Key Takeaways:
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Retention is not a “nice-to-have.” It’s a core business strategy that requires ongoing attention.
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You can’t retain today’s employees using yesterday’s playbook. If you don’t adapt, they will leave.
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Retention improves when you treat employees like individuals, not policies—and when leaders stay engaged before problems arise.
Retaining our teammates in today’s world requires innovative employee retention strategies. Gone are the days of working one career until retirement: many workers today are prepared to leave their job if they don’t feel their needs are being met. It’s good to periodically evaluate what we have to offer to ensure we’re staying competitive.
What is Employee Retention?
Definition of Employee Retention
Employee retention is a company’s ability to keep its employees over time. Although there will always be some level of turnover in business, the more employees stay on for the long haul, the better it usually is for an organization’s bottom line.
Why Employee Retention Matters
The Cost of Turnover
As it turns out, replacing employees is expensive. A poll by Express Employment Professionals estimates that the average cost of turnover is $45,236 per employee in 2026. That number is even higher for specialized roles when you account for potential separation packages, recruitment, and lost productivity while the position is vacant.
New Challenges to Employee Retention
What’s Changed
Thanks to social media and improved online search, employees now have more information at their fingertips than ever regarding what competitors are offering, what salary to expect for their skill level, what benefits are on the market, and what other workplaces look like day to day.
Top Employee Turnover Challenges Now
- Changing work-from-home dynamics: During the pandemic, many workers experienced remote work for the first time and found that they enjoyed it. Employees today may avoid jobs that mandate full-time in-office attendance without significant benefits to offset it.
- Wage transparency: It’s no longer taboo to discuss salary with strangers, and pay information by industry is widely available online. Unfortunately, this can create unrealistic expectations in entry-level employees about what to expect right out of the gate.
- Burnout culture: The dialogue around mental health has shifted in America. More people than ever are pursuing therapy and prioritizing self-care. This can cause work ethic to suffer, especially in younger workers—they’re unwilling to stay at a stressful job that may pay off in the long run if their mental health suffers in the short term.
- AI-driven job searching: Employers and employees alike are using AI tools to find new hires and look for work. It’s more difficult to retain talent when your top performers are being actively scouted on LinkedIn or job search websites like Indeed around the clock.
The Millennial/Gen Z Issue
Employers are also facing new challenges in retaining millennials and Generation Z college graduates in the workplace. Millennial and Gen Z workers are often written off as lazy, but the truth is that they are simply not motivated by the same things that worked for previous generations.
Forbes states that millennials value a strong company culture and need more encouragement and constructive feedback to feel integral to the workplace.
These employees also tend to be more creative and skilled with technology. While older generations tend to write this off as “tech-absorbed,” harnessing this passion and natural talent can be an incredible asset to your company.
Also, millennial workers want to feel like they’re doing important work. According to Forbes, 84% of millennial workers prioritize making a positive impact on the world over professional recognition. They need to feel engaged in their career to want to stay with the company.
Understanding these challenges is the first step towards addressing them. The most effective employee retention strategies today are proactive, creative, and built on trust between employer and employee.
Measuring Employee Retention
The Employee Retention Rate Formula
(Employees at end of period − New hires during period / Employees at start of period) × 100
What Is a Good Employee Turnover Rate?
You usually want to aim for a rate of 90% or higher, though this may vary by industry. Some fields are naturally more prone to turnover than others.
What Is a High Employee Turnover Rate?
Anything over 20% is usually considered high employee turnover, but it’s important to look at overall patterns, not just the employee turnover rate.
For example, if most of your turnover occurs in the first few months of employment, it’s worth looking into whether you have a problem with your job descriptions, interview procedures, or onboarding process.
Key Drivers of Employee Retention
Core Retention Factors
There are a few basics to cover when it comes to employee retention. These are the usual suspects when it comes to things that make or break someone’s long-term prospects at a company.
- Work-Life Balance: Employees today are much less willing to work long hours than in decades past. Allow for workplace flexibility when possible.
- Company Culture: Everyone wants to feel like they’re part of a team. A solid culture creates a sense of identity.
- Competitive Compensation: For most small businesses, it’s best to be in the middle with your salary ranges. However, please be ready to respond quickly to competitive offers.
- Leadership: Bad managers are the number one reason people leave jobs. Capable, competent, mature leadership goes a long way.
- Benefits: One of the most effective employee retention strategies is offering additional perks rather than a pay raise. Remote work, summer hours, PTO, and cultural benefits such as gym memberships are all great options.
- Recognition: Workers are happier when their contributions are acknowledged, both internally and publicly (when appropriate).
