What is employee retention?


Employee retention involves retaining talent within a company or organisation.

Employee retention is the process of retaining talented people within an organisation. To do this, organisations must make employees’ jobs attractive and satisfying enough that they do not seek out a better offer.  

How organisations approach employee retention differs depending on what is causing employee turnover. But common themes are pay, benefits, company culture and career development opportunities. Retention can start before a person is even hired, through effective selection processes and realistic job previews, which help ensure a good fit.  

History of employee retention

Employee retention and turnover has been the subject of formal study for well over 100 years. From early attempts to quantify the cost of employee turnover in 1917, to a shift in focus to retention in the 21st century, academics, consultants and journalists have extensively theorised why people leave and how to make them stay.  

Systematic attempts to retain employees can be traced back to the turn of the 20th century in the US, when firms began establishing personnel departments, offering seniority-based pay, on-the-job training and career development pathways. These practices intensified during the First World War and became more common during the 1920s. Since then, employee retention programmes have incorporated many different strategies, from team away days to wellbeing-focused initiatives.  

Recent trends in employee retention 

With the rise of knowledge-based economies, in which human capital and specialised skills are an organisation’s biggest asset, employee retention is more important than ever. However, retention has been hard for organisations in recent years, with the Covid-19 pandemic and the Great Resignation leading to a mass exodus of employees in many sectors.  

In the STEM sector, research by SThree has found that 28% of permanent employees and 20% of contractors are likely or very likely to look for a new job in the next 12 months.  

The top challenges affecting people’s careers in the STEM sector are flexible working and burnout, making these key focus areas for STEM employee retention plans.  

More broadly, a survey of European workers published by McKinsey in December 2022 found that one-third expected to quit their jobs in the next three to six months, suggesting that the Great Resignation is an ongoing trend despite the unfavourable macroeconomic conditions and fear of job loss created by the war in Ukraine and high inflation.  

According to McKinsey, one-third is considered a high employee turnover rate for Europe. The survey also revealed that the top three reasons for quitting are inadequate compensation, lack of career development and advancement, and uncaring and uninspiring leaders.   

On employee retention, the McKinsey research suggests flexibility, meaningful work and supportive co-workers are top reasons for staying put – all of which have increased in importance since the pandemic.  

Advantages of employee retention  

Companies generally want high levels of employee retention as losing good people costs in terms of recruitment, onboarding, training, organisational knowledge, productivity and even morale among the remaining workforce. It can also give a boost to the competition.  

Some estimates put the cost of hiring and replacing workers at 90-200% of their annual salary. Whereas companies with an engaged workforce can enjoy 21% higher profitability, according to Gallup.  

Disadvantages of employee retention  

However, some employee turnover can be a good thing. If there are poor performers among the team or people who are a bad fit, retention can be detrimental. There are also benefits to ‘boomerang’ employees, who leave but later return to the company, bringing with them greater knowledge and experience. For these reasons, employee retention strategies can sometimes focus on strong performers. 

Use case 

US-based mobile gaming company Scopely has adopted a fun, innovative approach to employee retention, alongside more traditional strategies.  

According to a report by Harvard Business Review, employees are most likely to leave their jobs at the one-year mark, a trend that continues with each work anniversary. In an attempt to stem this flow, Scopely celebrates anniversaries in style. From custom-made samurai swords to tongue-in-cheeky oil paintings of employees, this tech firm hands out quirky gifts for work anniversaries.  

But alongside the irreverent, Scopely fosters a company culture that takes employees’ needs seriously. Scopely University was set up to provide professional development for employees, along with opportunities to workshop challenges with external teams.  

The ‘Scopelean’ (as employees refer to themselves) approach is certainly paying off. According to independent employee review website Comparably, 92% of Scopeleans believe their work environment is positive, while 87% feel they are satisfied with their benefits.