Of course, any new recruit will take time to learn new processes and the working style of the organization. Yet, that does not mean new recruits are not good for the employer, since they may bring about striking changes and innovations to the organization. Fresh talent should always be welcomed. But the company should make sure that the returns justify the costs.
For all these purposes, it is necessary to calculate the retention rate of employees, which will help the management of the company to take further decisions regarding the human resource management.
Employee Retention Rate = (Total number of employees retained / Total number of employee positions during a specific time period) × 100
This formula is based on the assumption that all the employee positions were occupied at the start of the year.
It means, the retention rate in this case is (980/1000)×100 = 98%
You can calculate the retention rate on a monthly, quarterly, or annual basis, or as per your requirement.
- The retention rate simply considers the percentage of employees retained in the company, because there might be new recruits replacing those who left.
- A better representation of facts would be the consideration of turnover percentage along with retention rate. Turnover percentage calculates the percentage of employees that leave the organization out of their own accord.
- However, there are various techniques to determine the turnover percentages, and it should be kept in mind that the turnover percentage is not necessarily the inverse of retention rate.
What are the possible reasons for low rate-retirement, change in employment opportunities as a whole, employees sacked, better opportunities available for employees, employees leaving due to lack of challenges or work satisfaction, or lower pay. All these factors have to be analyzed so that the computation of the retention rate proves useful for the management. Calculations simply determine a number; however, without knowing the reasons behind them, it is not possible to build new strategies or to bring any modifications and improvements in the work culture.
- Take feedback from your employees, through exit interviews or other means. Often, managers ignore grass-root level problems and expect employees to perform without understanding their genuine difficulties.
- Organize training and motivational programs to encourage employees to develop their skill sets and increase interaction with them.