More and more budget and personnel are being spent on filling vacancies. Yet companies save on recruiting costs if they focus more time and effort into employee retention. In this article, we look at why investing in employee well-being pays off in the long term and what measures can be taken to prevent employee turnover.
Perhaps you know the scenario: A few colleagues have resigned, they have been headhunted by the competition or they want to take the "next step" at another company.
All the stops are pulled out to fill the position: elaborate job advertisements, costly headhunting, time-consuming application rounds. However, not long before the vacancy was filled that two more appeared in its place.
While everyone has the recruiting problem in mind, there is a lack of time and budget to invest in the needs and further development of existing colleagues. The result is a vicious cycle: dissatisfaction, resignations and even more vacancies.
But how can you break out of it? The best way is with targeted employee retention measures.
What Is Employee Retention?
Employee retention describes the long-term employment of employees in the company. It is the task of the HR department to build and strengthen the bond between employees and employer through targeted measures.
Retention management is often the term used in this context to describe the creation of strategies, programs and specific measures within the company.
Four Types of Employee Retention
From financial and personal development opportunities to identification with company values and the emotional connection between employees and the organization, employee retention is multi-faceted and takes place on many levels:
- Emotional retention describes the attachment of employees on an emotional level through positive experiences, appreciation and a supportive working environment.
- Prospective retention refers to the loyalty of employees due to the prospect of personal growth, development and career opportunities within the company.
- Normative retention arises from the feeling of commitment and identification of employees with the values, standards and goals of the company.
- Rational retention refers to employee loyalty based on economic incentives such as salary and benefits that provide rational reasons for loyalty to the company.
Challenges of Employee Retention
According to the results of the Masterplan study on upskilling in 2024, employee retention per se is one of the biggest challenges of the near future: more than half of the companies surveyed (58%) see themselves confronted with this within the next few years.
Employee retention is particularly challenging because it requires balancing the available HR resources with the existing needs of employees – ideally in a way that everyone is satisfied. In addition, there are external influences that HR and personnel managers should be prepared for.
Three central challenges of employee retention are:
- Diverse Generations and Mindsets:
Addressing and meeting the needs of different age and interest groups can be difficult. While Baby Boomers may find a company pension scheme attractive, Generation Z is more concerned with a good work-life balance and values opportunities for self-directed learning.
- Increased Awareness of Values and More Openness to New Things:
Thanks to evaluation and comparison portals, employees know how much they and their performance are worth - and what they (can) earn. This increases self-confidence and lowers the inhibition threshold for looking for a new job and testing one's personal market value.
- Increasing Skills Shortage and Proactive Recruiting:
Skilled personnel are already scarce today and by 2030 there will be a shortage of around 85 million qualified workers worldwide. Competitors are also aware of this and are tackling it with proactive recruiting. In the "race for talent", an employer's better overall package will determine whether employees can be recruited or retained.
Why Is Employee Retention Important?
Employee retention programs are particularly important because they secure long-term working relationships between employees and companies and relieve the burden on time-consuming and cost-intensive recruiting.
The high use of limited HR resources for recruitment is the most significant reason for many companies to invest more in employee retention. After all, many recruiting processes that began with a resignation could have been avoided.
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Why It Pays Off in the Long Term to Strengthen Employee Retention
Compared to high recruiting expenses (for avoidable replacements), retention measures are much more lucrative and sustainable.
The advantages of long-term employee retention are:
- Higher Productivity and Motivation:
The better the relationship with the organization, the more comfortable people feel at work. A pleasant working atmosphere has a positive effect on performance and generally also reduces absenteeism. - Reduced Recruiting Costs due to Lower Fluctuation Rate:
If fewer employees resign, fewer positions need to be filled. This saves recruitment costs and allows more focus on attractive offers for employees. - Strong Employer Branding and Faster Recruiting:
The willingness to recommend an employer increases when employees feel valued. The positive image and direct word-of-mouth communication can speed up recruiting processes. - Established Processes and Stronger Customer Loyalty:
Knowledge stays in the company for longer, experienced employees raise standards, well-coordinated teams work more efficiently and long-term contacts strengthen customer loyalty.
Why Training Programs Ensure a Better Position in the "Race for Talent"
An increasing shortage of skilled workers and high fluctuation rates keep the constant "race for talent" (i.e. the race for the top talent on the market) running. This does not make it any easier to break out of the vicious circle of perpetual backfilling. One reason for the many redundancies is obvious:
Not enough or serious attention is paid to the company's own employees - especially not to their personal development.
Yet professional and personal development opportunities are a key need for most employees. A total of 94% of users of the LinkedIn career platform stated that they would have stayed longer with their last employer if it had invested in their professional development and further training.
