Why is Employee Retention important? Top Employee Retention Factors -
14 min read
December 28, 2020

Why is Employee Retention important? Top Employee Retention Factors

Why is retention important? What is a retention factor? What are the benefits of employee retention?

Imagine working with an organization for a few years or even months, building rapport with one account manager who you can reach out to whenever you have an issue, only to call in after a few months and learn that they left the organization. But since it’s common (and expected) for people to switch jobs and grow, you soon warm up to your newly assigned account manager, but just when you think that you are finally back in the right place, you learn that you will have to work with another new ‘face.’ Frustrating, isn’t it?

We hear you, and we understand your decision to move shop; it’s weird when the company you’ve trusted for years starts changing employees too often, and sticking around only makes you feel that you are putting your career in a precarious position. It’s time to trust your instinct because a company unable to retain its employees may be having some internal struggles that could soon enough result in a drop in the company’s bottom line.  

However, what happens when you are on the receiving end of this? What happens when you seem to be getting employees walking out of the door just as fast as they walk in? Wouldn’t you want to take a moment, hold meetings, research, and even reinvent the wheel, all in an effort to find a way for your employees to stick around longer and for all the desks to be filled? You also don’t want to spend money on unused space; real estate is expensive as it is. Well, you are in luck because this article addresses the employee retention issue as a whole, and we’ll also share practical strategies to help seal up the holes popping up on your boat.

We’d also like to commend you on the level of awareness you’re demonstrating and also your willingness to work on things. It takes a wise boss and HR team to realize that the biggest part of employee and customer success is tied to employee retention; in the same way, your organization’s customer success is tied to your customer retention rate. Remember that your employees could easily be demotivated in the workplace if you don’t invest time in the relationships.

In this article, we’ll explore the intricacies of employee retention, what you can do to improve the employee retention rate in your organization, and the benefits of employee retention. 

What Is Employee Retention?

Employee retention refers to your organization’s ability to keep employees from leaving (too soon). Employee retention is expressed as a statistic, and an organization with an annual 80% employee retention rate is one that’s kept 8 out of every 10 employees in the course of a year and only lost two. The employee retention rate of 80%, for example, is the same as a 20% annual employee turnover rate. 

Since people come and go in their jobs for numerous reasons, a certain employee turnover is normal. The employee turnover rate also varies depending on the industry or the occupation. Still, in one substantially large survey by LinkedIn, it was found out that the overall annual global turnover rate stands at 10.9%. In case you are working on a new employee retention strategy, we hope this is reason enough to understand why employee retention is important.

Retainment vs. retention – though confusing, these two terms mean the same thing, and one can be used in place of the other. Retention is, however, more common.

Why is Employee Retention important?

The Big Problem/Challenge

You may play a small role and contribute a small percentage to this, but here is the scope of the employee retention problem; the reasons why you need a robust retention management system. 

First off, organizations around the world are paying a high price resulting from poor retention. And according to The Work Institute, employers paid at least $600 billion in employee turnover costs in 2018 alone. They further reported that given the 141% increase in new job openings reported since 2009, the number of employees who’d wish to leave their current employment is high. How high? Well, The Washington Post revealed through a survey that up to 71% of employees in the US are currently looking for their next job.

But that is not all; PayScale Research identified that 66% of all organizations either agree or strongly agree that employee retention is one big growing concern. This belief is why employee retention is important. 

So, why is employee retention important?

Managing a company with a high employee turnover rate comes with a number of consequences, and it’s costly. To help you have a better grasp of things, we’ve identified 5 of the biggest reasons for employee retention. The following reasons are why employee retention is important.

  • The hiring process is not a walk in the park.

The hiring process is quite involved, and it is every manager’s and the HR department’s biggest pain point. In a whitepaper report by BLR, close to 70% of organizations note that a high staff turnover has a big negative financial impact on their operations. The recruitment, hiring, and training costs for replacement employees stretch companies. At the same time, nearly as much as 70% of organizations have a difficult time replacing their staff.  

The other reason why employee retention is important is that you spend a good chunk of money in the hiring process, which makes having a high turnover rate a huge concern, and the reason why no company would want to spend about 42 days to go through the hiring process. Of the many benefits of employee retention, the savings during the hiring process is one of the bigger wins. 

  • Employee turnover expenses are high!

We’d also like to draw your attention to the high cost of replacing an employee because recruitment and retention planning is expensive. It costs between 16% and 150% of that employee’s annual salary to replace an employee, depending on the role played in the organization. On the other hand, an increase in employee engagement can increase your company’s operating income by a whopping 19%. 

