10 Employee Retention Metrics You Need to Know
Implementing a solid employee retention strategy is critical for any company. Having the right mix of employees, especially since the world of work is transforming and the economic landscape keeps changing with it, helps keep your business afloat and growing. Let’s have a look at employee retention metrics that help improve employee retention at your organization.
What is employee retention?
Employee retention is the set of practices, policies, and strategies used to keep talented employees at your organization and reduce turnover. The main aim is to reduce the number of employees that leave the organization during a specific time period.
There has been a widening mismatch between the workplace environment and what employees want on a global scale in recent times. These discrepancies have resulted in many employees resigning from their jobs, as they’ve undergone self-evaluation and demanded more flexibility, greater remote work opportunities, and increased compensation.
Employee retention has thus been thrust into the spotlight as the number one priority for all HR departments.
Why you need to measure employee retention
- Getting a good understanding of your workforce dynamics – Analyzing employee retention provides you with valuable insights into who leaves and when and who stays. You’re able to assess if the organization is losing its top performers.
- Evaluating and improving employee satisfaction – Employee retention is an indicator of employee satisfaction. The more satisfied an employee is, the less likely they are to leave the organization. Strategies to boost employee satisfaction like increased compensation or more professional development opportunities also help improve retention.
- Being proactive in addressing problems – Tracking employee retention allows you to identify issues early and take appropriate action. E.g., if retention is lower than average in one of the departments, you can dig deeper into the matter and uncover and address the reasons.
- Creating an effective employee retention strategy – You need to know what to focus on and if your strategy works once you put it in place. Employee retention metrics help you assess that.
- Saving money and resources – When an employee leaves a position, the employer loses time, money, and effort during the recruitment and hiring process. Once the replacement is hired, they still need to be onboarded and trained. It is estimated that employers pay over one trillion US dollars annually in turnover expenses, so focusing on retention is vital.
- It’s a yardstick for your employer brand – If an organization is known for retaining its employers, the knock-on effect is that it will be seen as an employer of choice. On the other hand, if employees leave regularly, it can affect your external recruitment efforts, especially with social media at the leaver’s fingertips.
Common employee retention metrics
You can measure different aspects of employee retention with a variety of metrics. The metrics that you decide to track will depend on your goals. Here are useful employee retention metrics you should know:
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1. Employee retention rate
Employee retention rate is the fundamental metric for tracking employee retention.
A company’s employee retention rate is an indicator of its ability to keep employees over a period of time. Generally, a good employee retention rate is over 90%. You want to strike a balance between retaining the existing employees and allowing for new employees with more desirable skill sets and ideas to join the company.
Below is the formula to calculate the employee retention rate:
As an example, an organization with 500 employees lost 50 employees in the last year.
Employee retention rate = ((500-50) / 500) x 100 = 90%
2. Retention rate per category
Next to your overall employee retention rate, you can calculate retention rates across different categories.
Retention rate per manager
You can look into how each manager is doing in terms of retaining employees. A high retention rate of a particular manager reflects well on their leadership skills and can provide learnings to others. To calculate:
Retention rate per manager = ((Total number of employees per manager – number of employees who have left per manager) / total number of employees per manager) x 100
Retention rate of managers
You might also want to know how well you’re retaining employees at the manager level. A poor retention rate amongst managers could indicate that they might be overstretched with management responsibilities or have not been provided with the tools to be effective managers. If many managers are leaving the organization, this will have a knock-on effect on employees.
Retention rate per department
If a particular department has a low retention rate, you need to thoroughly analyze the cause. Understanding the retention rate per department can also lead to learning from other departments with a higher retention rate.
Retention rate per age group
An employee’s willingness to leave an organization might be loosely related to their age group. Understanding the reasons for leaving for various age groups can assist with timely interventions.
Retention rate per ethnicity/race group
Understanding ethnicity/race retention rates is key to monitoring your DEI&B goals. If a particular group has a noticeably poor retention rate, then it can be an indicator of various factors that contribute to a non-inclusive work environment.
Retention rate per gender
Again, if you’re retaining employees of one gender at a lower rate compared to other groups, you might want to dive deeper into the reasons why.
Retention rate by performance levels
It’s important to understand if you’re losing your high performers vs. low performers.
An in-depth analysis usually uses two or three of these particular categories to understand retention rates. So, for example, you might want to measure retention rates among 18–30-year-olds in the finance department. Or the retention rates of women in managerial roles.
To measure retention rates per category, use the employee retention rate formula with the appropriate category:
As an example, let’s say an organization has 2,500 female employees. At the end of the year, they have 2,200 female employees.
Female Employee Retention Rate = Total # of female employees (2,500) – Total # of female employees who left (300) / Total # of female employees (2,500)= 88%.
You can then compare this percentage to other categories and their retention rates within the organization. That enables you to understand if there is a need for concern and then implement any initiatives to address them.
3. Voluntary turnover
Voluntary turnover is the percentage of employees that leave their job. The word voluntary indicates that the employee chose to leave the employer. There are various reasons for voluntary departures from an organization, such as finding a new job, joining a more desirable brand, or relocation.
