For any organization, its employees are its backbone. For the growth of the company, it is important that employees give their all. But this is only possible when employees see the company as more than just a place of work and are willing to contribute their best. Many a times, employees quit their present position in an organization because they are unhappy with the environment and culture at their workplace or the compensation being offered to them.


A company can address grievances of its employees effectively and ensure that their employees do not quit. However, this takes work and strategy which fall under the umbrella of what is known as employee retention.

Let us take you through employee retention meaning and definition first to help you understand this concept in greater detail.

Employee Retention Definition and Meaning

Let us first try and understand what employee retention is. Or what is known in Hindi as कर्मचारी प्रतिधारण.

Employee retention, in extremely simple terms, may be understood as the ability of a company or an organization to retain its employees and ensure a low turnover rate. In a broader employee retention definition, this may include strategies implemented by the company or employer to keep the employees employed in the company within a given period of time.

The employee retention meaning in Hindi too remains the same: strategies that keep the employees in the company for a longer duration.

Employee retention is generally attributed as a function of the Human Resources (HR) department of a company which is responsible for ensuring that the number of employees leaving the company within any given period remains low.

However, it must be made clear that employee retention only pertains to the retention of employees who contribute value to the company.

Low-performing employees and top-performing employees in a company are not valued at the same level. Therefore, employee turnover is also a function of the performance of the employees.

Read: Employee retention facts and trends

Why is Employee Retention important?

For any company, employee retention is an extremely important factor in ensuring the growth of the company as a whole. There are several reasons which make employee retention important for a company and some of these are as follows:

Value of the employee

Employees are an asset for any organization, contributing to its growth. The longer an employee stays with a company, the more value they create for the company. Since longer serving employees are more familiar with the company’s systems, work culture, goals and targets, they are more driven towards helping the company realize its goals.

The financial cost to the company in replacing an employee

The financial cost of replacing an employee in the company adds to the costs incurred by the company in any given period. According to a 2017 study by the Work Institute, the cost of replacing a mid-level worker in a company is at least 30-40 per cent higher than the existing salary of the employee who quit. Another report by Perito mentions that the average cost of replacing an employee of India can almost be ten times as high as the salary of the replaced employee. This is because of the various costs involved in looking for a suitable candidate
which include the cost of advertising, conducting interviews, background checks, training costs, bonus and incentives to the new employee, etc.

Employee morale

Low turnover rates also speak for the company’s work culture, which in turn affect the employee morale. If a greater number of employees continue to quit the company frequently, it creates a negative attitude among the remaining employees. This dwindling morale also affects the productivity of the workers and the overall work of the company. On the other hand, the high retention rate of the company promotes the confidence of the
employees in the company. Employees in companies with high retention rates are more confident that the company is willing to take the necessary steps to keep their workers happy.

Boost to the company brand value

The higher the retention rate of employees in a company, the greater the boost to the brand value of the company. It creates a perception in the job market that the company values its employees and makes the company a sought after the name to work with.

Want to know more about retaining your top performing employees? Get the complete guide to employee retention


How to measure employee retention

Given how crucial employee retention is for an organization, measuring it through verifiable metrics is an important aspect. The calculation itself is not difficult and can be done periodically to assess the effectiveness of various initiatives taken by the organization.

Basic formula

The simplest formula for how to measure employee retention rate requires the division of the total number of employees who quit the organization during a given period by the total number of employees at the end of the same period. The percentage obtained is an effective employee retention rate.

Let us understand this with an example. Say an organization has 100 employees in the first quarter (Q1). In the same quarter, seven employees leave the organization. Then, the employee retention rate will be calculated as follows:

Employee Retention Rate  = Total number of employees – Number of employees who quit

Total number of employees = 100, Employees who quit = 17

Employee retention rate = (100 – 17) x 100% =  83 %

The Data Set
The first step towards calculating employee retention is collating the data. For this, there are two methods. One is the regular collection of data about all employees who join the company as well as employees who leave the company.

The other method is to go through the records of the company for the period for which the employee retention rate is to be calculated.

A complication in the data collection for the calculation of the employee retention rate arises from the change in roles of employees.

If the calculation is to be made department-wise within the company, for the same employee to have changed roles within the company creates a duplication. In such a case, only the last held position of the employee is to be taken into account as this provides accuracy to the calculation.

Read our complete on blog on Why your company needs an employee retention policy?


How to improve employee morale and retention

Improving employee retention rates is always a challenge for companies, and it is an important one for the growth of the company. Employees leave companies for a variety of reasons and dissatisfaction with their salary is just one of these.

This is why it is important that companies work towards understanding the reasons which push their employees to the brink of considering quitting their jobs.

Working on these will reduce the turnover rates and improve the employee morale, which in turn will go a long way in boosting the employee retention for any organization as well. Here are some tips on how to improve employee morale and retention:

Communicate effectively

Communication gaps between the employees and the employers can significantly affect employee morale and also whether employees want to stay on in the company or quit.

Allow employees to express their opinions on work-related issues with frankness so that any grievances or miscommunication can be addressed at the beginning.

Pass information clearly and create a work culture where junior employees are not hesitant to approach their seniors to ask for clarifications or more information. If there are any grievances from either side, they must be addressed clearly.

Clear communication, ethical behaviour, and positive work conditions go a long way in improving employee morale and hence, the retention rates.

Work towards ideal salaries and perks

In the 2019 Randstad Employer Brand Research report, it was found that 33% of the respondent employees left their jobs due to inadequate compensation.

When workers feel that they are not being paid in proportion to the contribution they are making to the organization, they are bound to feel dissatisfied.

Appraisals and reviews not resulting in salary increments as expected by the employees also contributes to this feeling. A structured system of periodic performance-based or tenure-based salary increments is an effective way for organizations to boost employee retention.

At the same time, perks and annual bonuses create attractive incentives for the employees to stay in the company over the long term instead of considering a job change.

Create a flexible work environment

Flexible work environments are excellent morale boosters. Be understanding of the requirements of your employees. Rather than enforcing office timings, if an employee seeks to work from home on account of pressing circumstances, allow them to do so.

In the recent coronavirus outbreak, major private sector companies in India allowed their employees to work from home to prevent the spread of the disease. This is an apt example of companies taking the extra step to protect their employees which the latter will surely appreciate.

Encourage teamwork

When people work together as a team, it creates bonding and. A culture of collaboration and cooperation results in a healthy work environment where workers are happier and more satisfied with their work.

Apart from teamwork within the office, also organize group outings such as a picnic or a tennis match where colleagues can get together and socialize and feel a greater affinity towards each other as well as towards the organization.

Acknowledge and reward achievements and milestones

Everyone craves appreciation for a job well done, and it is the same for the employees in a company too. Reward employees for targets achieved not just to encourage then but also to encourage the other employees to emulate the achievements of their colleagues.

An even a better way would be to incorporate a system in place where achieved milestones, such as achievement of targets or completion of a specific number of years in service automatically qualifies an employee for promotion or a salary increment.

Do read: Top 9 employee retention strategies

Clearly, employee retention is an aspect every company must pay more attention to. The more willing employees are to stay on in the company, the greater their contribution will be towards the growth of the company. Regardless of their size, companies must seek to ensure that they take the necessary steps to hold on to the value-contributing employees. There will be some turnover, but a lower rate is in the larger interest of the company in the long run.