- Career Growth: There must be options for upward mobility if someone is to stay at your company for many years. This can be difficult for small, flat organizations. You may have to create senior and junior roles for similar positions to generate a ladder of success.
Effective Employee Retention Strategies
Although there is a correlation between compensation and employee retention, a business owner can’t afford to keep raising wages indefinitely, especially as employees hit the top of the pay range for their position. I once believed that if you treated your people well and paid them fairly, they would stay. What I have learned from five decades of managing people, we must also find a way to passionately engage their hearts. A strong culture, with a shared understanding and belief in the mission, significantly improves retention.
Fortunately, you have plenty of options for employee retention that don’t involve simply raising salaries. Here are some strategies for employee retention that go beyond salary alone.
Regular Feedback
Provide consistent, thoughtful, intentional feedback, both positive and constructive. This gives your associates a sense that they’re doing good work and allows them to make steady progress.
Cross-training
Give your employees varied duties. They expect to learn new skills and have different experiences that will grow their portfolio. They will usually accept and excel in lateral positions if the work is meaningful.
Continuing Education
Provide opportunities for professional development. Plan and budget for outside seminars and workshops. Development is an effective employee retention strategy.
The Big Picture
Show your employees how their work matters. Many of our teammates never realize how their work contributes to the company’s success. Include them in decision-making sessions so they know their input is valued and appreciated.
Clarity
Create realistic and understandable goals. Most employees prefer clear objectives to avoid misunderstandings about what to expect.
Potential in Hiring
Always hire and pay for potential, not the high-priced, more experienced gunslinger. Then, you will have more room to mold a newer employee while saving on their salary.
Pay Parity
Always be careful to maintain parity between your current employees’ and new-hire rates. If someone with you for five years finds out they’re making the same amount as the new guy, they’ll feel devalued.
Managerial Training
Management is crucial to employee retention. A good manager is worth their weight in gold. Invest in regular leadership evaluations and training to ensure your team uses its power responsibly.
Explanation of Benefits
Consistently reinforce to your team the monetary value of benefits. For example, healthcare, vacation, and PTO are all part of an employee’s total compensation package. Unfortunately, many employees don’t realize the actual value of these benefits until they find a new job.
Performance-Based Raises
Emphasize that positive performance evaluations lead to better compensation growth. Don’t get in the habit of handing out yearly raises regardless of performance. Encourage your employees to go above and beyond. In other words, pay for goal completions.
Competitor Research
Constantly audit your competitors’ compensation. Don’t get surprised when your top talent leaves for a higher-paying gig down the street. Instead, you should know how much your competitors are paying so you can attract employees who can outperform theirs.
Better Onboarding
A structured 30-, 60-, or 90-day onboarding process can help retain new hires and set their expectations at the start of their employment.
Modern Benefits
There are more creative benefits options today than ever before. Things like childcare subsidies, flexible hours, wellness stipends, mental health support, and other out-of-the-box perks can help you stand out from the competition.
One Key Employee Retention Strategy from Love ‘Em or Lose ‘Em
One of the quintessential books about talent retention is Love ’Em or Lose ‘Em by Beverly Kaye and Sharon Jordan-Evans. Although the book dates back to 1999, the ideas inside are still rock-solid. One of the best is in the very first chapter. The idea is this: How do you improve employee retention? When in doubt, try asking.
The Importance of Asking for Feedback
Kaye and Jordan-Evans present a common phenomenon: businesses spend time, money, and energy developing employee retention strategies to keep their best talent, only to lose them in the end. Why? Although they have given the problem a lot of thought, they have yet to ask their employees what it would take to keep them on.
Different people have different wants and needs, and you can’t read their minds. It’s worth asking, maybe at an annual review, what it would take for your employees to stay for the long haul. If that feels too direct, an anonymous survey might take some of the pressure off.
Please don’t wait until your top performers accept another offer to figure out how to keep them. Employee retention strategies should be a significant concern long before your associates start thinking about jumping ship. Turnover is inevitable, but you want your people to stay as long as possible and part on good terms when they leave.
Frequently Asked Questions About Employee Retention
What is meant by employee retention?
Employee retention is a business’s ability to reduce turnover and keep employees over the long term.
What are the key drivers of employee retention?
A few key drivers include compensation and salary, career growth options, cultural fit, management, and benefits.
How can I improve employee retention?
Some worker retention strategies include offering better work-life balance, creative benefits, investing in opportunities for continuing education and career growth, and asking employees what it would take to keep them long-term.
Need Help?
Are you looking to improve talent retention at your organization? Keeping your talent doesn’t have to break your company’s budget. Fill out my “get started” form for a complimentary video call with a professional coach to discuss employee retention strategies for your business. You can also sign up for my email list for more great articles on leadership, business growth, and more.
Coach Dave
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