We are still dealing with a turbulent job market and workforce due to the continued aftermath of COVID-19, a looming recession, volatile markets, and rising inflation costs.
According to an April 2022 Gallup poll, by the end of 2021, the US started to see a decline in employee engagement for the first time in a decade. 48% of employees were looking for new jobs, and less than 25% of employees believed their organization cares for their well-being. The decline in employee engagement continued into 2022.
However, there’s a note of hope amongst those numbers. In the same poll, 52% of employees that voluntarily chose to leave for other positions said the situation was preventable. As economic challenges continue, employee retention should be top of mind for every organization.
While employee retention efforts are often seen as expensive—and fail to grow into sustainable initiatives as a result—it’s important to remember that it is just as expensive, if not more, to lose those employees.
Below, we dive deeper into the cost of employee turnover, explore how your organization can take a closer look at its own turnover, and suggest strategies for retaining employees.
What is the cost of employee turnover?
The true cost of employee turnover can be difficult to pinpoint because most organizations don’t track these costs. Replacing an employee might include anything from job advertising and relocation costs to productivity loss and re-training.
In its 2022 Retention Report, the Work Institute claims, “losing an employee typically costs approximately 33% of their base pay. For the average US employee, the cost of turnover is approximately $15,000.”
Imagine you’re losing senior leadership talent with a salary in the high six figures and that number jumps exponentially.
An early 2022 Wharton study was even able to link high employee turnover rates to product outcomes in the manufacturing industry; the research professors found high turnover on product lines caused an increase in product failure. The associated costs were estimated to be hundreds of millions of dollars.
The major takeaway from this research—reduction in turnover could contribute significantly to cost-saving measures regardless of industry. Everyone benefits.
Do you know your average employee tenure?
Every business, regardless of industry, will always have a certain amount of voluntary employee turnover.
Although the US Bureau of Labor Statistics’ Employee Tenure Summary for 2022 reported the median number of years wage and salary workers have been with their current employer is still 4.1 years, unchanged from 2020, it also reported an age discrepancy.
According to the summary, “Median employee tenure was generally higher among older workers than younger ones. For example, the median tenure of workers ages 55 to 64 (9.8 years) was more than three times that of workers ages 25 to 34 years (2.8 years).”
We saw the same discrepancy reflected in a recent Return-to-Office survey conducted by Odgers Berndtson US*; people under 32 reported changing jobs the most.
The ideas and expectations around average employee tenure are changing. If you haven’t checked your organization’s numbers, and don’t have a sense of how often people are leaving, a good first step towards a strong retention strategy would be gathering more information about staff trends over the last several years.
Does burnout affect employee retention?
Yes, burnout leads to turnover. In a 2022 global survey from Deloitte, out of 14,808 Gen Zs and 8,412 Millennials, almost 46% of respondents from both groups felt burnt out by their work environments.
Burnout becomes even more significant when you factor industry into the circumstances.
In our survey, only 5% reported that the COVID-19 pandemic had a negative effect on their work-life balance.
However, the majority of people within that 5% margin worked in the healthcare industry, which isn’t a surprise.
To address this, employers should develop ways to aid their employees’ coping skills and stress reduction. Have resources readily available. Consider the benefits of creating flexible schedules. For instance, in the health sector, organizations can minimize workload strain by deploying advanced analytics to enhance the preciseness and timeliness of demand forecasting, workforce alignment, and real-time labor management.
The data could assist much-needed relief for healthcare providers, particularly during periods of instability such as the COVID-19 pandemic.
If your organization is having difficulty retaining employees, it’s worth asking if burnout is a potential cause, so you can pivot and place more emphasis on workload balance, mental health, and well-being.
Effective employee retention strategies
Employee retention can be enhanced in several ways including:
- Offering competitive compensation
- Recognizing your employees
- Investing in employee training
- Establishing a positive work environment
How is compensation related to employee retention?
A comprehensive retention strategy should leverage each of the following: financial means, current employee talent, and leadership.
However, in our Return-to-Office survey, all respondents, regardless of demographic, listed compensation as their top reason for switching jobs. So, we can see, money still does the most talking.
Your organization could consider some, or all, the following to increase employee financial incentives:
- Retention bonuses for SVP and VP levels to reduce flight risk
- Sign-on bonuses to both retain and attract top tier talent
- Referral bonuses to boost recruitment and acknowledge employee engagement
- Regular compensation reviews to ensure you’re meeting industry standards
If it isn’t in the cards for your organization to make a big financial investment in employee retention at the moment, you could consider a form of equity compensation such as employee stock options (ESO).
How can you accurately assess your corporate culture and structures to engage younger workers and benefit from their insights and perspectives?
It is not enough to recruit employees into the company; it is crucial that they stay. To retain your workforce, you need to recruit the right people, those who align with your organization’s culture.
