The Real Cost of Turnover and the Importance of Talent Retention

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Employees feeling burnt out and overwhelmed is common, but making sure they feel valued, safe and respected is one way to reduce employee turnover.

The easiest way to save time and energy on recruitment is to retain your new hires and the employees you already have! But in today’s Great Resignation, employees are leaving their jobs in droves, contributing to churn and supply shortages. Even before the pandemic began impacting economic and labor markets, Gallup called employee turnover “the fixable problem that costs businesses $1 trillion [per year]”.

The current labor market is influenced by a variety of forces, and no one answer can solve the problem of employee turnover. But it’s worth exploring exactly how companies can reduce costly turnover and which prevention measures are the most effective. Here’s our take on talent retention, based on our combined decades of experience in employee experience and recruitment.


What causes employee turnover?

Rising inflation, steady economic growth, and the current candidate-driven labor market make now a good time for employees to make a career change. Those who put off career priorities to focus on keeping their head above water during the pandemic are among the people taking advantage of employers’ desperate need for qualified candidates to fill empty positions. Employees who previously had no plans to quit or change jobs are finding themselves tempted by generous offers from other companies or deterred by their current employers’ COVID policies. Fundamentally, employee turnover boils down to employees being either lured or driven away due to the policies of a future or current employer. Here are some specific examples.

Overworked & undervalued employees

As more employees leave their positions to retire or take a new job, existing employees are often called upon to preserve workflow. Existing employees may even be asked to take on significant additional duties for no extra pay or change in rank, and with no end in sight. This situation is all too common, and it’s a recipe for a cycle of employee turnover that’s incredibly difficult to break.

Poor or no incentives

In this candidate’s market, many employers are attracting qualified candidates by offering expanded benefits or flashy new perks. And though it may seem like these are simply surface-level changes, they signal a larger shift toward a culture-wide work style that values work/life balance. Candidates see that it’s becoming common to offer employees generous parental leave, for example, and they aren’t willing to wait around for their current employer to catch up to the trends.

Toxic company culture

Very little can drive employees out of an organization faster than toxic work culture. In fact, recent research suggests that toxic culture is one of the leading drivers of the mass resignation we’ve seen this year to date. Organizations with toxic cultures are losing employees at greater rates than their peers, even compared to companies within the same industry. It can be hard for leaders to recognize a toxic culture since they play a critical role in dictating that same culture and usually aren’t vulnerable to the whims of their bosses like lower-level employees are. It’s important for leaders to remember that toxic work cultures, such as those that enable, encourage, and/or do not prohibit unhealthy behaviors like cheating, gossip, meanness, and revenge, can make coming to work painful and soul-numbing for employees. If you care about employee retention at all, that’s not what you want.

Weak or incompetent leadership

One of the most commonly cited reasons employees say they resign is because of weak or incompetent leadership. Whether it’s micromanagement or a leader that feeds and encourages the company’s toxic work culture, employees often can’t handle being mismanaged. Micromanagement deprives them of the opportunity to actually use their skills to the benefit of the company, and toxic work culture kills any genuine desire to give 110% for the company’s success.

Limited growth opportunities

If your company won’t invest in you on the most basic level, what incentive do you have to give your company your best work every single day? Withholding investment in continuing education and limiting employee growth opportunities puts this question to the test. Expecting your employees to give their best without any expectation for growth or recognition is a risky gamble, especially in a market where finding a new job with better recognition is easier than it was two years ago.


We can’t have a conversation about the causes of employee turnover without mentioning the role of money. As we mentioned with regard to limiting employee growth opportunities, presuming employees don’t expect fair pay, raises, and bonuses are a risk most businesses can’t afford to take. 63% of people who left their job in 2021 cited low pay as a factor in their decision-making process. And while this aspect of the conversation can be frustrating for managers who don’t have the budget to increase salaries or offer raises, we’d be remiss not to mention it, as it remains one of the leading factors of job resignation across the board.


The Cost of Turnover

Though you likely already have a good idea of your company’s turnover rate, it’s worth doing the math to figure out exactly how much employee turnover is costing you. This hard data can be used to persuade reluctant leaders to invest resources in retaining current employees.

To get a fleshed-out picture of the cost of employee turnover at your organization, we recommend you calculate your employee turnover rate. Whether your turnover rate is good or bad will depend on your industry. One benchmark you can use to evaluate your turnover rate is calculating your turnover rate for past years and compare the numbers. Are you losing more or fewer employees as a percentage of your total staff?

To calculate the true cost of turnover, you’ll need a list of the employees who left in the past year and their salaries. Now consider that estimates place the value of replacing a lost employee between 50% and 200% of their annual salary. The total of these numbers is the cost of turnover for the past year.