Out of the long hiring process, onboarding is easily one of the most expensive ones in terms of time and money, and this is something any smart manager with a robust retention management system would want to avoid. Weigh the cost of employee turnover against the benefits of employee retention, and you have the perfect money-saving answer.

  • Loss of employees equals a loss of knowledge.

You lose out on the benefits of employee retention if you don’t have employee engagement and retention strategies that ensure seamless transferability of skills and knowledge. Losing employees too often means loss of enterprise or institutional knowledge. There is always important knowledge (information) and skills that are lost forever whenever an employee leaves, especially in this ‘quitting economy,’ which often means an employee is leaving without a full transfer of their knowledge to others. Even if an employee has to leave, retention plans ensure an easy transition, which is why employee retention is important. 

  • Poor teamwork because of the high turnover rate

Having teams made of changing faces every few months doesn’t create a conducive environment for you to run teams easily. It harms the team’s productivity and also drains the productivity level of the employees that stay on with you. The biggest benefit of employee retention is having a community in your organization, a place where your employees understand each other’s differences but still make it work. 

  • Loss of competitive advantage

You cannot stop an employee from leaving when they want to, but the benefits of employee retention include having employees who are even unwilling to change jobs too soon because of your employee engagement and retention strategies. An employee would easily join the competition for better benefits, and you risk losing your competitive advantage because their new employer benefits from the potential and skills of that employee. You need to be able to say that you did all you could for them, and even when they leave, you’d still have someone to fill in their shoes. 

So, in case you are wondering why retention is important, think of the potential losses you could suffer in case one of your top-performing employees leaves. One of the main benefits of employee retention is the opportunity to retain a valuable employee. 

Top 9 Employee Retention Factors

Wondering if there is one specific thing that you could do to keep your employees on your service for as long as possible?

In this section, we look at the retention factor and how you could use it in your organization.

  1. Employee Morale

Employee morale can be described as a job outlook, satisfaction, and the feelings of overall well-being experienced by an employee in the workplace.

It basically is a group phenomenon. It’s a concept that describes favorable or unfavorable attitude levels of employees towards the company, their work, tasks, fellow workers, the work environment, their superiors, etc. It is also the most important part of recruitment and retention planning. Think of it this way; your employees are more productive and happy in cases of high employee morale, and low employee morale leads to low spirits and low productivity. 

As expected, low employee morale is the main reason why employees leave. It’s important to remember that employees will not just quit; they often quit when they are no longer happy with the work culture of the organization they are working for.

  1. Lack of Career Development

Number two on our list of employee retention factors and an important part of recruitment and retention planning is the lack of motivation or career development. When an employee is unhappy with the career path they are on currently, perhaps because of poor or inadequate training and lack of development programs, their career growth comes to a halt, and with this comes limited skillsets. Unfortunately, they lose interest in what they do which leads them to quit or be there for the paycheck.

You need to recognize that one of the things that boost employee retention rates is the availability of opportunities for career development and also personal development. This is fundamental because an employee who learns and gradually grows in/with their position will also improve the performance of your company.

Findings from an SHRM report show that employees want to feel included and valued. Most employees wish their bosses would prioritize using their skills & abilities and also encourage their development. You might want to come up with an open personal development policy in your recruitment and retention planning. 

Also, empower your people to improve, especially in areas they’d like to expand in. As part of your retention management system, you could add a budget for conferences, books, and courses while opening up a communication line for feedback from your employees.

  1. Poor Employee Manager Relationship

If your employees cannot work well with their team leaders or managers, they will quit; keep in mind that most employees don’t quit because of a dislike for the job but because of issues with management or supervisors. Incorporate this in your recruitment and retention planning, as well as the employee engagement and retention strategies to boost your retention rates. 

  1. Top performer recognition and rewards

Do you recognize your employees when targets and milestones are achieved? Do you reward them? Or do you give them a pat on the back then send them right back into the game?

You need to recognize the importance of recognition and the confidence boost that comes with it. Making an employee know that their efforts are truly appreciated is crucial to keeping your employee retention rate high, and you should incorporate it into recruitment and retention planning. 

As an important employee retention factor, consider recognizing and rewarding your top-performing employees by keeping them entertained, give them mentors, give them visibility, reward them, and come up with paths for career advancement and growth.

  1. Work-life Balance

Work-life balance is big in workplaces today, and you can tell how important it is for employees to have a work-life balance by looking at current trends and how some employees will take a pay cut at the expense of a flexible work environment for work-life balance. To develop a high employee retention rate, you might want to kick things off by offering your employees work flexibility, within reason. 

