What is the difference between attrition and retention?
Particularly in light of the Great Resignation, staff retention and employee attrition are critical HR indicators for building and leading a strong, effective company. Recruitment of top talent has pushed attrition as well as retention to the forefront, as have mass exodus of long-term employees seeking greener pastures.
Consequently, there is a mismatch between the number of available positions and the number of qualified individuals. Conceptually, employee retention and attrition are polar opposites, yet they both deal with the same issue. In the context of your company, how does attrition compare to retention, and what are the implications of each? Let’s take a look.
When workers leave an organization for reasons like retirement, illness, death, or resignation, this phenomenon is known as employee attrition. When an employee leaves a position due to attrition, it is seldom, if ever, filled.
There is a significant difference between attrition and turnover, despite their frequent interchangeability. When calculating employee turnover, it is important to include all terminations, even those that are filled. We will use the term “attrition” to refer to staff turnover in order to make a comparison between retention and attrition.
Reasons why employees leave their jobs often include:
- Employees who have departed their positions due to dissatisfaction with their place of work constitute poor job satisfaction.
- Employees who departed due to a lack of prospects for advancement; this includes both horizontal and vertical advancement within the company.
- An employee’s decision to quit is a result of the organization’s poor culture, which includes a number of policies, procedures, and practices.
- Management failure – when an employee quits because of a negative experience with management or leadership.
Here is the formula to determine attrition:
The formula for the turnover rate is the number of terminations that occurred during the period divided by the number of employees present at the start of the period.
What is the definition of employee retention?
Successful employee retention occurs when a company is able to hold on to its best workers and cut down on employee turnover. Efforts made by an employer through various policies, procedures, and initiatives to hold on to personnel. During times of high talent and business turnover (like the Great Resignation), retention becomes even more critical.
You may learn a lot about what makes your company an attractive workplace by looking at your staff retention rate. In order to hold on to top personnel, it’s crucial to track employee retention indicators. Keeping these workers on staff should be an objective for any company that values its success.
Here is the formula you can use to determine the retention rate:
You can calculate the employee retention rate as follows: total number of employees minus total number of employees who departed divided by total number of employees, and then multiplied by 100.
Difference between attrition and retention
A company’s retention rate and attrition rate are both measures of its health and culture. Employee engagement is a key metric for both of these metrics, as is loyalty. When combined, they offer a picture of a company’s stability.
The two metrics, attrition and retention, are polar opposites in meaning. A company’s attrition rate is a basic indicator of the number of employees it has lost. Furthermore, retention refers to the employees that your company has managed to hold on to. This apparent contrast, however, conceals the complexity of the differences:
- Recent recruits – For the first month on the job, a new employee’s time on the team does not factor into the retention rate. A key distinction between the two computations is that attrition rates include personnel hired during the period in question, while turnover rates do not.
- Excluding involuntary turnover from your retention rate calculation is a matter of personal preference; after all, not every organization wants to let go of employees who leave voluntarily. The calculation of attrition/turnover will always include involuntary turnover, though.
- Time period – When a company makes changes to its policies, processes, and people strategies, it affects its retention rates. So, retention is usually measured over a lengthy time (for example, 1 to 5 years). The opposite is true with attrition, which gives a glimpse of the current state of staff turnover. Monthly attrition rates are easy to compare.
Why keep track of attrition?
It shows how happy the workers are – An indication that workers are dissatisfied with their workplace can be a high attrition rate. Employee engagement and output are both impacted by this. Once a company has a good grasp of employee turnover, it can take proactive measures to reduce attrition by developing talent plans. Some examples involve improving the onboarding process, launching employee engagement activities, and improving the recruiting and selection process to recruit individuals who are more suitable for the positions.
- Controlling expenses – Staff attrition does not necessarily imply hiring a new worker, but it does come with expenses. Retrenchments can lead to a loss of motivation among workers, which in turn can reduce production. Another consequence could be the need to invest in training programs to compensate for employees’ lost abilities. To better manage and predict expenditures, you should be familiar with your attrition rate.
- Corporate identity – Your company’s reputation and the value you offer to employees can take a hit if turnover is excessive. A company that has a reputation for high employee turnover rates due to publicized issues would have a hard time luring top personnel.
Why is it important to evaluate retention?
- An evaluation tool for the way you do business – Maintaining a high rate of employee retention is an excellent indicator of job satisfaction and the success (or failure) of your recruiting and training initiatives.
- Offers a foundation upon which to build your people strategy – In order to properly allocate time and resources, it is important to know your retention rate as well as whether departments have a lower or higher rate.
- Reduces costs for companies – Even more crucially, keeping personnel means you won’t have to spend money to find their replacement. There is a decrease in both recruitment and onboarding expenses. Both attrition and retention are crucial metrics to track since they provide various insights into your company’s health. Retention rates that are high are often associated with low attrition rates.
Additionally, a high attrition rate is often associated with a low retention rate. A high retention rate and a manageable attrition rate are indicators of a highly engaged workforce. There is a correlation between retention and attrition causes:
Employee retention: why workers stay with a company
- They have a positive impression of their manager.
- Workers are satisfied with their pay rates.
- They are involved in multiple training programs.
Employee attrition: reasons for departing from the company
- Their manager does not appreciate them.
- Workers go elsewhere for jobs that pay more.
- The lack of room for advancement is a major factor in employee turnover.
Employers can learn a lot about an employee’s motivations for leaving through exit interviews. Now is a great chance to put these insights to work in a way that boosts staff retention. If, after a certain period of time, 80% of a company’s employees leave because of bad management, then your plan to retain employees should focus on improving management skills through coaching and training or redistributing duties.
Of course, you can’t see their names in exit interviews, but you can use gender, job, and seniority level to figure out who is saying this.
Does a retention percentage of 80% indicate a rate of 20% attrition? No, because the two sets of numbers don’t add up. Just because some of your employees leave does not mean you will automatically be able to hire new ones. For this reason, it is possible that you will only be able to hire three people to replace fifteen who resign because of the changing market conditions.
In conclusion
Rates of attrition and retention might be evaluated as excellent or poor, based on the causes behind them. A large number of resignations, for instance, could impose a strain on your company as you strive to find suitable replacements or train other workers to take their place. A company may be able to save money by not having to hire replacements for positions eliminated due to attrition.
You may learn a lot about your workforce’s health from its retention rate and attrition rate. You may develop strategies to establish a workforce that will contribute to your organization’s success by using these indicators to identify problem areas and possibilities.
