GCSE / Level 2 Revision Notes

People management - Keeping hold of employees (staff retention)

Recruiting suitable employees is one crucial business task.  Keeping them is another. The proportion of employees who leave each year is known as “staff turnover”.  In some industries this can be as much as 30-50% each year.

Employee retention is the ability of a business to convince its employees to remain with the business.  This isn’t always easy!

It is important to remember that all businesses lose staff – for a variety of reasons:

• Retirement / maternity / long-term illness
• Unsuitability
• Changes in strategy (e.g. a factory is closed)

The above reasons can be called voluntary staff turnover – employees who leave of their own accord.

It is important to remember that staff turnover varies between industries. A high proportion of staff leave each year in the leisure sector (e.g. hotels, restaurants). Staff turnover levels also vary from region to region. The highest rates are found where unemployment is lowest and where people find it quite easy to move onto another job.

There are many reasons why a high staff turnover figure (poor employee retention) may cause problems for a business:

• Increases recruitment costs (e.g. advertising for replacement staff; employing temporary staff whilst the job vacancies are filled)
• Reflects poor morale in workforce and so low productivity levels
• Increases training costs of new workers
• Loss of productivity while new worker settles in

However, there are some advantages of a firm experiencing staff turnover:

• It gives the chance for new people to be brought into the business who may have fresh ideas and up to date market knowledge. 
• Workers with specialist knowledge or expertise can be employed rather than having to train up existing lower skilled employees.

A business can improve its employee retention by offering:

• Financial incentives (e.g. bonus, salary rise)
• Non-financial incentives (e.g. promotion, more decision making power)
• Improving the effectiveness of its recruitment and selection processes so that fewer unsuitable employees are recruited in the first place
• Conducting research to understand why employees are leaving (through exit interviews or surveys)