Employee retention has never been more critical. The UK labour market remains highly competitive and there are lots of opportunities for employees to move to other organisations. To support you, this guide provides practical tips on analysing retention rates and understanding why people leave. We will lead you through developing a retention strategy tailored to your needs while considering how to retain ‘key individuals’.
The current labour market
During the pandemic, the job market was relatively static, with many employees staying in their roles even if they weren’t satisfied. As the CIPD commented, ‘In uncertain times, sticking with your current employer is a safer bet.’ As the economy reopened, the job market accelerated again. Whilst the number of job vacancies are dipping slightly compared to the highs of 2022 (where we saw the ‘great resignation’), recruitment is still extremely challenging. Research has found that 49% of UK employees are likely to seek out new job opportunities in 2024.
Many UK employers are experiencing skills shortages and talent gaps caused by lots of factors, including Brexit, the pandemic and the current job market. This is particularly the case in the retail, hospitality, catering, leisure and cleaning industries, which have been hit the hardest.
Companies are responding to the recruitment challenges by increasing pay offered (44% of employers), upskilling existing employees (39% of employers), and offering flexible working (38% of employers), meaning competition for the best candidates is higher than ever.
Why make employee retention a business priority?
A degree of employee turnover is expected; employees retire, change career paths, relocate, etc. Turnover can even be beneficial for a business, as it enables an employer to bring new talent into the business, opens up career progression opportunities, and acts as a catalyst for change. However, turnover becomes an issue when an employer experiences difficulty hiring new employees, where service levels are impacted, or when recruiting and training new employees becomes costly. Turnover is also a challenge when the employee leaving is particularly valuable to the employer; for example, they have an established relationship with clients, are high performing, or have a scarce skill set.
High turnover creates a financial burden for employers because the cost of hiring new employees is often high. Direct recruitment costs, such as advertising and agency fees, soon add up. Furthermore, the indirect costs should not be ignored. These include the cost of the induction and training period and the lower productivity levels of a new staff member compared with experienced staff.
As a result, it makes sound business and financial sense to prioritise employee retention, particularly when the labour market is so competitive. You can take strategic actions to keep your employees motivated, so they choose to remain employed with you. An employee retention strategy plays a vital role in attracting and retaining key employees, as well as reducing turnover and its related costs, thereby contributing to business performance. Remember, it is far more efficient to retain a good employee than to recruit, induct and train a new employee of the same calibre!
Analysing retention and turnover rates
Average turnover rates vary significantly depending on the industry, location and labour market. Areas with high unemployment tend to have lower turnover rates. The industries experiencing skills shortages and talent gaps are more likely to have high turnover due to an abundance of similar jobs available. Employers should consider how their retention and turnover rates compare with industry standards and with similar employers in the local area. You can analyse their retention rates by using the calculations listed by CIPD here.
Where turnover rates are higher than desired, employers should further analyse the data to understand who is leaving, i.e. employees in a particular team, job role or demographic group, as this will impact the retention strategy needed. For example, the data may show that a high percentage of females with young children are leaving, or it could indicate that employees reporting to a particular line manager are leaving. The interventions needed will differ with each scenario.
Understanding the causes of turnover
People leave employers for a range of different reasons. Sometimes it’s a ‘pull factor’, i.e. the attractiveness of another job, career, or lifestyle change. Often it’s a ‘push factor’, i.e. they become dissatisfied in their current role, so they look for another job. Push factors may include poor pay and benefits; poor relationship with colleagues or line managers; dissatisfaction with job role or working conditions; lack of career opportunities; or lack of flexible working.
The reasons for high turnover will be different for each employer. In order to improve employee retention, you must first understand what is causing turnover in your organisation. There are a number of tools you can use to gain an understanding, including…
Exit interviews
You should conduct exit interviews with all employees who resign to understand their reasons. Exit interviews should not be undertaken by the individual’s line manager, as this may prevent the employee from being completely honest with their feedback. Ideally, a member of the HR team or an independent third party should carry out the exit interview. This will reassure employees that the interview is confidential and will have no bearing on any employment reference.
Engagement surveys and focus groups
It’s also important to gain feedback from your existing employees. Conducting an engagement survey and/or focus groups will help you identify potential employee retention issues before they result in a resignation.
Confidentiality is particularly important, as current employees may be uncomfortable providing constructive feedback. Focus groups should ideally be administered by a member of the HR team or an independent third party. The benefit of a focus group is that the feedback is qualitative and employee-led. However, employees may feel more comfortable providing feedback via an anonymous survey rather than in person. Further information is available in our guide ‘How to conduct an employee engagement survey’.