In our survey, compensation was still the driving factor for switching jobs in the 32 and under demographic, but work-life balance, career development, and company culture followed close behind in that order. On an overall respondent basis, the latter issues factored more heavily for respondents who identified as non-white, LGBTQ+, and/or as having a disability.
People want to bring more of their whole selves to work. They are craving meaning, guidance, and flexibility in their careers more than ever. Those elements will continue to play a stronger role in employee retention as those under 32 become a larger part of the workforce.
To bolster a feeling of connectivity and engagement for your employees, consider the following initiatives:
- Mentorship and training programs to assist career development
- Workplace recognition programs that celebrate the employee contributions to the organization and diversity and inclusion
- Assigned onboarding buddies to ease the orientation process
- Consistent one-on-one meetings with direct managers about work-life balance
- Clear pathways to promotion
- Anonymous, company-wide surveys that allow employees to provide direct, honest feedback
Employees should feel involved in the organization’s operations beyond their job descriptions. If your organization can provide strong support and motivation to its employees, especially the younger generation, you have a greater chance of employee retention.
How does DEI impact retention?
Diversity, equity, and inclusion (DEI) add up to a more just and unbiased workplace that you can continue to build upon over time.
DEI efforts and a demonstrated commitment to broader social responsibility matter to employees and factor into employee satisfaction. Enhancing diversity, equity, and inclusion in the workplace helps employees feel comfortable and well-respected, and contributes to their growth, development, and advancement in the workplace.
DEI efforts in an organization engage talented, value-driven employees from different backgrounds; their roles are pivotal to success. Recruiting people from diverse backgrounds exposes organizations to different experiences and perspectives, DEI efforts allow employers to make decisions by looking at varied angles, which can help both employees and consumers feel included and valued. For example, a diverse and inclusive workforce helps healthcare organizations better understand and serve their patient population's needs while promoting creativity and innovation.
Create a more cohesive and productive workplace through the following DEI efforts:
- Promote diversity through targeted recruitment efforts to reach a more diverse pool of candidates.
- Ensure all workers have equal access to opportunities and resources to achieve equity.
- Create policies and practices, such as flexible work arrangements, that support an inclusive work environment.
- Establish employee resource groups (ERGs) for different identities within your organization.
- Invest in management training to provide more promotion opportunities to a greater number of employees.
Does your C-suite need to shift its perspective on employees and their needs?
Self-awareness, accountability, and reflection are key.
On occasion, your company will get it wrong, but it can use those moments as opportunities to assess whether the leadership team is in touch with the needs and wants of its workforce.
Return-to-office policies are a perfect example of where friction can occur.
As we saw more C-suites push for back-to-office mandates, we also saw more employees voice their dissatisfaction. Approximately 1,300 staffers at The New York Times threatened to strike; they felt their concerns about returning to the office alongside rising inflation—which affects factors like transportation, housing, and childcare costs—weren’t being heard.
Here are some questions to put forth to your leadership team:
- How does remote and/or hybrid work factor into your employee retention strategy?
- How are you measuring employee strengths?
- Have you defined what it means to be a “high performer” within your organization?
- If you’re hiring, have you defined what your “ideal candidate” looks like? Is there consensus amongst your hiring team?
- What leadership qualities do your employees currently exhibit, and what qualities are going to help them grow into great leaders?
Once you’ve gathered responses, try conducting an anonymous employee survey to see if your leadership’s consensus aligns with employee feedback.
Being open to this type of dialogue will highlight inconsistencies but, more importantly, it could also render some surprising answers and creative solutions. Variables can only be accounted for if they’re brought to light.
*For the Odgers Berndtson US Return-to-Office Survey, 606 North American-based respondents over 18 years old working across diverse industries were accessed via broadly diversified email distribution lists.
How Odgers can help
The benefits are clear. Investing in employee retention leads to increased institutional knowledge and efficiency, a more robust company culture, a happier workforce, and could help boost economic growth in the long term.
If you need to discuss how employee retention factors into your organization’s short- and long-term planning, evaluation of key hires, and leadership development, Odgers Berndtson is here to help.
Kennon Kincaid is the Chief Operating Officer of Odgers Berndtson US, responsible for all people, processes, and operations of the firm. Together with the CEO, he leads the organization’s growth strategy. He is also co-head of brand extensions Berwick Partners and Odgers Interim. Prior to joining Odgers, Kennon spent over a decade as a US diplomat across Europe, Africa, and Asia-Pacific before joining Rocket Lab, a cutting-edge aerospace company and launch service provider. At Rocket Lab, he established and led the international business development, security operations, and international government relations functions.
Kennon can be reached at (212) 972-7287 or firstname.lastname@example.org.