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What is employee retention?

Employee retention refers to the strategies organizations use to prevent employees from leaving. It's crucial to maintain a high retention rate, as high turnover can be costly and impact team morale. Effective retention involves competitive benefits, a positive work environment, and growth opportunities.

Alexandra Marinaki
Alexandra Marinaki

Alexandra is a psychologist with a MSc in Talent Development and Creativity.

Employee retention is often expressed as a statistic; the percentage of employees that remain in a company for a fixed time period (e.g. a quarter). To measure it, use the following employee retention rate formula:


Employee retention rate formula:

employee retention formula

What is an employee retention strategy?

Employee retention strategies are practices an organization follows to retain its staff (e.g. through compensation, policies, benefits, office perks, etc.). A company’s main intent when planning those strategies is to minimize employee turnover, in other words, the number of employees that leave a company during a certain period. 

Even though a small turnover rate can be healthy depending on the nature of each industry, higher percentages can be expensive both in terms of money and time. Replacing an employee can be expensive, costing approximately 6 to 9 months salary based on the position. Losing highly performing employees can also impact team productivity and employee morale, as it requires adjustments to the daily functioning and workflows of a department or team – particularly if the departing employee is a manager or higher.

Reasons why employee retention is so important for an organization

These are the most important benefits of effective employee retention strategies:

  • Sustained productivity flow: Professionals who work for long periods in an organization add significant value to the company. They understand the company’s vision at a deep level and know well how to fulfill their role’s expectations. Plus, they have acquired all the important skills needed to effectively complete tasks on a daily basis.
  • Reduced company costs: Retaining skilled and reliable employees is financially beneficial for an organization. Scouting, recruiting, and onboarding new staff is expensive and time-consuming, with the average expenses reaching $14,936 and average replacement time of 94 days. With lower employee turnover costs, companies have more funding to invest in other parts of the business.
  • Reduced training time: Long-term employees are highly trained and feel confident to carry out their daily responsibilities. They have built effective communication channels with their manager and colleagues and know how to deliver their projects on time. New employees require training and time to adapt to the new environment and its requirements, which can strain team productivity temporarily.

But, as an employer, how do you retain employees?

Having explored the employee retention definition and its importance, let’s look at which areas most companies usually focus on when crafting employee retention strategies and programs:

  • Compensation and benefits: You can attract a good candidate by offering them a competitive salary and basic benefits (e.g. health insurance, discounts for wellness programs), but that’s often not enough incentive for them to stick around. Rewarding employees based on their performance with pay raises, bonuses or thoughtful gifts vividly shows that you acknowledge their efforts and the value they bring to your company. 
  • A nice working environment: When organizing your company’s office, remember that it will be your employees’ ‘second home’. Many companies offer free snacks and lunch to employees, along with other perks to improve life at the office and increase employee wellbeing. They also organize team-building activities to support healthy relationships in the workplace, both with teammates and team leaders. New additions to organizational policies, such as telecommuting, also highlight the company’s care to embrace employee work-life balance. 
  • Training and career development: Offering learning and training opportunities is also a huge motivator for employee retention. Employees can acquire new knowledge by attending interesting seminars and courses to develop professionally. It’s normal for long-term employees to want to experiment with new methods and specializations. It shakes up well-worn routines and motivates them to develop further in their roles.
  • Clear communication: When you share important information with your employees, for example, pay-raise schemes or a new job task, make sure that you explain all the important details clearly and refer to relevant policies if possible. Employees might get confused with ambiguous messages and expectations and find it hard to respond accordingly. Craft useful documents and policies and distribute them to the staff in order to avoid such hazards.

Wondering how to retain employees? See our tutorial on how to create an employee retention program.

Want more definitions? See our complete library of HR Terms.

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