While there has been increased conversation around employee experience and retention over the last few years, the emphasis tends to be on the number of employees leaving their positions. But even in the wake of the Great Resignation and the Great Reshuffle, there are still organizations that successfully retain employees and improve the employee experience.
It’s essential to look at how those companies keep their people, of course, but knowing how to measure employee retention is equally important.
5 metrics to help you gauge real employee retention
1. Overall Employee Turnover and Retention
Overall employee turnover measures the number of employees who leave the company, either voluntarily or involuntarily, during a given period (usually one year). If your company employs 500 people and 50 leave the company each year, that’s a turnover rate of 10% (50/500*100=10%).
Measuring the overall turnover rate will also help you find the overall employee retention rate. If 50 employees leave your organization in a year, 450 employees stayed, giving you a retention rate of 90% (450/500*100=90%).
2. Voluntary and Involuntary Turnover Rate
To find the voluntary turnover rate, split the number of employees who leave the organization in a given period into voluntary and involuntary terminations. Voluntary terminations are those where employees leave of their own accord. They may take positions elsewhere, move away from the company, or leave the workforce altogether. Once you know the hard number of voluntary terminations, you can arrive at your turnover rate with the same formula. If 20 of your terminations in one year were voluntary, your voluntary turnover rate is 4% (20/500*100=4%).
In our scenario, the remaining 30 employees were terminated involuntarily. This number gives an involuntary turnover rate of 6% (30/500*100=6%). Involuntary terminations can also run the gamut of explanations—everything from layoffs due to market shifts to low performance to misconduct. Depending on your industry and market circumstances, diving more deeply into the reasons behind involuntary turnover may be valuable, especially if it’s creeping upward or lacks a clear cause (such as layoffs).
3. Industry Turnover Standards
So far, you’ve calculated employee retention and voluntary vs. involuntary turnover. This information is important, but it’s only valuable if you know how it compares to other organizations in your industry. For instance, retail and food and beverage tend to have higher turnover than manufacturing. Comparing your internal turnover rates to those of your industry will help you gauge how you stand up to your competitors.
4. Employee Satisfaction Score
There are many ways to measure employee satisfaction through surveys, but one of the simplest is the employee Net Promoter Score, which is similar to the customer Net Promoter Score (NPS) used by market researchers and customer satisfaction specialists. Ask employees, “On a scale of 1 to 10, with ten being the highest, how likely are you to recommend this company to a friend or colleague as a good place to work?” Employees who give a rating of 9 or 10 are your promoters; ratings of 7 or 8 are neutral or passive, and anything six or below indicates a detractor.
Once you have closed your survey, calculate the percentages of promoters and detractors (passive/neutral employees can be ignored in this part of the calculation). In our fictional scenario of 500 employees, say you have 300 scores of 9 or 10 and 100 responses of 6 or less. This means that 60% of your employees are promoters, and 20% are detractors. Subtract 20% from 60% for an overall employee Net Promoter Score of 40, which is an excellent employee satisfaction score.
5. Cost of Employee Turnover
Whether your employees leave voluntarily or involuntarily, most of the time, you will need to replace those employees with new hires or shift their work to other team members. In the case of layoffs, the organization may not have to rehire, but severance pay and unemployment costs will factor into the overall budget. In general, the higher the skill level and productivity of the terminated employee, the more expensive it will be to replace that employee; top employees will be exceptionally costly to replace. Aside from hard costs associated with hiring, try to factor in soft costs as well, such as the time it takes someone to grow into total productivity, which could be several months to two years, depending on the role and function.
Why Tracking Employee Retention Metrics Matters
There are many more retention metrics you can measure, and of course, you can drill down into more detail in each of the above metrics. But why do these metrics matter other than just reducing strain on your human resources department?
1. Improved Profits
Organizations that use employee data to help drive business decisions have a three-year average profit 82% higher than counterparts who don’t use people analytics in this way, according to Deloitte Consulting LLP’s Bersin. Clearly, integrating people analytics into the business decisions drives business results.
2. Clarify Where to Improve Employee Experience
Looking at overall employee turnover and retention is just a starting point. By diving deeper into individual metrics, you can uncover challenges and opportunities for improvement. For example, if involuntary turnover is high for your industry, it might be valuable to look at screening and hiring processes, management interview practices, or new employee training. If your employee Net Promoter Score is low, you may need to address company culture or focus on meeting the human needs every employee has.
3. Reduce Expenses
There are many hard costs associated with terminating and hiring employees, and those don’t take into account lost productivity, learning curves, and institutional knowledge that can be impacted by employee turnover. By tracking retention and taking steps to address turnover wherever possible, most organizations can improve employee satisfaction and retention and reduce expenses.
In an era where companies in every industry are competing for talent, no organization can afford to ignore employee retention metrics. Start by measuring these five metrics, and before long, you will start to improve employee retention and see both business and people results.
SELF CHECK:
- What is one employee retention metric we can add to our tracking?
- Do we know how much employee turnover costs our organization? Can we find this number?
- Do we track employee satisfaction? What can we learn from our most recent results?
