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Increase your employee retention rate (and prevent turnover)

January 14, 2022 - 22 min read


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What is employee retention?

What is employee turnover?

Why is employee retention crucial for an organization?

Why do employees leave?

Steps to develop an employee retention plan

How COVID-19 has affected how employees feel about their work

2 case studies of companies with high employee retention

Increasing your employee retention rate and minimizing employee turnover is crucial to a successful business.

Picture this: one of your best employees resigns out of nowhere, and you’re concerned.

You know the search for a new recruit will cost time and money. And you know you’re going to need the rest of the team to take on more responsibility in the meantime. 

But what you’re most worried about is if the employee’s sudden departure will influence others to leave too. 

At the very least, it could undermine employee engagement and performance. 

So what do you do? You sharpen up your employee retention plan. 

But before we show you how to do that, let’s review what employee retention means, why employees leave, and how to increase your employee retention rate.

What is employee retention?

Employee retention is the percentage of employees that remain with an employer over a given period of time. 

Companies that have more long-term employees will have a higher employee retention rate. And companies that have a lot of short-term employees will have a lower employee retention rate. 


How to calculate employee retention rate 

Your employee retention rate is the percentage of employees that remain at your company for a fixed time period. 

To calculate employee retention rate, you’ll need:

  1. The total number of active employees during a fixed time period (A)
  2. The total number of employees that left the company during that same time period (L)

Then, subtract (L) from (A) and divide by (A). 

Then multiply that result by 100 to get your employee retention rate (ERR).

Here’s what this formula looks like: (ERR = [A-L]/A x 100)

So if you have 200 as your (A) and 5 as your (L), your formula would be: (ERR = [200-5]/200 x 100).

When you subtract 5 from 200 you get 195. Then when you divide that by 200 you get .975. When you multiply that by 100 you get 97.5. 

That means your employee retention rate is 97.5.


What is employee turnover?

Employee turnover is the rate at which employees leave a company during a certain period of time. When employee turnover is high, it leaves companies scrambling to find new employees to replace them. 

These replacements are costly. They can also dismantle an organization over time as you lose knowledgeable and skilled workers.

Businesses that know their employee turnover rate can monitor it for changes and learn how to keep employees from leaving. They can also use it to predict the impact on employee productivity and morale.

When calculating employee turnover rate, companies usually consider the following:

  • Terminations 
  • Retirements
  • Voluntary resignations
  • Layoffs 
  • Location transfers
  • Deaths 

How to calculate employee turnover rate

  1. The number of active employees at the beginning of the month (B)
  2. The number of active employees at the end of the month (E)
  3. The number of employees who left during that month (L)
  4. The average number of employees during the month (AVG)

To get the average number of employees (AVG), you’ll add your (B) and (E) and divide by two. 

Here’s what this formula looks like: (AVG =[B+E]/2)

So if 120 is your (B) and 117 is your (E), your formula will look like this: (AVG = [120+117]/2). 

When you add 120 and 117 you get 237. Then when you divide by two, you get 118.5 which is your (AVG).

Then, you’ll need to divide the number of employees who left by your (AVG). Then multiply that result by 100 to get your turnover percentage. 

That formula looks like this: ([L/AVG] x 100).

So if 118.5 is your (AVG) and 3 is your (L), your formula will look like this: ([3/118.5] x 100).

When you divide 3 by 118.5 you get .025. Then when you multiply .025 by 100 you get 2.5. 

That means your employee turnover rate is 2.5.

To find out if your company has a high turnover, compare your company’s turnover rate with the average of your industry


Why is employee retention crucial for an organization?

Businesses value high employee retention because it adds significant value to their company. 


Professionals who stay at a company for long periods understand the company’s vision on a deep level. 

They know how to fulfill their role’s expectations. And they’ve learned all the important skills they need to complete tasks.

Let’s look at five additional reasons why staff retention is important:

1. Fosters a positive and friendly work environment

When employees notice their co-workers are leaving, it creates a poor work environment. It also makes it difficult for them to develop long-lasting friendships at work

2. Improves employee productivity

Long-term employees have often completed relevant training and have plenty of on-the-job experience. This makes them confident and productive when carrying out their daily responsibilities. 

3. Reduces company costs 

Less turnover means fewer company expenses. 

Employees coming and going can mean significant costs associated with:

  • Lost productivity
  • Recruitment fees
  • Resume analysis
  • Interviews
  • Onboarding
  • Training 
  • Frequent mistakes

4. Improves customer and coworking experience 

Retaining employees generally means happy employees. And happy employees pass those feelings on to their customers and coworkers. 

If they work with customers directly, they take better care of their customers and make fewer mistakes than new employees. 

5. Reduces turnover hassle

Increasing the employee retention rate reduces the hassle and people-hours needed to process employees in and out.

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Why do employees leave?

Here are 10 reasons why employees leave companies:

1. Lack of freedom 

While employees value having norms and best practices, they also value autonomy. If employees can’t work how they want, they may end up leaving sooner than you’d expect. 

2. Lack of recognition 

Employees need to know that the work they do matters

And they need to know that they matter too. There’s not much stopping an employee from leaving if they don’t feel valued at work.

3. Bad bosses

Employees struggle to report to bosses they don’t get along with

If the employee and the manager can’t learn to work together, the employee won’t be there for long.

4. Low pay

All the perks in the world can’t make up for poor pay. Employees need to know they can cover their expenses and still have some money left over. 

If employees can’t make ends meet, they’ll typically look for a job with better pay.

