Retention Rate

Retention rate is a measure of the number of employees employed for a given length of time compared to the total number of employees. It gives managers and human resources departments an idea of how many employees are staying with the organization over a certain length of time.
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Retention rate is a measure of the number of employees employed for a given length of time compared to the total number of employees. It gives managers and human resources departments an idea of how many employees are staying with the organization over a certain length of time.

Managers and human resources departments should measure employee retention because it can be tied to productivity, employee morale, attractiveness to job applicants and, importantly, to operating costs. If the rate is low, that means that the number of employees that have experience within the organization is low. This leads to lower productivity (except in low-skill "meat-grinder" companies that hire and fire on a low-pay "probationary basis" (with dismissal and replacement at the end of that period). Conversely, a high retention rate indicates that employees are staying with the organization and, in theory, becoming more productive.

Apart from such "ruthless" extreme uses of a 3-month probationary period, using it as a screening device that reduces the retention rate can backfire, in terms of the costs incurred by an organization relying on it.

However, when the organization lacks sufficient flexibility and control over retention, e.g., when there is government-mandated retention or retirement, the 100% retention rate may simply be a measure of government intervention and productivity losses.

If an organization has a low retention rate, managers should find out why. Why would employees leave? Poor compensation and an uncomfortable work environment could be the reason. But sometimes employees are not getting along with coworkers and therefore not happy with their jobs. In addition, not hiring quality personnel in the first place can lead to a low retention rate. Once the cause of the low rate is discovered, steps to bring the rate up should be taken. What does it take to make employees stay with an organization?

The obvious influences on retention rate are compensation packages, organizational reputation and success, work environment conditions (including ergonomic and employee-support services), organizational prospects, good employee skills-challenges matches, respected organizational values and management, equitable policies, attractive levels and mixes of employee authority and responsibility and total work hours.

Subtler influences include the state of a society or culture's work ethic, e.g., attractiveness of a "gap year", employee entitlement-attitudes; employee collaboration-confrontation mind set; influence and power of labor unions; and the role of government-mandated hiring and retention policies.
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