The Growing Importance of Employee Retention
The shortage of skilled workers is omnipresent and is hitting many industries hard. Where there is a shortage of workers, there is a drop in performance, which has a negative impact on the growth of companies. There is evidence in research that companies with higher workforce stability perform better. Additionally, recruiting new talent is currently difficult, especially in sectors such as healthcare, nursing, education, crafts and IT.
Due to these developments, the retention of existing employees is becoming more and more important. The aim is to keep employees within the company and to avoid having them make the move to competitors or even to another profession.
However, it is not only the highly competitive job market that motivates organizations to invest in employee retention. If an employee leaves the company, valuable knowledge that the person has acquired in the course of their work is lost. In addition, higher employee retention can reduce personnel costs.
Employee Retention vs. Turnover – The Key Difference
Employee retention and avoiding turnover are often equated. The difference, however, is that retention strategies start before employees even think about leaving the company. Organizations that focus on employee retention are less prone to losing their staff to headhunters, because what many forget: turnover does not only come from staff (push motivation), but is also influenced by external parties (pull motivation).
Even if employee retention and turnover are related, the literature suggests distinguishing between the reasons for staying in a company and those for changing jobs. For example, work pressure is a common reason for employees to leave a company. On the other hand, the absence of work pressure is not a relevant reason for staying in the company.
The 7 Key Factors of Employee Retention
Numerous studies are concerned with factors to improve employee retention or to better understand and prevent turnover. Seven factors keep coming up. Their influence on employee retention has been empirically proven repeatedly. These seven key factors are:
- Social environment: A stimulating and respectful working environment is essential.
- Job content: This is about the nature of the job such as the variety of tasks, autonomy and responsibility.
- Financial rewards and fair pay
- Career opportunities: This point includes training and further education opportunities.
- Job security
- Corporate image
- Management and leadership 
How these factors affect employee retention can be explained by two other factors that are referred to as mediator variables: commitment to a company and job satisfaction.
We speak of commitment when employees can identify with the company they work for and voluntarily commit themselves to the organization. A particularly important aspect of commitment is the emotional connection to the company and the resulting involvement in the organization. Job satisfaction is generally understood to mean a pleasant emotional state resulting from the job.
As the model below shows, the 7 key factors have a direct impact on commitment and job satisfaction, which in turn influence employee retention.
5 Strategies To Improve Employee Retention
If you put the theory into practice, there are numerous strategies that can be used for employee retention.
1. Employee loyalty through strong leadership
According to Udemy’s 2018 Employee Experience Report, 50 percent of respondents have quit a job because of a manager. According to the Hays HR Report 2023, the most important factor in employee retention through good management is the appreciation and recognition of performance in the form of regular and individual feedback. Younger generations in particular attach great importance to this. This goes hand in hand with the desire for managers to take enough time for employees and treat them fairly. Employees want support from their managers in achieving their goals and at the same time want a high degree of autonomy in carrying out their job.
2. Corporate cultural measures
The work and social environment play an important role in employee retention. This is also shown by the HR Report 2023 on the topic of employee retention by Hays. According to the study, 82 percent of those surveyed stated that a good work environment is important to them. However, only 68 percent stated that this would also be implemented.
Among the most relevant measures for employee retention in the context of corporate culture, the first priority is the compatibility of work and personal life. In addition, it is important for employees to see how their performance contributes to the success of the company. 30 to 40 percent of those surveyed would also like to see critical issues dealt with openly, regular information from top management, transparent, cross-hierarchical communication of corporate goals and joint events.
Also, make sure your company is a workplace that values diversity and inclusion. Create an environment where everyone feels safe and welcome, regardless of their nationality, gender, qualification, religion or disability. These measures help to create a great corporate culture in which employees feel valued and in good hands.
3. Financial rewards and fair pay
One of the most significant points mentioned by employees as a relevant retention factor is fair remuneration. This does not only mean a fair salary with which the cost of living can be sufficiently covered, it also includes adjusting pay for inflation and increases in salary with increasing experience and responsibility.
Research how much your competitors pay their staff. If the salary you are offering is not competitive, you run the risk of losing your best talent. In the long run, it is cheaper to increase the salaries of existing employees than to hire new candidates. According to an estimate by the Society for Human Resources Management, the cost of replacing an employee is six to nine months’ salary.
Many would like performance-related pay in addition to their salary, but this is often criticized in the context of social justice, among other things because it further widens the gender pay gap. If you are considering this form of remuneration, a comprehensive impact analysis should be carried out before implementation. In addition, the implementation should be transparent and special attention should be paid to social justice. In the HR Report 2023 by Hays, 41 percent of those surveyed also named participation in the company’s success as a relevant retention factor.
4.Offer career prospects
Optimal career planning is not to be equated with hierarchical advancement. Among other things, it is also about creating an equal career path for skilled workers and project workers as well as managers, in which the focus is on the strengths of the individual. In addition, employees want a transparent procedure for promotions and regular assessments of potential.
In addition to career prospects, employees should also be offered the opportunity for further training. This not only binds employees to the company, but also improves the economic performance of the organization.
It is important that sufficient time and budget are made available for learning and that the further training is valued by the organization and the managers. Employees attach great importance to the fact that the learning opportunities are practical.
5. Employee referrals in recruiting
The employee retention model shows very clearly that retention is largely dependent on the commitment and job satisfaction of employees. One way to increase loyalty and reduce turnover is employee referrals, because they address exactly these two points. This is shown, for example, by a study by Friebel et al. (2023). In the company examined, a supermarket chain from Eastern Europe, staff turnover fell by 15–20% as a result of the introduction of an employee referral program. Part of the reason for this result is that referred candidates stay with the company longer. However, the study also shows that if employees are involved in the hiring process, they feel valued, which increases commitment and satisfaction and, as a result, employee retention. In the study, this effect also occurred at locations where no new colleagues were hired through referrals. The mere fact that the employees had a say in the selection of personnel and that their support was valued by the organization led to this effect.
Employee retention has established itself as an important strategy in the fight against the shortage of skilled workers and is considered a relevant competitive advantage when it comes to a company’s performance. Research has identified 7 key factors that have an impact on employee retention. Through targeted measures, you can use the knowledge of these factors to keep employees with your company in the long term.
 Bender, E., Schaper, N. & Schürmann, M. (2019). Factors Driving Employees‘ Intention to Stay. Zeitschrift für Arbeits- und Organisationspsychologie, 63 (4), 238-250. https://doi.org/10.1026/0932-4089/a000313
 Friebel, Heinz, M., Hoffman, M., & Zubanov, N. (2023). What Do Employee Referral Programs Do? Measuring the Direct and Overall Effects of a Management Practice. The Journal of Political Economy, 131(3), 633–686. https://doi.org/10.1086/721735
 Udemy (2018). 2018 Employee Experience Report. https://research.udemy.com/research_report/udemy-in-depth-2018-employee-experience-report/
 Eilers, S., Rump, J., Schabel, F., Möckel, K. (2023). HR-Report 2023 Mitarbeiterbindung. In Hays AG (Hrsg.). https://www.hays.de/documents/10192/118775/hays-hr-report-2023-de.pdf
 Crail, C. (2023). 15 Effective Employee Retention Strategies In 2023. https://www.forbes.com/advisor/business/employee-retention-strategies/