5. Lack of benefits

Benefits are essential to helping employees offset living expenses. Companies that don’t offer the following benefits may experience higher turnover:

  • Medical, dental, vision, and life insurance
  • Performance bonuses
  • Paid time off for vacation 
  • Paid sick days 
  • Personal and career development training 
  • Leadership training

6. Misalignment with company

Beyond benefits and pay, employees need to align with their company’s mission and core values

Employees who feel out of sync with their employer’s vision will struggle to stay long-term.

7. Misaligned with job role

Employees who feel like their role is a poor fit will struggle to have job satisfaction. If they don’t have the chance to change roles, they may not stay for long.

8. Lack of growth opportunities 

Employees will look for other ways to secure their future if they don't have the option to grow where they are.

9. Lack of a creative outlet

When employees don’t have the freedom to express themselves, they may feel stifled. The inability to express creative ideas may contribute to their departure.

10. The desire to make a change

When employees feel like they’ve gotten everything they can from their job, they'll often be ready for a new change.


Steps to develop an employee retention plan

When developing your strategy, focus on the following 10 steps to increase employee retention:

1. Solve employee pain points 

The best way to develop an employee retention plan is to start by exploring employee pain points. 

This means asking your current and previous employees what makes them tick. 

Do they want more responsibilities? Are they unhappy with the medical insurance you provide? Do they want better equipment and technology? 

Once you understand your employees’ main pain points, you can come up with ways to solve them. 

2. Start an employee recognition program 

Help your employees feel valued by recognizing their efforts. Whether it’s handing out gift cards or buying them lunch, make sure to show appreciation for their work.

3. Value employee feedback

Make it easy for employees to share feedback and use their feedback to improve the workplace

Ask employees for feedback during projects and meetings. Encourage them to drop by your office when needed. And provide an online form where they can submit feedback on their own time.

4. Give employees autonomy 

Employees need to feel like they have some kind of control over their work lives. Whether it’s deciding how to work or when to work, help them thrive by giving them options. 


5. Create a supportive work environment

A supportive work environment helps employees feel psychologically safe at work. 

Here are some ways to create a supportive work environment:

6. Offer growth opportunities 

Remember, if employees can’t see a future at your company, they’ll look for a better opportunity elsewhere. 

To encourage employees to stay long-term, develop a career development plan with them. 

For instance, do they know their five-year goal? Do they want to be a manager in the next five years? Be transparent about how they can make that happen. Do they need to seek outside training? Do they need to mentor under a manager? Create a step-by-step plan that outlines what they need to do to get there. 

7. Offer good pay and benefits 

Employees go to work for many reasons, but the main reason is to provide for themselves. If you want employees to stick around, offering competitive salaries and benefits packages is a necessity.

8. Hire employees that align with your mission

It’s difficult to keep employees that don’t align with your vision. To save you and your employees money, focus on only hiring employees that align with your mission.

9. Value creative expression

Creative expression is any process that takes an idea and brings it to life. It’s important to have company procedures. But it’s just as important to embrace employee creativity. 

If an employee offers a new way to interact with customers, try it out. If they have an idea for a new project, consider letting them run with it.

10. Provide meaningful work

Find out what your employees consider meaningful and provide them with the work they crave.


How COVID-19 has affected how employees feel about their work

Employee experience has declined since the pandemic. 

From worrying about the future to losing sleepemployees are under extra stress.

Here are some ways COVID-19 has affected employee satisfaction in the workplace:

  • Employees are concerned about contracting the virus.
  • Employees worry they’re going to lose their jobs
  • Employees feel their career has stalled since the start of the crisis.
  • Employees have seen stagnation in salary growth, career advancement, and skills development.
  • Employees want to pursue a more meaningful or fulfilling job.
  • Employees struggle to find a healthy work-life balance. 

To help employees thrive, companies should offer employee support where possible

If an employee is struggling with caregiver responsibilities, let them design their schedule. If they’re worried about their future, help them create a career development plan. 

It’s also important to give employees work they find meaningful. You’ll need to talk with employees individually to see what that means for each one.


Examples to improve employee retention

Here are two examples of companies with high employee retention and how they achieve it:

1. Charles Schwab

Charles Schwab values its employees’ financial future as much as its clients’

Here’s how their team achieves a high employee retention rate:

  • They offer a 401(k) matching system with an employee recognition program that can boost it. 
  • The majority of their employees take part in their corporate bonus plan. 
  • One of their most effective strategies is encouraging employees to help other employees.
  • Employees get complimentary one-on-one financial consultations and support.
  • They offer an employee stock plan. 
  • Employees can attend financial workshops for free. 
  • They offer comprehensive medical, dental, and vision plans.

In the end, their retention strategy focuses on offering the best employee benefits. 

2. CarMax

CarMax chooses its employees first, even during hard times

Here’s how their team achieves a high employee retention rate:

  • They invest heavily in employee training and development programs.
  • Employees are free to share ideas and feedback. 
  • They encourage employees to seek out promotions at work
  • Employees are part of strong employee recognition programs.
  • During recessions, they invest in employee development classes instead of initiating layoffs. 
  • They believe that taking care of their people results in greater success.

In the end, CarMax’s retention strategy focuses on investing in employee skills and growth. 

Ready to boost employee retention?

Encouraging employees to stay long-term is difficult if you don’t support their needs

Employees need to know that they’re valued, have freedom, and have a future with your company. 

Need help setting your employees up for success and improving employee retention? At BetterUp, we love helping teams thrive. 

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Published January 14, 2022

Shonna Waters, PhD

Vice President of Alliance Solutions

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