What this means is that you need to keep in mind the fact that some employees could easily take advantage of the flexible hours offered, coming in and leaving whenever – this wouldn’t create the best work environment for you and it may not be in alignment with your core values. To ensure that things still run correctly, and to avoid employee time theft, invest in the best employee time tracking solutions. This way, there are boundaries that your employees work within, even with flexible working hours.

Think of things like childcare, additional vacation days, public transport passes, or subsidized gym membership are some of the effective retention factors you could incorporate in your employee retention strategy.

  1. Onboarding and Training

For greater success and a low employee turnover rate, your employee engagement and retention strategies, along with the entire recruitment and retention planning, must embody winning retention strategies from the get-go. In other words, you must show initiative from day one. This includes realistic job previews to avoid situations where your new employees' expectations do not align with reality.

Incorporate helpful training and guidance, and always set your new hires up for success by offering more of exactly what they need to get ahead and mesh into your corporate culture faster. In other words, your recruitment and retention plan should incorporate vast onboarding and training structures.

  1. Poor Well-being

Employees with thriving and positive well-being will have a lower turnover rate of up to 35%, but the struggling employees have a higher rate.

You could improve your employees and the entire organization’s wellbeing by creating an environment that encourages social, financial, communal, and physical wellbeing. Do not shy away from offering free programs like free gym memberships, community building, or onsite cleaning.

  1. Health and wellness benefits

You need to create a working environment that encourages your employees’ mental and physical wellbeing. We are not talking about free food and coffee, but healthy lifestyles overall, ways of improving their health, encourage good eating habits, as well as mental health days. On-site gyms, daycares, and health spending accounts are some of the small investments you could make for your employees’ wellbeing and health.

Keep in mind that stress-related absences from work will cost you a great deal, you pay more for health insurance when your employees are stressed, and most employees struggle with stress, and it is their biggest health concern.

  1. Compensation

Although the relationship between retention and compensation is not straightforward, with some employees known to be motivated by other retention factors beyond cash, finding that sweet spot is important but challenging. It is why employee retention is important. In your recruitment and retention planning, think of ways of making your compensation plans more appealing.  

To increase your employee retention rate, consider improving their compensation as well as their quality of life. In other words, offer great compensation along with some level of work-life balance. It will help to learn about your employees, specifically, their goals and motivations.

Benefits of Employee Retention

Why is retention important?

If you are wondering why employee retention is important and why you should invest in it, take a moment to think about the toxic work environment you may have worked in in the past and how you wouldn’t want the same to happen in your company or under your management. The reasons why employee retention is important are listed below.  

Here are some of the benefits of employee retention.

  • One of the biggest benefits of employee retention is increased company revenues.
  • Greater levels of productivity. 
  • Higher employee engagement.
  • Improved customer service.
  • A great boost in employee satisfaction.

Other reasons why employee retention is important to include its effects on recruitment enhancement, ease of employee turnover rate management, and easy productivity performance management. 

It’s also worth noting that the biggest reason why employee retention is important is that it’s a cost-effective long-term process. 

Generally, the benefits of employee retention come about when the employees’ level of morale goes up, something that encourages them to stay on for long. 

How to Increase Employee Retention

Although you may think that increasing wages is the quickest way to reduce turnover, you need to recognize that most of your employees want more than money. Things like access to opportunities to advance their skills and careers and the ability to have and enjoy a work-life balance; are the reasons why employee retention is important, you get more productive, happy, and innovative employees that will push your numbers up. Some of the things you could do to increase the employee retention rate and to experience the full benefits of employee retention are as follows:

  1. Give more genuine, positive feedback.
  2. Encourage communication and feedback in a formal way.
  3. Come up with mentorship programs by pairing new employees with mentors.
  4. Give your employees a level of importance in the workplace. They need to feel respected and valued.
  5. Offer attractive perks and compensation packages.
  6. Earn your employees’ trust
  7. Encourage a healthier work-life balance.
  8. Avoid sudden changes in the company.
  9. Create attractive recruitment and retention plans 


Even though it is impossible to retain all your employees, you need to remember that the turnover and retention affect everyone in the company, not just the bottom line, and done right, the benefits of employee retention are astounding. And though it’s not easy to handle all the employee retention factors, choosing to do so will pay you good dividends in the future. 

As you look for more lasting solutions and answers to ‘why is retention important?” remember that it won’t hurt your employee engagement and retention strategies to review your employee retention strategy regularly to make sure that you are still doing the best to give your employees the best working conditions for happy, healthy lives, and for your business’ success.

At the end of the day, if you need to understand why employee retention is important, you just need to look at your growing numbers once you’ve implemented employee engagement and retention strategies. 


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