Business Leadership Today

Why Employee Retention Is Essential


Matt Tenney, Author of Inspire Greatness: How to Motivate Employees with a Simple, Repeatable, Scalable Process

Every year, organizations spend a great portion of their budgets on recruiting and retaining good employees. 

Yet, turnover rates are still high in many organizations. This can have an adverse effect on an organization’s revenue and the experiences of the employees who work there.

In the wake of “The Great Resignation,” recruitment and retention have become even more challenging. It’s clear that workers’ expectations have shifted and that many companies are still trying to figure out how to respond to these shifts. 

Hiring the right people for a job, engaging them in their work, and keeping them engaged can significantly impact so many aspects of an organization, that it poses a genuine threat to profitability when attrition is high. 

Employee retention is essential for sustainable economic success in any organization. This is because a high rate of turnover can significantly affect an organization’s productivity, performance, employee engagement, institutional knowledge, ability to recruit top talent, and customer satisfaction.

This article will examine the ways employee retention drives sustainable profitability and success for organizations. 

What Is Employee Retention?

Employee retention refers to an organization’s ability to retain its employees. 

Most organizations want a high retention rate because it lowers turnover and its associated costs, and it is good for an organization’s performance, productivity, culture, profitability, and customer satisfaction.  

Employee engagement and employee experience are viewed as drivers of employee retention. This is because an employee’s feelings about their job, their feelings of belonging, and the sense that their voice is heard and valued all play a major role in employee retention. 

Factors that affect retention include compensation, leadership, culture, engagement,  job clarity, feedback, recognition, advancement opportunities, flexibility, autonomy, work-life balance, and meaningful work. 

Why Is Employee Retention Essential?

Some studies have indicated that every time an organization has to replace a salaried employee, it costs them, on average, the equivalent of 6 to 9 months of salary. Replacing a manager making $60,000 a year can cost $30,000 to $45,000 in recruiting, onboarding, and training costs. 

But the financial impact goes beyond the financial output needed to replace an employee who has left. 

An organization’s overall profitability can take a hit due to the effects turnover can have on productivity, performance, employee engagement, institutional knowledge, recruitment, and customer satisfaction.


When there is a lot of turnover, or, as is the case in many organizations, any turnover, employees will feel the loss through increased hours and workloads. For employees who are already stretched thin, it’s just not possible to avoid some loss in productivity when you lose an employee.

When you lose a lot of employees on a regular basis, the impact on productivity will be even greater and could lead to the loss of more staff as employees with increased workloads disengage and start seeking other opportunities. 


As with productivity, performance can be negatively affected when there aren’t enough employees staying in their jobs, and employees who have stayed experience increased hours or workloads that can lead to burnout. 

When employees are stressed and overworked, their mental health suffers and so does their performance. To ensure employees perform well, organizations should be mindful of how the work their employees do impacts their well-being.

Employee Engagement

When employees see other employees leaving an organization left and right, it can be a real blow to morale. This can hurt employee engagement. 

Employees that are engaged in their work are more likely to stay with an organization. Engagement is particularly important as employees who care more about an organization’s mission will feel a sense of purpose in their roles and demonstrate more commitment to their jobs. 

Institutional Knowledge

Losing talented, long-tenured employees, especially those who served in management positions, can be devastating because that employee isn’t just taking their years of experience with them, they are taking years of experience doing a specific job within that organization with them. 

When they leave, they take years of institutional knowledge with them. If such an employee is replaced by an outside hire, it can take years for the new hire to accrue the amount of institutional knowledge the former employee had.

This loss could affect an organization’s profitability through its impacts on productivity, performance, and customer satisfaction.


If you aren’t doing a good job at retaining qualified employees, you will have a hard time recruiting them. A high turnover rate can negatively impact an organization’s reputation, which can make it a less appealing place to work for job seekers. 

With the advent of websites like Glassdoor where former employees can anonymously review their employers, potential job seekers can and will research a company’s retention track record and look at negative reviews before accepting a job offer.

Customer Satisfaction

According to a recent Harvard Business Review Analytic Services survey, 55% of executives said they believe it is impossible to provide great customer experience without providing great employee experience.

Losing employees with strong institutional knowledge and exceptional customer service skills can be devastating to an organization’s bottom line. This is why supporting a positive employee experience and fostering a work environment where employees thrive is important to both retaining employees and customers.

Combating Turnover

Voluntary turnover costs organizations over a trillion dollars each year. This makes turnover a serious threat to an organization’s profitability.

Turnover has become an even bigger concern as the COVID-19 pandemic has brought on a massive wave of resignations in many industries. Companies are scrambling for ways to stem the tide of turnover, with mixed results. 

This is bad news since we already weren’t doing so well with retention before the pandemic. Retention/turnover was the top workforce management challenge cited by 47% of human resource professionals in the SHRM/Globoforce survey Using Recognition and Other Workplace Efforts to Engage Employees.

Some leaders have blamed the current recruitment and retention challenges their organizations are facing on people not wanting to work or a lack of acceptable, qualified candidates in hiring pools. 

But others argue that people aren’t staying out of the workforce or resigning from their positions because they don’t want to work. Many workers need and want to work, but they want to work under better conditions. 

The pandemic has shifted employees’ expectations and needs, and they are seeking jobs that offer different and better benefits, whether monetary or less tangible, than previously. 

Compensation still has a huge impact on retention, but so many of these “Great Resignation” job seekers are looking for a better employee experience in an environment that isn’t toxic, where they feel valued, and where they feel they are doing purposeful work.

Many are seeking work environments with more flexibility, autonomy, inclusion, and a healthier work/life balance. Organizations looking to reevaluate their employee retention strategies should pay close attention to what these workers are asking for.

The key to successful recruiting and retention efforts is to recognize these shifts in employee needs and expectations and determine where your strategies can be improved so that your organization is hiring and retaining top talent. 

Matt Tenney has been working to help organizations develop leaders who improve employee engagement and performance since 2012. He is the author of three leadership books, including the groundbreaking, highly acclaimed book Inspire Greatness: How to Motivate Employees with a Simple, Repeatable, Scalable Process.

Matt’s ideas have been featured in major media outlets and his clients include numerous national associations and Fortune 500 companies.

He is often invited to deliver keynote speeches at conferences and leadership meetings, and is known for delivering valuable, actionable insights in a way that is memorable and deeply inspiring.

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