General Measures for Employee Retention
You can promote and ensure employee satisfaction in several ways. It is important that you put together a retention program that includes measures for the real needs of your employees.
These specific measures are recommended along the six pillars of employee retention:
Creating a Productive <span style="color: #fc6676">Working Environment</span>
Happy employees are more motivated and productive. To increase satisfaction in the workplace, employers must therefore create a supportive environment with a positive atmosphere. This can be achieved through:
- Professional equipment and a fully accessorized workplace
- Flexible working hours and the option of remote work, working from home and job sharing
- Offer of childcare or participation in childcare costs
- Office Amenities (drinks, coffee, fruit, etc.)
- Organized team events and joint activities
Enabling a <span style="color: #fc6676">Good Work-Life Balance</span>
In order to maintain a balance between work and leisure time, companies need to look after the well-being of their employees. If they do this, they reduce sickness-related absences and increase satisfaction. Possible measures include:
- Avoidance of overtime and realistic project planning
- Company health management, e.g. through regular company medical examinations, nutritional advice or vaccination programs
- Company sports programs and healthy meals
- Sabbatical (also sabbatical year) or unpaid special leave
Promoting Individual <span style="color: #fc6676">Development</span>
Employee retention is particularly strengthened by development opportunities within the company. Employers who promote their employees gain know-how and loyalty, for example through:
- Offers for professional and personal development, upskilling, on-the-job training, coaching and mentoring programs
- Regular feedback meetings, individual target agreements and development plans
- Clearly communicated promotion opportunities, transfer of more responsibility and development of leadership skills
- Job rotations and assignments or stays abroad
Utilizing <span style="color: #fc6676">Employer Branding</span>
Authentic employer branding retains existing and attracts new specialists. A strong connection to the brand and thus also a positive external image can be created, for example, through:
- Social media channels and company brand ambassadors
- Successful candidate experiences, welcome packages and organized onboarding
- Benefits and offers for employees and referral programs for recruitment
- Presence at career events and trade fairs as well as through university recruiting
Establishing an Open <span style="color: #fc6676">Corporate Culture</span>
The clearer a company's roadmap, the greater the trust in the organization. An open corporate culture is created with the following measures, which should not only be preached, but actually implemented:
- Clear vision for the future and transparently communicated values and objectives
- Constructive feedback culture and mutual motivation
- Internal communication channels via intranet, employee magazines or newsletters
- Social responsibility and sustainable work
Offering Attractive <span style="color: #fc6676">Advantages and Benefits</span>
Still one of the most popular measures: Money. Although "softer" factors such as the working environment are becoming more relevant, financial benefits remain a motivator for employees. Some examples include:
- Salary increases, bonus payments, premiums, vacation and Christmas bonuses
- Monetary benefits in the form of company cell phones and work laptops with private use, company cars with free mileage or a travel allowance
- Staff discounts for our own products and corporate benefits programs with vouchers and discounts
- Company pension scheme or financial and investment advice
Conclusion: 3 Tips for Use in Practice
Employee retention pays off in several ways: it increases motivation, boosts productivity and can reduce the fluctuation rate and, as a result, recruitment costs. And the list of possible measures is long. But where do you start?
The following three practical tips will make it easier for you to prioritize.
<span style="color: #fc6676">1.</span> Pay Attention to the Company Fit as Early as the Application Process
From the very first contact – usually via the job advertisement – make it clear what values your organization stands for and what corporate culture you live by. Also check in further application rounds whether there is a fit between the candidate and the company. You might even schedule a meeting with the new team, which focuses less on technical aspects and more on the group dynamic.
After all, if you make sure from the outset that applicants share the company's values and identify with its vision for the future, new colleagues are more likely to remain part of your team in the long term.
<span style="color: #fc6676">2.</span> Focus on Selective Employee Retention
It sounds unfair, but: invest different amounts in the individual measures to retain your employees. After all, these measures also cost money and should therefore be planned with foresight.
Of course, you should offer a basic package that expresses your appreciation of the entire workforce. But let's take the example of leadership development: instead of promoting unqualified and unmotivated candidates, it is more promising if you focus on suitable talents who will be an asset to the organization in the long term.
<span style="color: #fc6676">3.</span> Encourage Open Communication, Feedback and Criticism
It never helps to swallow feelings of job dissatisfaction or thoughts of quitting – neither for employees nor for HR managers. Avoid getting to this stage by creating a trusting environment in which employees feel comfortable enough to proactively share their opinions – whether positive or negative.
As an HR manager, this allows you to recognize problems earlier and counteract them. You receive honest feedback and can correct grievances in good time and prevent dismissals. And most importantly, employees feel valued when their opinions are heard.
Want to inspire your employees with an interactive learning platform? Try Masterplan!
Stefan Schulze
