For any company, establishing and monitoring KPIs is essential as it helps evaluate the effectiveness of various business activities, processes, or strategies. One such key organizational metric is employee retention, which directly impacts a company’s long-term success. Thus, tracking employee retention KPIs allows companies to gauge their success in maintaining a stable and skilled workforce, ensuring that institutional knowledge and experience are preserved.
Furthermore, employee retention KPIs offer valuable insights as to where improvements are needed. It enables companies to identify trends and potential risks before they escalate and proactively develop strategies to improve employee engagement, enhance job satisfaction, and reduce turnover.
This blog highlights the critical employee retention KPIs that every business must track in order to boost operational efficiency.
Why is it Important to Track Employee Retention KPIs?
When organizations monitor employee retention closely, they gain crucial insights into why resources are choosing to stay with the company. This information empowers firms to make informed decisions about talent management initiatives that help them further improve retention rates and minimize churn.
Tracking employee retention KPIs, such as overall turnover rate, average tenure, absenteeism rate, etc., provides a comprehensive view of the workforce’s health. It allows companies to recognize attrition patterns and address the root causes effectively.
Moreover, measuring employee retention KPIs enables enterprises to maintain a skilled workforce. It helps reduce the costs associated with turnover, build a positive employer brand, and ensure that the organization is well-positioned to meet its long-term business objectives.
Having understood the importance of tracking KPIs, let’s explore the standard employee retention metrics that businesses must track.
Read More: 9 Effective Employee Retention Strategies for Your Workforce
Top 11 Employee Retention KPIs to Track and Measure
There are several employee retention KPIs that organizations can track; however, not all of them are equally impactful in addressing turnover and employee satisfaction.
Here are the top 11 essential KPIs that provide the most valuable insights into workforce retention and engagement:
Overall Employee Retention Rate
This crucial employee retention KPI tracks the percentage of employees who stay with a company over a specific period, typically a year. It indicates how well the company retains its staff and often reflects employee satisfaction levels and work culture. A high rate generally signals a positive work environment.
The formula to calculate this metric is:
Overall Employee Retention Rate (%) = (Number of Employees at End of Period ÷ Number of Employees at Start of Period) × 100
For example, if an IT firm starts the year with 100 employees and retains 90 by the year-end, then –
(90 ÷ 100) × 100 = 90
So, the overall employee retention rate of the firm is 90%, which signifies that most of its workforce has remained throughout the year.
Overall Turnover Rate
The overall turnover rate measures the percentage of employees who leave a company within a specified period, typically a year. This metric provides insight into employee departures, whether voluntary (resignations) or involuntary (layoffs, terminations), and can indicate the workforce’s overall health.
The formula to calculate this metric is:
Overall Turnover Rate (%) = (Number of Employees Who Left During the Period ÷ Average Number of Employees During the Period) × 100
For example, if a digital marketing firm had an average of 150 employees throughout the year and 15 left, then
(15 ÷ 150) × 100 = 10%
So, the Overall Turnover Rate of the firm is 10%, indicating that a notable percentage of the workforce has departed during the year.
Read More: Ten Effective Strategies to Reduce Employee Turnover
Retention Rate by Category
This KPI measures the percentage of employees retained within specific groups, such as retention rate per department, age group, job role, gender, or demographics over a defined period. It highlights retention trends across various segments and provides insights into areas where targeted retention efforts may be needed.
The formula to calculate this metric is:
Retention Rate by Category:(Number of Employees Remaining in Category) / (Total Number in Category) × 100
For example, if we are calculating the retention rate for the IT department, which had 50 employees at the start of the year, and 45 remained by year-end.
Then, (45 ÷ 50) × 100 = 90%
So, the IT department’s retention rate is 90%.
Average Employee Tenure
Average employee tenure measures the typical length of time employees stay with a company, offering insights into workforce stability and satisfaction. A longer tenure often indicates that employees are engaged, satisfied, and see growth opportunities within the firm. Also, this metric often points to a positive work culture and effective leadership.
The formula to calculate this metric is:
Average Employee Tenure = Total Years of Service of All Employees / Number of Employees × 100
Example: If a law firm has five employees who have worked for 2, 4, 5, 6, and 8 years, the calculation for average tenure would be:
(2+4+5+6+8) / 5 = 5 years
This indicates that, on average, employees stay about five years in the firm before leaving.
Employee Satisfaction Rate
It is a crucial HR metric that reflects how happy and content employees are with their work, including their roles, management, work environment, compensation, and growth opportunities. This can be assessed through employee satisfaction surveys, pulse surveys, employee net promoter scores (eNPS), one-on-one meetings, etc.
The formula to calculate this metric is:
Employee Satisfaction Rate: (Number of Satisfied Employees) / (Total Number of Employees)
Example: If a company conducts a survey with 100 employees, and 85 report job satisfaction, the calculation would be:
(85÷100) × 100 = 85%
This means that 85% of the workforce is satisfied with their role, workplace, and overall experience.