Developing your tailored retention strategy
By understanding the reasons for turnover, you can develop a retention strategy tailored to meet your employees’ needs. Listed below are examples of interventions that could be included in a retention strategy (depending on the causes of the turnover), all of which have been shown to impact employee retention positively.
Competitive pay and benefits
You should ensure that the pay and benefits offered are competitive to reduce the risk of employees leaving to secure higher-paid roles. This is particularly relevant given the current cost of living crisis with many people experiencing ‘in work poverty’. Employees who are struggling financially will naturally look for ways in which to increase their income. The CIPD found that raising pay was the most common response to resourcing challenges.
Where possible, employers should consider offering ways to earn more money, for example, by increasing wages or offering opportunities for promotion, overtime or commission. Some employers (such as Lloyds Bank and Cavanna Homes) have even given employees a discretionary bonus to support them during these uncertain economic times.
Many employers offer an enhanced benefits package to attract, retain and engage their employees. Flexible benefits plans are becoming increasingly popular as they enable employees to choose which benefits they prefer, meaning employees are more likely to value their benefits package. Find out more in our guide: An employer’s guide to Employee Benefits
Make employee wellbeing a priority
The Covid-19 pandemic and the cost of living crisis raised awareness of employee health and wellbeing and the role employers play in supporting employees. There is an increased focus on employees’ physical, mental and financial wellbeing. As the CIPD states, ‘making sure people are happy, healthy and engaged is fundamental to sustainable business performance. Investing in employee wellbeing leads to various benefits for individuals and employers, including increased performance, engagement and employee retention.
Find out more in our guide: How to draft an employee wellbeing strategy for your organisation
Offer flexible working
Flexible working is increasingly in demand, with employees prioritising work-life balance. Offering flexibility ‘over where, when, and the hours people work’ is highly desirable for many employees, particularly those with caring responsibilities. As a result of the pandemic, there has been a significant increase in flexible working arrangements, particularly home working and hybrid working, with 85% of organisations providing flexible working to some or all employees. As the CIPD states, ‘Creating quality work with lots of flexibility will help employers attract, and crucially retain employees’.
Treat people fairly
Perceptions of unfairness are a significant cause of resignations, particularly concerning pay. To avoid perceptions of unfairness, employers should make decision-making as transparent as possible and have clear processes in place that employees are aware of.
Offer learning and development opportunities
Most employees want to develop their skills and career progression. Offering opportunities for training and development demonstrates that an employer values their employees and sees them as worth investing in. To quote Sir Richard Branson, ‘Train people well enough so they can leave, treat them well enough, so they don’t want to’.
Invest in leadership and people management capability
We are all familiar with the saying ‘employees don’t leave companies, they leave managers’, and there is certainly some truth in it. A Gallup study found that 75% of employees that resign, do so because of their line manager
Recognition
Ensuring employees feel recognised and valued for the work they do is imperative. Many employers get recognition wrong. They introduce an ‘employee of the quarter’ award with a ceremony and a prize for the winner, but they fail to get the basics right. Recognition can be as simple as saying ‘thank you’ or providing positive feedback. For recognition to work well, it ‘should be timely, regular and authentic’.
Recruitment
If turnover levels are high for new employees (i.e. those with less than six months service), it would be worth reviewing the recruitment process to ensure that the description of the job roles are realistic and accurate. If the role is not what new employees expect, then this may result in their resignation.
Other areas of focus that could be included in a retention strategy are: having the right tools available; culture; engagement; motivation; health & safety; organisational structure; working conditions; induction and onboarding process; job design; vision and purpose; addressing issues raised by employees; and ensuring employees have a ‘voice’.
Retaining key individuals
Most businesses will have key individuals that they wish to retain. This could be because the employees are high performers, they have an established relationship with key clients, or because they have a skillset that makes it hard to recruit a replacement.
To reduce the risk of these key individuals resigning, employers should consider developing personalised employee retention plans for them. The first step is to identify who these individuals are within the business. Once they have been identified, regular conversations should be held with them to discover ways in which to keep those individuals engaged and to ensure their needs are being met. It can be difficult to think of how to approach this conversation. Consider saying ‘You are one of our most valuable employees. What can we do to keep you engaged with the business and enjoying your role?’ The individuals are likely to be pleased that their employer values them so highly and is concerned about losing them. A personalised retention plan can be developed as a result of these conversations.
Nevertheless, it is inevitable that some key individuals will resign, retire or change job roles. Employers should plan for this eventuality by developing succession plans. Succession planning involves identifying the future generation for key roles, and providing them with the training, development and experience they need to be able to progress.
What can we do to help?
If you would like advice on developing an employee retention strategy, please contact our team on 0330 223 5253 or office@fitzgeraldhr.co.uk. We would be delighted to help you.
We hope you found this employee retention guide useful. You may also find the resources below helpful.
