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Why Employee Retention Doesn’t Matter

Why Employee Retention Doesn’t Matter

By: Jon Picoult

Every business book you’ve read, every guru you’ve heard speak -- they’ve probably all extolled the benefits of retaining top employees.

But if you’ve held fast to that message, I’m afraid you’ve been misled. If your goal is to create a highly engaged workforce -- a team of people truly committed to your business’ success -- then retaining employees is entirely the wrong focus.

Retention for the Wrong Reasons
Yes, employee retention (also known as low employee turnover) does deliver many benefits: lower separation costs, reduced recruiting and training expenses, more experienced staff, etc. These are very real, tangible benefits that many firms routinely underestimate, if not overlook entirely.

But as good as retention is, it’s not the whole story. To illustrate why, consider your own experience as a consumer.

Focus on Satisfaction and Engagement
Have you ever patronized a business with which you weren’t really enamored? It happens all the time -- perhaps due to a lack of competition (think cable TV) or a contractual limitation (think cellular phone service).

A “retained” customer doesn’t necessarily mean they are happy -- the same holds true for employees. In fact, there are many reasons why an employer may retain a dissatisfied employee (e.g., family obligations, relocation obstacles, the absence of a suitable alternative job opportunity).

This is where employee retention, as a metric and a goal, falls short. It fails to account for staff who are, in essence, held captive due to circumstances that are largely beyond their control.

For this reason, employee retention is a poor proxy for gauging your staff’s satisfaction and engagement. Knowing if your employees are truly happy requires that you look at the employee/employer relationship from an entirely different perspective.

A Better Aspiration
What every business should really be striving for in its employee relationships is employee loyalty. With loyalty, you can be assured that people are sticking with you not because they have to, not because they have yet to find a better alternative -- but rather, because they want to.

It can be tempting for business leaders to interpret low turnover as a sign of employee satisfaction and loyalty (we’d all like to think that the work environment we oversee is a healthy and appealing one.) But low turnover -- particularly in today’s tight job market -- might not be a cause for celebration. It could be masking other workplace issues while obscuring looming risks.

That’s why it’s important to complement your employee retention metric with other indicators that are either direct measures of, or good proxies for, employee loyalty. In this way, you can drill into what might seem like a strong retention result and clarify if it is a truly positive signal.

Where possible, assess your performance on these measures by benchmarking against similar companies in your industry. If that data isn’t available, then benchmark against your own historical results and aim to improve your performance over time.

  • Likelihood to recommend. If you conduct periodic employee satisfaction surveys, be sure to include a question about how likely the individual is to recommend your company to a friend or family member who is seeking employment. If an employee is willing to make such a referral, it suggests that they like your workplace enough to direct others to it. The “likelihood to recommend” question (with a five or eleven point response scale) is commonly embedded in customer surveys, where it’s been found to be a good indicator of loyalty and predictor of retention.
  • Employment referrals. Take “likelihood to recommend” one step further. Calculate what percentage of your new hires in the past year came via referral from existing employees.  Presuming your business practices provide some basic motivation for referrals (for example, publicizing job openings to existing staff, explicitly asking for referrals and rewarding/recognizing employees who refer candidates), this metric can say a lot about how pleased people are working for your company. 
  • Improvement suggestions.  If you’re loyal to an employer, then you’re more likely to feel vested in making the firm a better place to work and a stronger competitor in the marketplace. Over the past year, how many of your employees have made suggestions to improve the business? As with employment referrals, assuming you provide some basic encouragement to staff to submit ideas (for example, by providing live, written and/or electronic avenues for suggestion submittal, responding to every suggestion put forth and rewarding/recognizing employees for innovative thinking), the volume and quality of those employee suggestions is another indicator of how engaged your staff really is.
  • Employee behaviors. While less quantifiable than the indicators listed above, there are also behavioral cues worth monitoring. Do your employees frequently volunteer for new assignments, or is it like pulling teeth to get them to be proactive? Do people consistently come into work on time, or do they straggle in late, trying to shave a few minutes off of their workday? Behavioral signals like these can also be a good gauge of employees’ interest in and loyalty towards their employer.

The Power of Loyalty
Focusing on employee retention is like committing to mediocrity. There’s no question strong retention delivers very significant benefits, but they pale in comparison to the advantages of real employee loyalty.

Employee loyalty results in true employee commitment. You get a workforce that sticks around, not for lack of a better alternative, but because they believe in and are passionate about what your company is trying to accomplish. As a result, these employees are more productive, they go above and beyond for your customers and they actively work to improve the organization.

If your company is focused on employee retention, there is one piece of good news: You’re one step ahead of all the firms that either ignore the impact of turnover or simply accept it as a cost of doing business. 

But if you really want to take your company to a new level, look beyond retention and instead set your sights on loyalty. The difference between the two will be significant, both to your workforce and your bottom line.

Next: Watch a Monster video with Jon Picoult: Competing for Top Talent

Author Bio:
Jon Picoult
is Founder of Watermark Consulting, a business advisory firm that helps companies impress their customers and inspire their employees. Jon is a frequent writer and speaker on workplace issues. Prior to founding Watermark, he held senior executive roles in service, technology, sales and marketing at Fortune 100 companies. Learn more, or read Jon’s blog, at watermarkconsult.net