Employee Engagement
Employee engagement is a KPI that measures an employee’s emotional commitment and involvement in their work, team, and organization. It goes beyond mere job satisfaction, focusing on motivation, dedication, and enthusiasm for their role. Engagement can be evaluated through surveys with questions such as:
- Do you feel recognized and appreciated in your role?
- Do you see opportunities for growth and advancement within the company?
- Does your job enable you to apply your skills while developing new ones?
For example, if an Aviation firm’s engagement survey shows 70% highly engaged employees and, after a mentorship program, this figure rises to 80%, it demonstrates how tracking and improving engagement can directly enhance workforce motivation and business success.
Read More: 11 Effective Strategies to Enhance Employee Engagement
Cost of Turnover
This KPI refers to the financial impact a company faces when an employee leaves, either voluntarily or involuntarily. It includes direct costs like recruitment, onboarding, and training, as well as indirect costs such as lost productivity and the effect on team morale. One thing to note is that the costs vary depending on the employee’s role, experience, and industry.
Turnover costs can be calculated by summing up the costs associated with replacing an employee.
Turnover Cost = Separation Costs + Recruitment Costs + Onboarding and Training Costs + Productivity Loss + Hidden Costs
Example: Suppose a mid-sized IT firm with a 10% annual turnover rate loses ten employees annually. If the company spends $5,000 on
recruiting, $3,000 on onboarding, and loses $10,000 in lost productivity per employee, the total turnover cost for ten employees would be:
($500 + $5,000 + $3,000 + $10,000) × 10 = $185,000 per year
This denotes that the firm faces a turnover cost of $185,000 per year.
Retention Rate by Performance Level
This KPI measures the percentage of employees retained within a company based on their performance level (e.g., high, average, or low performers). It helps organizations assess how well they retain top talent and whether there is a risk of losing high-performing employees at an alarming rate.
The formula to calculate this metric is:
Retention Rate by Performance Level = (Number of Employees Remaining in Performance Level / Total Number in Performance Level) × 100
For example, if an Audit company has 30 high-performing employees and 27 stay through the year, the retention rate for high performers is –
(27 ÷ 30) × 100 = 90%
This shows that 90% of the company’s top talent has stayed, indicating strong retention of high performers.
Read More: What is Employee Performance Management, and Why it is Important?
New Employee Turnover Rate
This KPI tracks the percentage of new hires who leave within their first 6 to 12 months. It offers insights into recruitment, onboarding process, and early-stage employee engagement practices. Also, this metric helps assess and improve early employment activities such as onboarding, training, and mentorship programs while revealing turnover trends among new hires.
To calculate the new employee turnover rate, use the following formula:
New Employee Turnover Rate = (Number of New Employees Who Left ÷ Total Number of New Employees) × 100
Example: If a healthcare firm hires 50 new employees and 10 of them leave within their first year, the New Employee Turnover Rate is calculated as follows:
(10 ÷ 50) × 100 = 20%
This indicates that 20% of the new hires left within the first year, signaling potential recruitment, onboarding, or job satisfaction challenges.
Absence Rate
The absence rate is a vital metric that measures the percentage of time employees are absent from work over a specified period. It helps organizations understand how often their workforce is unavailable due to illness, personal reasons, or other factors.
The formula for the Absence Rate is:
Absence Rate (%) = (Total Number of Days Absent ÷ Total Number of Available Workdays) × 100
To assess the absence rate, we must first find out the total number of days employees were available to work. For example, if a construction company has 100 employees, and they each work 20 days (about three weeks) a month, the total number of available workdays is:
100 employees × 20 days = 2,000 available workdays
If the total number of days absent in a month is 100, the Absence Rate is calculated as:
Absence Rate = (100 ÷ 2,000) × 100 = 5%
This means the company’s absence rate for that month is 5%, indicating the proportion of work time lost due to employee absences.
Read More: How to Reduce Absenteeism in the Workplace?
Internal Mobility Rate
Last but not least, the internal mobility rate measures the percentage of employees who move to new roles within an organization over a specified period. This movement can include promotions, lateral moves, or transfers to different departments or locations.
To calculate the Internal Mobility Rate, use this formula:
Internal Mobility Rate (%) = (Number of Employees Who Changed Roles Internally ÷ Total Number of Employees) × 100
Example: If a company has 200 employees and 20 of them moved to new roles within the organization over a year, the Internal Mobility Rate is calculated as:
(20 ÷ 200) × 100 = 10%
This means that 10% of the workforce moved to different roles within the company during that period.
Conclusion
Tracking employee retention KPIs is essential for maintaining a stable and motivated workforce. These metrics offer valuable insights into employee satisfaction, engagement, and overall work culture, helping businesses identify areas for improvement and create strategies to reduce turnover. By monitoring the above-mentioned key retention indicators, firms can enhance productivity, foster loyalty, and ultimately outperform the competition, ensuring long-term success.
The Glossary
Read More: Glossary of Resource Workforce Planning, Scheduling and Management
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