Employee Retention: Why It's Important & How Managers Impact It

Retaining great talent is one of the most crucial factors that impact a team and organization’s success. 

Conversely, high turnover rates can be detrimental to organizational growth and costly in terms of time and resources. As such, leaders and managers need to understand the factors that impact employee retention and take proactive measures to improve retention in their organizations.

In this blog, we’ll take a closer look at the benefits of retaining your top talent, how managers impact retention, and how low retention rates cost teams and organizations. 

Let’s dive right in!

What Are the Benefits of Employee Retention?

Because retention is all about keeping employees on your teams and reducing turnover and attrition, some of the benefits of retention might seem obvious. After all, employees who’ve been with an organization for many years are more experienced in their roles than new hires. But retaining top talent has several key benefits for organizations. 

Here are just 6 of the top benefits:

1. Increased Productivity

Employees who stay with an organization gain valuable experience and knowledge that helps them be more productive. Conversely, turnover can significantly decrease productivity as current team members take on additional responsibilities to fill the void, and new employees are trained for their roles.

2. Greater Employee Engagement

Employee engagement measures employees' enthusiasm, satisfaction, and commitment to their organization. When people are engaged at work, they are more likely to stay on your team and are also much more productive. In addition, engaged employees tend to be loyal and committed to your organization, which means they stay longer because they want it to succeed just as much as you do!

3. Retention Breeds Innovation

The more engaged and productive employees are, the more likely they are to develop innovative ideas that benefit your organization. Innovation can take many forms – it could mean improving existing processes to be more efficient, creating a new product or service, and so much more. Whatever the case may be, innovation stems from retaining your top talent and valuing their contributions to the team.

4. Cost Reduction and Profitability

Retaining employees not only helps reduce the high costs of recruitment but can even increase revenue. As we’ve already covered, employees who stay with organizations for extended periods are typically more engaged with their work, have a wealth of experience and knowledge, and are more invested in the company’s success. All of these factors result in improved customer experiences, which in turn boosts sales and revenue.

5. A Stronger Team Culture

Building a strong team culture takes time, so naturally, retaining employees who positively contribute to your organization will only strengthen that culture. Additionally, long-serving employees are more invested in your company’s success and develop strong working relationships with their teammates that positively impacts the organization’s culture. 

6. Improved Morale

All of these benefits combined result in improved morale among your teams. One of the most significant factors that can positively influence morale is having opportunities for employees to grow and advance in their careers, which goes hand-in-hand with retention. Conversely, high turnover can significantly dampen morale as employees may feel like there’s no future at your organization.

How Do Managers Impact Retention?

Although employee retention is not just one person’s responsibility, as everyone at an organization affects retention somehow, it’s managers who most significantly impact whether talent stays or leaves. It likely goes without saying, but an engaged manager who’s committed to creating a positive Team Experience™ makes all the difference in keeping employees satisfied and motivated with their jobs. However, if employees aren’t happy with their jobs and engaged with their work, there may not be much else to incentivize them to continue working with a company.

Whether consciously or not, managers also impact their employees’ lives in ways that extend beyond day-to-day job duties. For example, one study found that managers impact employees’ mental health just as much as spouses and partners. Moreover, the same study also showed that over 80% of employees prioritize good mental health over a high-paying job, and two-thirds of employees would take a pay cut for a job that better supports their mental health. With these statistics in mind, it’s clear how an ineffective manager can negatively impact retention. 

Unfortunately, it’s estimated that 82% of managers don’t have the necessary skills to lead their teams effectively. Managers who are ill-equipped to lead their teams cost companies billions of dollars annually and negatively impact retention. Some studies have found that at least 57% of employees quit their jobs because of their managers.

Want to know how you can better train your managers from being part of the 82% that don’t have the skills to lead their teams? Then check out our blog on the ACCORD Model and the six qualities every good manager has!

The High Cost of Low Retention

Now that we’ve examined why retention is important and how managers impact retention, let’s look at a scenario that better illustrates the costs of attrition on your organization.

Suppose the sales team at your organization consists of five employees and one manager. Now let’s suppose the manager of this team is one of the 82% of managers who doesn’t have the skills needed to lead their team effectively. Naturally, this makes the team more likely to have higher turnover rates, among other problems. In 2021, The U.S. Bureau of Labor Statistics recorded an average turnover rate of 47.2% for the year.

With that in mind, let’s say two of the five members of your sales team with an annual salary of $50,000 voluntarily quit their jobs in a year. Given that the cost of replacing an employee can vary from one-half to two times the employee’s salary, you can expect to pay between $50,000 to $100,000 to replace the two employees.

Now expand this scenario to your entire organization. If you’re a sizable organization with dozens of managers leading larger teams, it’s easy to see how these costs can exponentially grow. For example, imagine an organization that has 100 managers, with 82 of them needing more training. If two employees with an average salary of $50,000 left each of those 82 managers’ teams, the total cost of replacing those employees could range from $4.1 million to $8.2 million.

But that’s only the monetary cost of turnover. As we’ve already covered, retention has many benefits, like improving employee engagement, morale, team culture, and more. Benefits like these don’t come with an easily defined price tag but have considerable value for any organization. Unfortunately, when you have high turnover, you also lose these benefits. The loss of those benefits combined with the high monetary costs can be devastating to your organization.

Support and Retain Great Teams with PepTalk

At PepTalk, we believe that great managers are the key to successful teams and organizations. That's why we've developed a platform that equips managers with the skills they need to effectively lead their teams and increase employee retention rates. The PepTalk platform helps organizations support and upskill their managers and provides real-time data that acts as an early warning system for potential issues or challenges arising in teams.  

To see firsthand how PepTalk can support your organization, book a free demo today!