How to Reduce Employee Turnover

Define and protect your corporate culture

We’ve already discussed how a toxic corporate culture can result in mass resignation. But a healthy corporate culture can make a huge difference in your employee retention. When a company’s culture is one of respect, kindness, hard work, and accountability, employees will actually want to come to work each day. Employees are often willing to overlook individual factors such as a heavy workload, fewer benefits, or lower payout of company loyalty and a desire to work for an employer that treats them right. Any time someone quits and goes to work for a new employer, they’re taking a gamble that the new employer will follow through on their claims from the interview and that the company culture will be healthy. Employees who’ve experienced a toxic work culture are loath to take that kind of risk unless their current work environment is too toxic for them to stay. Keep your corporate culture healthy and your employees will stick around.

How do you make your company a great place to work? Define your company values and stick to them. Don’t just use them as a publicity measure – let them be guiding principles that leaders use to make key business decisions. Make sure you have systems of accountability in place so that employees who violate rules about respect and decency in the workplace are held responsible. Solicit anonymous feedback from all levels of your organization and proactively take action that supports an uplifting culture. In order for these measures to work, employees need to feel heard and taken seriously and have faith that all employees, including their managers, are being held to the same standard of ethical behavior.

Create an environment of diversity, equity, and inclusion

When we talk about creating a healthy work culture and an environment employees enjoy working in, we’re also referring to a workplace that values diversity, equity, and inclusion. These three components of the DE&I acronym are not just buzzwords but real indicators of a company’s work culture and how welcoming it is (or isn’t) to people of color, people with disabilities, the LGBTQ community, individuals from different cultures or religions, and others from marginalized communities. And while many companies have made progress in recent years, too often it seems like they’re more concerned with paying lip service to diversity without creating policies that actually make their workplaces welcoming to everyone. It’s more than hiring diverse talent, it’s about encouraging diversity of thought, the exchange of ideas, and a culture of openness and trust.

DE&I is important not only because it includes good and just policies that work to correct systemic discrimination but because employees place great value on these qualities. A survey found that 89% of American adults say DE&I in the workplace is important to them. For younger workers especially, companies with a dubious track record on DE&I won’t make the cut in their job search. Actually, fulfilling DE&I commitments will not only benefit your employee retention but will also encourage a work culture of respect and innovation.

Optimize the hiring process

When it comes to employee retention, your hiring process may not immediately come to mind. But the hiring process sets the tone for a person’s tenure with your company, so it’s of the utmost importance that you get it right. Specifically, one key error we see companies making is letting the hiring process drag out. A hiring process that’s unnecessarily long and lacks transparency communicates to your new employee that they aren’t a priority. This just isn’t the tone you want to bring to a new working relationship.

Engage and encourage employees

An open line of communication between employees and company leaders can head off many problems before they start. This doesn’t only mean that employees can communicate concerns and conflicts to leadership. It also encourages leaders to support their employees. Praise, encouragement, and feedback all go a long way toward establishing trust, mutual respect, and company loyalty. Let employees know you value their contributions by rewarding good work and recognizing employees who go above and beyond. Listen to concerns about burnout or culture problems and respond with substantive measures that actually make a difference.

Offer competitive pay and benefits

Remember how we mentioned how important money and benefits are to employee retention? Well, if you’re able, you can retain more employees by offering competitive pay and benefits. It’s probably time for you to reevaluate how your pay and benefits compare to other companies in your industry. A lot has changed in the last two years, not least of which is the skyrocketing cost of living in the United States. With inflation exceeding 8.5% in March 2022, the fastest 12-month climb since 1981, many companies’ idea of a fair salary simply doesn’t cover the cost of living anymore. Since money is such a huge motivating factor for employees changing jobs, you may be able to reduce your turnover by increasing pay and expanding benefits.

Flexible work

Despite many companies’ efforts to reinstate in-office work since COVID-19 vaccines became widely available in the U.S., flexible work options appear to be here to stay. And though many companies are going with an in-between option of hybrid work, 95% of workers say they prefer flexible hours to a hybrid work schedule. Many employees on the job hunt simply won’t work for a company that doesn’t allow them to be 100% remote. Consider these trends as a sign of the current labor market, and do what you can to offer current and future employees flexible work options. If you don’t, they may just take their skills elsewhere.

Employee turnover costs employers a trillion dollars each year. For an organization, the cost to replace one employee is generally one-half to twice that employee’s annual salary. To improve employee retention and avoid this cost of turnover, focus on making your company a place where anyone, whether a current or potential employee, would love to work. Paying attention to candidates’ desires will serve you well as the market continues to shift and the next trends start to take shape.

If you’re facing employee turnover and struggling to find exceptional talent to fill your open positions, it might be time to work with a search firm. PeopleSuite has experience partnering with multiple businesses in various industries to fill their high-priority roles. Discover your hiring options in the high turnover landscape with a free employer consultation. Schedule yours today!

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