Understanding your voluntary turnover and the reasons for turnover is essential, as it will create the basis for the components an employer needs to work on to retain their team members.
To calculate voluntary turnover over a year, use this formula:
As an example, let’s say an organization has 1,000 employees. During the year, 75 employees leave voluntarily. The voluntary employee turnover rate would be 75 / 1,000 = 7,5%
As a best practice, an employer’s voluntary turnover rate should be 10% or less.
4. Involuntary turnover
Involuntary turnover is the percentage of employees who have been dismissed or laid off by the company in a given period. A high involuntary turnover indicates poor workforce planning or a lack of initiative to develop employees.
To calculate involuntary turnover rate, you can use the same formula as the voluntary turnover rate but use the correct data of involuntary leavers (dismissal or staff members that have been laid off).
5. Employee satisfaction rate
Satisfied employees are likely to stay longer in their jobs than unhappy employees. A happier employee is one that feels challenged by their work, valued by their organization, and feels they are fairly compensated. An HR department should focus on ambitious goals that drive the employee satisfaction rates higher each year. The most common employee satisfaction metric used is eNPs (employee Net Promoter Score).
This is an important metric that you can measure by asking the question “On a scale from 1-10, how likely are you to recommend this organization as a place to work?” or “Based on your experience, how likely are you to recommend our organization to a friend or colleague?”
Based on the responses, you can break it down into detractors, passives, and promoters:
- Promoters – Employees that respond either 9 or 10, which is an indication that an employee is satisfied.
- Passives – A score between 7 and 8 indicates the employee is neither happy nor unhappy but feels neutral. They won’t recommend the company to a friend, but they won’t bad-mouth them either.
- Detractors – Any employee that gives a score below 6, which indicates that the employee is not satisfied.
To calculate eNPS, the formula is:
Any score above 0 is considered satisfactory. Scores between 10 and 30 are good and anything over 50 is great.
You can also focus on new hire satisfaction rate to make sure that you can retain your new employees.
6. Average employee tenure
Understanding how long on average an employee stays with an organization is a good indicator of employee satisfaction. An average employee tenure looks at the average of all employee’s tenures with the total number of employees. The higher the average employee tenure, the more satisfied employees and thus the greater the retention rates. To calculate average employee tenure:
Average employee tenure = Total employment time for all employees / Total number of employees
Again, Human Resources professionals can use this metric across various departments or groups to see where there are areas of concern.
7. Cost of employee turnover
Retaining employees is crucial for any organization, as the consequence of turnover is costly. To calculate the cost of employee turnover, you need to collect data on all the costs involved and assign a dollar value to them. Here’s an example:
Cost Amount in $ Monthly salary of departing employee $5,000 Cost of advertising $2,500 Background checks $200 Cost of time away from job for hiring manager to conduct interviews $1,000 Cost of covering vacancy $7,000 Onboarding costs of new hires $8,000 New hire first 3 months of training / non-productivity $15,000 Total $38,700
8. Engagement scores
Employee engagement is a significant indicator of an employee’s intent to stay with the organization. There are various ways you can collect engagement scores, either through pulse or engagement surveys.
A pulse survey is a short set of questions continuously asked to understand people’s views on the work environment. An employee, for example, might come into work and have this pop-up:
The aggregate set of responses to pulse survey questions will indicate to the organization how engaged or disengaged the workforce is. Another way of measuring engagement is through a set of questions asked in a survey. This might be done quarterly or annually, depending on the organization’s culture regarding surveys. Some questions that could be asked are, on a scale from 1 to 10:
- Do you feel valued in your role?
- Do you feel that your job is allowing you to use your skills?
- Do you have a good relationship with your manager?
- Do you see a career path to advance your career within the organization?
- Do you feel the organization prioritizes your wellbeing?
9. Job satisfaction
Job satisfaction measures how happy an employee is with their job. If employees are dissatisfied, they are more likely to seek new opportunities externally.
The Employee Satisfaction Index (ESI) comprises three questions to measure how satisfied employees are with their jobs. The questions measured on a scale from 1 to 10 are:
- How satisfied are you with your workplace?
- How well does your workplace meet your expectations?
- How close is your workplace to your ideal job?
The formula to calculate ESI is:
The result of the ESI will be a score between 0 to 100. The higher the number, the higher the employee satisfaction. ESI allows you to track improvements over time based on how your score is developing.
You can embed these three questions in a more extensive employee engagement survey. Including open-ended questions in such a survey will help you understand what frustrates your employees and pinpoint what you can improve.
10. Flight risk
Understanding employees who are likely to leave would be great, but predicting the future is not always possible. Some indicators of employees that are likely to leave include:
- Employees that are paid below the market
- Employees who perceive their pay is low (even though it may not be)
- Employees that have recently changed roles (or managers)
- Employees that went through a significant life change
- Employees that experience low to minimal career progression
HR analytics teams need to plug these indicators, along with other factors, into Flight Risk models to really understand which employees are that likely to leave and then implement timely interventions to retain the valuable talent.
Tracking employee retention metrics doesn’t only help you understand the state of employee retention at your organization from a multitude of angles, but it also enables you to assess how effective your employee retention efforts are and what you can improve.