Understanding Employee Attrition & Retention

Retaining employees isn’t easy, and when they leave an organization, along goes their knowledge and skills. Managers then have to find new people to fill their roles and start training from the beginning. According to a new report from Cowen Partners, companies should consider two key metrics when monitoring their staff: employee attrition and employee retention.

October 24, 2022 – Organizations want to hold on to their employees as they are the lifeblood of a company, and managers spend lots of time training them to produce results and meet business objectives. When employees leave an organization, they take their knowledge and skills with them. Managers then have to find new people to fill their roles and start training from the beginning.

Retaining employees isn’t easy and organizations are learning that workers aren’t happy filling the same role year after year. “Employees want new challenges and more opportunities for moving up in the company,” says a report from Cowen Partners Executive Search, “If employees feel they’ve learned all they can in a role, they’ll look for another position in another organization that allows them to expand their capabilities.”

Cowen Partners says that there are two key metrics that companies should consider when monitoring their staff: employee attrition and employee retention.

Defining Employee Attrition

Employee attrition reflects the number of workers who choose to leave an organization in any given period, according to the Cowen Partners report. It includes individuals who find other jobs at other companies, go for personal reasons, or retire. “Managers should measure employee attrition by quarter and by year to determine whether they have a problem retaining workers,” the report said. “To calculate employee attrition, divide the number of employees who left the organization during a specific period by the average of the company’s total workforce for the period.

For instance, consider an organization with 500 employees. During a quarter, 10 employees leave the company for other roles, five quit to care for their families, and five retire. The company has an attrition rate of four percent for the quarter, calculated as: (20 / 500) x 100 = four percent.

“Companies should seek to keep their attrition rate as low as possible. Lower attrition rates indicate happier workers,” the Cowen Partners report said. “High attrition rates indicate problems with the organization’s salaries and benefits, management teams, or available opportunities for workers.”

Understanding Employee Retention

Employee retention includes the number of employees who stay with a company over a given period. Higher employee retention rates indicate that workers are satisfied with the organization. The Cowen Partners report explains that if they feel good about their position and their prospects within the company they don’t feel a need to leave since they are content. “Calculating employee retention is very simple,” the firm said. “Simply divide the number of employees who stayed with the organization by the total number of workers over the given period.”

Related: What Candidates are Really Looking for In New Jobs

For example, Cowen Partners says to consider an organization with 500 employees at the beginning of the period. At the end of the period, the organization kept 475 employees, while 25 left. The retention rate is 95 percent, as the calculation shows: (475 / 500) x 100 = 95 percent.

“The higher the retention rate, the better. Lower retention rates indicate that workers don’t feel fulfilled,” the report said. “Employees may be unhappy with their pay and benefits or the management structure.”

When to Measure Employee Retention and Attrition

Most companies measure employee retention and attrition yearly. However, calculating it monthly or quarterly can allow management to identify early trends, according to the Cowen Partners report. “Pinpointing problems promptly can prevent retention and attrition from becoming a more significant issue. Compare your current retention and attrition rates with previous measurements to determine when significant changes occur.”

The report explains that if attrition rates increase by more than 10 percent over a given period, you likely have an issue. It’s critical to get to the bottom of why employees are leaving to develop a strategy for maintaining your staff.

Taking Early Action on Employee Attrition Rates

Employers who notice rising attrition rates are smart to take action quickly. Implement a method for determining why employees are leaving. “Most companies have an exit process where HR talks with employees to understand why they quit,” the study said. “While exit interviews can help, sometimes employees are reluctant to say why they are genuinely quitting. They may feel uncomfortable sharing their reasons with an HR person they don’t know very well. Others may fear that the organization will retaliate against them somehow and don’t wish to damage their reputation with the company.”

Related: Future Insights for Engagement, Retention and Communication

Cowen Partners notes that if the results from in-person exit interviews are lackluster, the organization can send a survey to the employee. A paper or email survey allows employees to indicate their reasons for leaving without speaking to an HR member. It’s also possible to anonymize surveys to protect workers who don’t want to share their feelings directly.

Company managers who notice a pattern in why employees leave can take direct action to correct the issue.

Improving Employee Retention

Once senior leadership determines why employees are leaving, they can attempt to address the issues. “The most common reasons for looking for another role are better pay and benefits,” said the Cowen Partners report. “Employees who don’t feel their compensation reflects their responsibilities and education are likely to look for another employer who will pay them adequately. Employers can conduct pay surveys for their location to ensure their employees receive wages in line with expectations.”

Seven Critical Actions to Elevate Recruiting and Retaining Efforts

More than 47 million Americans quit their jobs last year, the highest number of resignations on record, and there was still recently a record 11.5 million job openings. As labor shortages continue, this year could go down as a “pit of despair for employers,” said one senior economist. “It’s not all bad news, though,” said Molly Brennan in a new report from Diversified Search Group | Koya Partners. “Data shows that most people aren’t exiting the workforce completely. Instead, they’re leveraging a strong job market to pursue more attractive opportunities, being more selective about the jobs they take and the organizations they represent.”

For instance, the report says to consider a company that has a team of financial analysts. Each individual receives a starting salary of $60,000 per year. However, the starting rate for a financial analyst in the city is $70,000 annually. The company would be wise to bump up the wages to match local expectations. Otherwise, employees may start to leave.

“Benefits are another vital component of an employee’s remuneration,” the report said. “Companies should ensure their benefit plans align with other organizations and seek to provide better benefits if possible. Different employees value certain benefits over others. For instance, one employee may appreciate the ability to work from home several days a week while another worker may seek compensation for furthering their education.”

Increase Your Organization’s Retention and Attrition Rates

Employee retention is essential for organizations seeking to maintain their workers’ skills and knowledge. “When an employee leaves, the employer must find another individual to fill their place,” the Cowen Partners report said. “Increased worker attrition indicates problems within the company, such as poor salaries and benefits and a lack of opportunity for moving up. Companies can increase their employee retention rates by determining exactly why their workers are leaving. Once they notice a pattern, they should take swift action to correct the deficiencies that cause their employees to look elsewhere.”

Cowen Partners’ clients are both small and large, publicly traded, pre-IPO, private, and non-profit organizations. Clients are typically $50 million to multi-billion-dollar revenue Fortune 1000 companies or have assets between $500 million to $15 billion. Placements span the entire C-suite and include VP and director-level leadership roles. Cowen Partners has placed hundreds of candidates in industries including technology, healthcare, manufacturing, retail, financial services, and private equity.

Related: Hiring Top Talent in Unprecedented Times

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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