HR Metrics: Half of HR Departments Fail to Track Retention

December 15, 2018

One of the biggest challenges facing human resources today is the talent crunch. At a time of near record unemployment, companies are finding it even harder to find top talent than usual. It seems that every company is putting maximum effort into trying to find the right people and hire them. HR recruiting agencies are reporting the biggest increase in business they’ve had in years. And yet, with all the stress and worry about recruiting, people seem to have forgotten that growing a great team is also about retaining the talent you currently have.

Think about it. Your employees know your company and their jobs. They know how your company’s processes work and why they were set up this way. They know the ins and outs of your client relationships, and they know how to work together with their teammates. These employees already have the knowledge that a new hire, even one of the best ones, will take weeks, if not months, to learn.

There are two ways to grow your company’s talent pool. One way is to bring in new people. Another way is to keep your current talent working for you. While no employee lasts forever, one of the most important tools to increase the length of time your employees will work for your company is to analyze the reasons employees leave. Nevertheless, approximately half of all HR departments don’t examine this critical data.

Why Track Retention?

Tracking retention is important because it gives you objective feedback about your company’s health. A high turnover rate can serve as an early warning system for employee relations problems. It can also help you better focus and plan your recruiting strategy.

A high turnover rate can also have a lot of consequences for your company overall. For one thing, if you have a high turnover rate your company may develop a reputation for not being a good place to work. This will hurt your recruiting efforts and may even impact your company’s ability to compete in the market due to inconsistent customer service. Who wants to work with a company that seems to have an ever-changing accounts manager? At the same time, shortened tenures for your employees will be an unnecessary burden on the people who stay with the company, further compounding your retention problem.

How is Retention Measured?

Retention is a simple equation. It’s the number of separations during a given period, usually one year, divided by the number of employees. For example, if you start with 100 employees and 10 leave, that means you have a retention rate of 90%. But this is only part of the story. You also need to look at the type of separations your employees have had (i.e. voluntary separations vs. involuntary).

Two Types of Separations

Voluntary separations are when an associate leaves of her own accord (i.e. resignation). Most voluntary resignations fall into one of three categories: dissatisfaction with compensation (salary, bonus, benefits, or a combination of the three), unclear career path, or dissatisfaction with the work environment.

The wise HR professional will take the time to conduct an exit interview. Ideally, an exit interview should be a frank discussion between the employee and someone outside of his or her department. A supportive, nonjudgmental environment can go a long way toward finding out why an associate has chosen to leave the company. Keeping track of the results will give the company direction for improvement. It can also reveal problems that haven’t been brought to HR’s attention before, such as harassment.

It’s just as important to examine and track the reasons behind involuntary separations as well. Specifically, you’re looking for a common reason behind these terminations. Sometimes people don’t turn out to be a good fit for the company. It happens. But it’s important to know if there was an issue with the recruiting process, such as the initial screening or interview itself.

What Happens When You Don’t Track Retention?

Failing to track retention is not the end of the world. However, not tracking retention means that your HR strategy will not be as effective.  The Center for American Progress issued a white paper outlining the high cost of replacing workers. They divided the cost of high turnover into two categories: direct and indirect. Direct costs consist of recruiting to backfill the vacated position. Indirect costs include lost productivity due to the vacation position, the cost of training a new hire, and the blow to company morale that comes with turnover.

It’s long been believed that HR and payroll are cost centers, solely spending money rather than contributing to the bottom line. An HR specialist will never win a big piece of business for the company. However, working to increase retention can help control costs and talent, putting the company in a better position to keep the business growing.

There are two ways to grow your company’s talent pool. One way is to bring in new people. Another way is to keep your current talent working for you. If you don’t know why employees leave your company, you won’t know how to retain them.

For more information on how Commonwealth Payroll & HR can work with you on your strategic human resources planning, call us today at 877-245-1159.

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