company, the more institutional knowledge they acquire. That means they’re deeply familiar with clients, projects, internal policies and processes, values, and best practices.

Some institutional knowledge is easy to share. Employees can record information like sales figures or policies in your company’s knowledge base, where it’s easy for everyone to access. However, other institutional knowledge takes time to develop and requires extensive communication and training to pass on. If an experienced employee leaves their position before sharing their knowledge, you’ll lose all their expertise. Even worse, they may take that expertise to your competition and give them an advantage. 

Having long-term employees at your company also benefits colleagues since they act as a knowledge resource. Imagine you’ve got an experienced salesperson on your team who developed a sales strategy that targets your specific customer base. You identify the employee as a top performer, encourage them to stay with the company using pay raises, a retention agreement, and promotion opportunities, and ask them to teach their strategy to the rest of the team. That quarter, your whole team uses the strategy and makes record-breaking sales.
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4. Higher quality customer experience

High employee retention rates allow you to maintain a consistently high standard of customer service. Long-term team members have extensive on-the-job experience and a lot of practice in meeting customer needs.

New employees, on the other hand, may need time post-onboarding to find their footing and require more guidance, even if they have relevant previous experience. It’s part of the onboarding experience, and you can expect customers to forgive occasional hiccups. But if you don’t have more experienced people on your team to help out new hires, you might not be able to train them effectively, leading to more errors and a less satisfactory customer experience.
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5. Stronger customer relationships

Even if new employees and experienced team members are performing at the same level, turnover can still affect customer satisfaction. They may develop a rapport with a particular contact and not want to change who they work with. Some customers may even become frustrated if they keep having to adapt to collaborating with new people. 

Low turnover rates mean you can pair customers with the team members they enjoy working with for longer, and the company can benefit from strong professional relationships.

Another motivation for employee retention is that when you hire less frequently, it’s easier to keep products and services consistent. There are fewer new team members to train on meeting customer needs, which, as Art Shaikh points out, is critical to maintaining and enriching your organization’s brand.

“Retaining our marketing talent, for example, has helped us maintain continuity of messaging. Our brand speaks a certain way, and we need to have team members that have developed and speak publicly in the manner our brand does.”

— Art Shaikh, Founder & CEO at DigitalWill Company

6. Increased productivity

Another reason why employee retention is important is that it’s excellent for organizational productivity. Experienced team members already have the training and experience necessary to perform their jobs at a high standard. So, if you have a high ratio of seasoned employees, your team will excel at:

• Completing tasks on or even before their deadlines
• Finding the most efficient way to do their work
• Learning new skills related to their job
• Adapting to changes
• Knowing which members of staff to ask for support or feedback

High employee retention also means fewer employment gaps when looking for someone to replace a role. You’re more likely to have adequate staffing for all the tasks your company needs to handle. That means each department will find it easier to meet or exceed its monthly productivity goals. 
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7. More profitability

When people work more productively, they’re able to complete more tasks in a sustainable manner and therefore generate more profit. Efficient organizations may end up:

• Selling more of their products or services
• Offering better quality products they can charge higher prices for
• Launching new products and services ahead of the competition
• Carrying out processes more efficiently 

Similar to employee retention reducing hiring costs, extra profits add more resources to your budget for other valuable initiatives like professional development resources and benefits. Consider recognizing and rewarding your team for smashing financial targets. If you regularly praise employees and thank them for their achievements with bonuses and profit sharing, you may increase satisfaction by up to 70%.
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8. Healthier company culture

High employee retention can make your company culture more dynamic and resilient. Team members that share your mindset and values strengthen your culture. Plus, the longer people stay with your organization, the more aligned they become with your mission and purpose, and the more they motivate their colleagues to do the same.

When retention levels are high, you prove to your team that your company culture is part of an inviting and engaging work environment that keeps people around. 
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9. Better teamwork

When you know a group of people well, you have a better idea of who works together effectively. It’s much easier to find great opportunities for collaboration between employees when you’re dealing with a well-established team. For instance, if you’ve observed that one team member is detail-oriented while another is better at looking at the big picture, consider pairing them up on a project to leverage their complementary strengths.

When welcoming new employees, you might have an initial idea of how they’ll fit into your team. However, assumptions can be misleading. You won’t know for sure until they settle into their position, so you’ll have to do a bit of experimenting. This may lead to a few missed opportunities, as you won’t always put together the most optimal teams from the get-go.

“Knowing someone’s abilities means I can pair them on a project with someone of different skills or knowledge and get the work done, while also giving each person a learning opportunity via their teammate.”

