Why retention rate is not the metric you are looking for
For many companies, retention rate is still one of the key metrics for assessing employee satisfaction and HR performance, among other things. However, this is a deeply flawed metric for a number of reasons.
1. Retention rate is a reactive metric outside of your control.
When things are going well, at least on the surface, there is zero incentive to make any changes. But, since you can’t possibly foresee every single mistake inexperienced managers will make or catch every email communication before it has a chance to be misunderstood, something will eventually go wrong—at which point your turnover rate shoots up and the damage is done.
Sure, as long as the problem persists, you will get the discretion and the budgets you need to get things back on track. But if you haven’t fixed the source of the issue, or the system, chances are it won’t be long until things go south again. Your function is, therefore, reduced to damage control and mitigation, whereas it should be about helping people to do meaningful things at work.
2. Keeping people in the company at all costs backfires eventually.
Did you know that some progressive companies offer up to nine months’ salary for voluntary resignations? It sounds crazy, but it actually makes sense! An incentive like this goes a long way towards encouraging people who have outgrown your organization to make the leap and develop their career further elsewhere. This in turn frees up your headcount and allows you to bring in people with fresh ideas and perspectives.
Clinging onto every member of your workforce and trying to keep them at all costs is a recipe for becoming a slow, entrenched, conservative behemoth of a company. And while it’s important to create a positive work environment and ensure your top performers are happy and settled, retention rate is simply not the best metric to measure that.
3. Beyond HR, no one else in the company cares about turnover and retention.
Let’s be honest: Your CEO and C-level will only talk about turnover if it goes into double digits. The Board of Directors mostly cares about revenue and compliance. Investors care about the company’s revenue per head, so less people means higher capital efficiency and higher stock prices.
Sure, Sales / Marketing / Engineering will complain about the time they lose searching for replacements. However, most immediately stop complaining when the same amount of interview time becomes part of the headcount expansion.
4. A focus on retention rate doesn’t encourage inclusive leadership.
It’s ironic that HR is responsible for diversity and inclusion across the organization, yet it generally lacks representation when it comes to company management. That is, you don’t get a say in how the company budgets are calculated, how the operational targets are set, and how the overall company strategy is defined. Yet, you have to deal with the aftermath of the stressed and burned out workforce.
A Brave New World Beyond Retention Rate
So how can you solve these issues? And if you’re not focusing on retention rate, what should you focus on?
First, to break this cycle, you need to:
Be in charge of something the company cares about.
Be proactive in driving changes within the company.
Participate in the conversation about the company’s future.
Most companies care deeply about values and culture—or at least want to be seen to care deeply about them. These are doubtless things that your CEO talks about a lot, and what is posted prominently on your company’s website. These are also the standard fallback for making decisions when rules aren’t clear-cut. But often, even the most well-intentioned and sincere of mission statements can become diluted when it comes to things like the hiring process, performance reviews and team meetings.
But what if this wasn’t the case?
At Attuned, we measure a metric much more valuable than retention rate. We measure your employees’ motivational drivers. This in turn gives you a clear snapshot of your company’s culture as it is, rather than how it is supposed to be. Armed with this data, you can go about fixing problems upstream and developing your culture with intentionality.
A the end of the day, the question is, what is more important to you: fewer people leaving or building and maintaining a company culture that is strong and authentic?
More ON ‘Hiring & Retention‘
Oleg Koval
Head of Growth