Employee turnover represented one of the key challenges for human resources (HR) in 2022.
The shortage of skilled workers and the high demand for talent in the labor market are fuelling this development. This year, experts expect a turnover rate of over 30 percent. This results in immense costs and productivity losses for companies. Employee retention is thus a strategic task critical to the success of HR departments. But how can a successful retention program be set up?
What is employee retention?
Employee retention is a central task of HR departments in order to retain talent in the long term. The elements of employee retention can be classified into internal and external factors:
Internal factors:
- Rational binding: Remuneration, working time models, benefits
- Emotional attachment: Relationships with colleagues and superiors, identification with the company, appreciation.
- Normative bond: corporate culture, corporate values, purpose
Prospective commitment: Promotion opportunities, training programs, responsibility.
External factors:
- Economy: good economy = better opportunities on the labor market = alternatives
- Trends: higher attractiveness of employers who embody trend topics such as sustainability
- Political decisions: e.g. through legislation and regulatory requirements regarding the issue of bogus self-employment.
What happens when employees leave the company?
Employee turnover has a wide variety of influences on a company: First, the termination of an employee incurs costs for the company.
Direct costs arise from the administrative effort involved in the termination process, from the time and costs involved in filling the position, as well as for the onboarding and induction of the new employee. In addition, indirect costs arise in the form of loss of knowledge and productivity, the full extent of which is sometimes impossible to quantify exactly.
Furthermore, fluctuation always has a major impact on team dynamics and motivation within the team. An unintentionally high turnover will have a negative impact on the mood of the group and foster insecurities and concerns. A desired regular fluctuation, on the other hand, can bring a breath of fresh air and new impulses.
One Fits All vs. Everybody’s Darling
As with so many issues, there is no one-size-fits-all strategy for a retention program. Depending on the industry and the maturity of the company, different designs of retention elements are suitable. Thus, measures that make sense for one company may not have any effect on another, or may even be counterproductive.
In addition, the respective business model has an impact on the level of desired staff turnover. For example, the business case of a consultancy is based on the fact that employees at the lower levels bring in high hourly rates in relation to their salary, whereas the margin of the upper levels is much lower. In this case, high fluctuation is explicitly desired, as otherwise, the model would not be sustainable.
“One Approach Fits all” is just as inapplicable when looking at a company with regard to the different teams in the company as well as the individual employees. Here it is advisable to understand the needs of each and put together an individual package. The big challenge is therefore to establish a standard on the one hand and still take individual needs into account on the other.
Data, data, data
As a result, setting up a retention program becomes a very complex and multi-layered matter that requires a comprehensive analysis and collection of a wide range of data. As is generally the case with strategic issues, it is important that decisions are not made subjectively by individual decision-makers, but are based on data and facts. The following steps are recommended:
- Analysis of the business model as well as the direction of the overall corporate strategy and derivation of the implications for the issue of employee turnover
- Survey of the external factors that have an impact on employee retention, taking into account the industry and business model
- Conduct an anonymous survey of employees on
- existing retention elements (including the collection of as detailed statistical data as possible, such as department, level, length of service, age, and gender)
- possible new bonding elements
- Forming meaningful peer groups and prioritizing the respective measures
- Creating a framework for individualizing the measures per employee
- Setting up an implementation concept incl. change management and comprehensive target group-oriented communication
HR as a central strategic unit of the company
The topic of employee retention is a prime example of how much the role of HR departments has changed in recent years. Where HR was often considered a purely administrative unit in the past, it is increasingly becoming one of the most important strategic levers for corporate success.
This has the effect that HR employees must have comprehensive knowledge of strategy and, in addition, a close link between HR and corporate strategy is required.
In addition to strategic competencies, effective HR management also requires that the HR unit is strongly data-driven and builds up comprehensive knowledge about the needs of all employees in a company. This is because the effectiveness of HR management will play an increasingly important role in the success of companies.
Angelika Birk | Co-Founder & CEO at GREWP