Employee Retention Importance and Strategies

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Authors: Jacob Beasley, Blake Phillips

Publisher: Magellan Int., LLC

Date of Publish: June, 2023


The significance of employee retention has steadily risen to make it one of the most critical issues in today’s workplace. Studies are increasingly finding that companies have trouble retaining talent. These studies also show a decreasing trend in average tenure and a rising average cost of turnover. Fortunately there are many strategies both HR and managers can employ.


An organizational focus on employee retention supports hitting revenue goals and minimizing costs. When an employee leaves an organization, it costs the company money and time to find and train a replacement. The cost of recruiting, hiring, and training can be significant, especially for skilled positions. Moreover, the cost of lost productivity during the transition period can also be high. Many studies show that the cost of replacing an employee can be as much as double the cost of the initial hire. A study by SHRM theorized that the cost of a lost employee to a company can be 90%-200% of that employee’s annual pay. Another study indicated that the target companies’ average employee earned $70,000, but it would cost $105,000 to replace them, further noting a 150% total cost of replacement estimate as, “conservative.”

Improving employee retention dramatically improves employee morale and job satisfaction. When employees feel valued and appreciated, they are more likely to maintain output level and quality. When employees feel undervalued and unsupported, their performance suffers. A 2006 University of Houston study published by the National Social Science Journal saw a consistent trend between perceived morale in work groups and productivity. The study noted an average 56% productivity difference between the groups with the highest and lowest perceived morales. By providing employees with opportunities for growth, development, recognition, and rewards, organizations can boost employee morale, which in turn leads to higher employee retention and profits.

Typically, an employee’s value to any enterprise takes time to emerge. Employees who are continuously improving their skills, taking on additional responsibilities, and demonstrating leadership qualities will be especially more valuable over time. This value comes when they can consistently meet or exceed their job responsibilities and contribute to the overall synergy of the organization, generating value for the company that greatly exceeds their cost. As indicated by the AIHR figure below, employees come into their full value at the 2 to 3 year mark, but career expert Jonathan Phillips estimates the half life of jobs, in the US, at 2 years. This means that half have left the position before reaching their full value, and the other half are extremely likely to leave within a year of reaching their full value.

employee lifetime value

Vulpen, E. van. (2022, January 21). Employee lifetime value: All you should know. AIHR. https://www.aihr.com/blog/employee-lifetime-value-eltv/#:~:text=Employee%20lifetime%20value%20(ELTV)%20refers,contract%2C%20and%20receives%20formal%20compensation.


The most effective method to ensure high levels of employee retention is to engage in a rigorous recruiting and hiring process. For management, this means collaborative job analysis between hiring authorities and HR, boundless clarity with recruiting teams and candidates, consistent engagement with the process from direct hiring authorities, and timely reactions to changes in the job market. For recruiting teams, this means extensive market analysis, persistent communication with HR and hiring authorities, clear understanding of hiring and job parameters as well as company values, generation of a talent pipeline, and considerable time spent on resume review and initial screenings.

Investing in employees’ careers is likely the best way to promote retention with established employees. Employees who feel that they are learning and growing in their careers are more likely to stay with the organization. According to two LinkedIn studies, one in 2018 and the next in 2019, 94% of employees stated they would stay longer with employers who invested in professional/career development. This can range from work related classes offering new skills, to ensuring that their employees have longer term career goals, leading to a better understanding and a strengthening of the relationship between employees and employers.

Another effective strategy is recognizing and rewarding employees for their contributions. Recognizing employees’ efforts and contributions can show them that they are valued and appreciated, which can increase their job satisfaction and loyalty to the organization. Besides providing a supportive environment, it can also work as the scaffolding for career development. This can be achieved through promotions, bonuses, or other incentives. As reported by CNBC, workers who feel recognized are 56% less likely to be looking for a new job. As mentioned above, employees should have long-term career goals. These include promotions, role changes and possibly even supporting employees changing companies.

All of this facilitates employee retention by creating a positive and cohesive environment. This includes having a supportive culture, providing work-life balance, and promoting open communication. It is important to note that very often these are the responsibilities of HR, however, managers should also be implementing these strategies independently.


Employee retention is critical for organizations to reduce costs and maintain productivity. By implementing effective strategies, such as providing opportunities for growth and development, recognizing/rewarding employees, and creating a positive work environment, organizations can increase employee morale and job satisfaction, which in turn can lead to higher levels of retention. In today’s competitive job market, retaining top talent is more important than ever, and organizations that invest in employee retention are likely to see significant benefits in the long run.


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