What Are Some Reasons Why Employee Retention Is Important?


Quick Answer

Employee retention is important because of the direct costs of replacement, which can include a lengthy training period, and the indirect costs of lowered productivity that can result from high employee turnover rates. The loss of a single key employee, for example, can cause a company to experience a decrease in competitive advantage, particularly if the employee had developed productive working relationships with other key personnel or with clients. A high rate of voluntary turnover also has the effect of reducing morale within a workforce, and it may be a symptom of an underlying problem within the overall organization or a particular department.

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Full Answer

Direct turnover costs can represent up to 60 percent of the lost employee's annual salary, depending upon the level of employee skill and required experience. When the additional indirect costs associated with the replacement are included, the overall cost has been estimated to reach as high as 90 to 200 percent of the annual salary. Some high turnover industries such as retail, call centers and food services, typically have high turnover rates and lesser replacement costs due to the workforce pay rate but can still experience a cost of more than $500 per replacement.

Employee retention is a matter of sound hiring practices, the cultivation of a positive company culture and effective human resource systems. One of the most important first steps that can be taken by a company seeking to remedy a high voluntary turnover rate is to determine the root cause of the high turnover rate.

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