8 Top Ways to Retain Your Great Employees

Financial and Cultural Incentives Help with Your Employee Retention

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Employee retention refers to a company's ability to keep employees from voluntarily leaving the company. Companies usually calculate retention as a percentage (number of voluntary terminations divided by the total number of employees). For example, you have 1,000 employees, and 100 leave within the year, you have a 90% retention rate. This is the opposite side of the turnover rate, which shows the percentage of people who have left your organization.

Generally, the Human Resources department is tasked with developing strategies to increase employee retention. They, along with management, focus on making the company a place where people want to stay. Employee retention strategies generally focus on either financial incentives or cultural incentives. Smart organizations use both.

Financial Incentives

Financial incentives cover so much more than salary. Here are several different financial incentives companies use as part of their employee retention strategy.

  • Salary: The first and most obvious strategy. Every employee, from the minimum wage worker to the CEO receives a paycheck, and the number on that goes a long way towards determining how long someone will stay. Companies often use tools like salary surveys to find out what other businesses in the area and/or in their industry are paying similarly situated employees.

    From this, a business determines the average pay for a particular job, and tries to keep salaries around this area. This is usually called a compensation ratio, or compa-ratio. If an employee's salary is exactly at the average pay for the position, that is considered a compa-ratio of 100.
  • Bonuses: Bonuses can be applied at any level of the organization, but many businesses limit them to higher level employees; others provide a bonus for all levels of the organization. Typically they are linked to specific financial or performance goals and are calculated as a percentage of an employee's salary.
  • Stock options: Stock options have a special place in financial incentives because they typically don't vest for a certain period of time, often five years. If you quit before the five years are up, you forfeit the stock options. Some companies offer grants as well as options, which are immediately available to the employee.
  • 401ks, pensions and other investment options: Helping you plan towards retirement can be a great retention strategy for a company. Many of these plans are based on the concept of vesting. This means that the company sets aside money for you, but if you leave in fewer than 5 years you don't see any of the money.

    Pensions are falling out of favor in American countries, and you're more likely to find a plan like a 401(k) where you direct your own investments and contribute a portion of your salary to the plan. The money you contribute isn't affected by vesting rules.

Cultural Incentives

Many people see money as the only reason why an employee would stay or leave a job, but the reality is that many people find cultural incentives such as these more important.

  • Flexibility: One company retention strategy is to give employees options about how and where they work. Telecommuting and flexible schedules allow employees to do their work when and where it's most effective for their situation.

    Companies do have to be careful with these types of plans that they pay people accurately. Nonexempt employees must be paid for every hour worked, regardless of whether it was at a desk in the office or while sitting on the bleachers at a child's baseball game.
  • Management training: The number one reason people quit their jobs is that they want to get away from their boss. Companies that invest in management training can not only increase employee retention for managers, but create a better environment for their employees.
  • Company events: Gatherings like holiday parties, corporate retreats, and even office potlucks, can all be part of an overall retention strategy. When employees feel that the company cares about them, they are more likely to stay.
  • Training and development opportunities: By offering employees opportunities to learn new skills, and therefore fulfill new roles, often at higher pay levels, companies can increase their rate of retention and take care of succession planning at the same time. Employees who see that they aren't going to be stuck in a dead end job are more likely to feel loyal to the company.

    Is a Retention Rate of 100% Desirable?

    You might think that companies would never want any employees to leave, but the reality is that a retention rate of 100% over a long period of time, means the company is not getting rid of people who are not a good fit for the organization. Additionally, it means you're limited in getting new people with new ideas.

    You can, of course, terminate people who are not good fits, but often people will leave on their own if the company culture and financial strategies don't fit with their future plans. And, this is a good thing for both the employee and the company.