— Bill Catlette, Founder and Managing Partner at Contented Cow Partners

10. Stronger community reputation

While this shouldn’t be the primary reason you give retention importance, having happy employees who stick with your organization makes you look reputable and is a great form of passive promotion. 

Potential clients, business partners, and job seekers all consider how long people appear to stick with your organization when considering whether to work with or alongside you. They know that turnover rate is an important indicator of company health, and it gives them an idea of what collaborating with you would be like.

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The negative impacts of low employee retention

Investing in an employee retention policy and decreasing turnover isn’t just about seizing opportunities. It’s also about minimizing detrimental factors like those we’ve listed here.
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1. Disruption of work culture

High employee turnover negatively impacts company culture. When people quit, their team members often speculate why. If employees are dissatisfied with some aspects of your company culture, they may wonder if those factors contributed to their former colleagues’ decisions to leave. As a result, when too many people resign from their jobs over a short period, other team members may feel disconnected from their peers and start passively looking for other opportunities.

In contrast, when employees only move on to other professional opportunities occasionally, the consistency will reassure your team. They’ll be more likely to assume that team member departures are down to personal decisions if everyone else seems happy where they are. 
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2. Lower-than-average performance

High turnover can have multiple negative impacts on productivity. When combined, they can create a negative loop where poor productivity leads to low job satisfaction and even more employees leaving. The main challenges are:

• New hires require time to match the productivity of other employees. This varies between industries, but eight months is a commonly cited time frame.
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• While replacing employees, you may not have enough staff to cover all a department’s responsibilities. That means your team likely won’t achieve their normal output levels and might feel pressured to work above their capacity.
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• When you reassign a former employee’s tasks to their team members without taking any existing work off their plate, you risk causing stress and burnout. That might result in extra sick leave down the road, too.
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3. Inefficient hiring practices

Hiring and onboarding costs can be high. However, the expense is worthwhile when you’re bringing top performers who contribute to your organization’s culture and success on board.

The problem is that new employees may leave before they get fully acquainted with their position. Surveys indicate that up to 40% of new hires are already actively searching for a new job. If your new team members leave before they reach their full potential, you’ll end up losing much of your time and resource investment.

Plus, it’s harder to allocate money from your budget to deal with the underlying causes of the high employee turnover when you need to keep spending on hiring and recruitment. For example, you can’t offer more competitive salaries or benefits packages when your turnover expenses remain high.
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4. Stress & burnout

When staffing levels are inconsistent, it’s harder to maintain appropriate workloads for your team. And team leaders who are overwhelmed with extra duties are more likely to make mistakes. For instance, they might not realize how little progress a former employee made with a project and assign it to someone who’s nearly at capacity. When employees overwork, it can cause burnout.

At the moment, burnout is especially rife among human resources professionals. 29% of HR staff say their stress levels increased dramatically in 2022, and 47% say they increased somewhat. Only 4% report a decrease in stress. So, while tackling problems like employee retention importance and high turnover, you’re also at increased risk of stress and burnout if you aren’t mindful about delegating and spreading out your workload.
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5. Low employee morale

When many team members leave their positions within a short period, it can negatively impact employee happiness. Even if you shield your team from an overwhelming workload and burnout, the following may still affect them:

• Constant changes to their team and workflow
• Losing workplace friends who provide professional and emotional support
• Less-than-optimal results due to their team rushing, overworking, or having less capacity
• Disruption to learning and development as trusted mentors leave
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6. A higher risk of ‘turnover contagion’

Low employee retention can become endemic within your organization. When large numbers of team members resign from their jobs, they may inspire others to quit. 

Visier reports that professionals are up to 9.1% more likely to resign from their positions in the six months after another team member leaves. That means that one in ten people will quit shortly after a resignation, and others may follow suit. Over time, rising turnover rates can turn into mass employee resignations. 
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Prioritize retention & engagement with Leapsome

No matter the economic climate, employee retention is critical to the success of your organization. It can save you money, foster better relationships, lead to better team member performance, generate more revenue, and make your company a more enjoyable place to work overall.

However, retention is multifaceted and requires people professionals to tackle it from all angles. Tracking an employee retention metric or two is a good start, but it’s simply not enough to keep top performers around for the long haul.

Your best bet is to invest in a platform like Leapsome that combines development, feedback, compensation, and surveys to provide a holistic approach to retention. Surveys uncovers what motivates your people and gives you the insights you need to improve. Learning empowers employees with a framework to upskill and progress in their careers, while Instant Feedback means you can help team members grow and give them the accountability and recognition they deserve. Last, Compensation means you can make more transparent pay and promotion decisions and show employees what to expect in terms of their professional futures.

Leapsome understands that a dynamic approach to retention is the only way to build a strong, resilient team that stands the test of time.
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