Rising retention: Why it may not be all good news for employers

The Great Resignation—the pandemic-driven trend in which employees voluntarily resigned from their jobs in droves—is apparently over for now.

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Recent data from the U.S. Department of Labor shows that employers hit the brakes on hiring in October, adding half as many jobs as they did in September. Plus, while the unemployment rate rose to 3.9% from 3.8%, it remains historically low.

In addition, the “quits” rate, which tallies resignations relative to total employment, clocked in at 2.3% in September for the third straight month, under the impressive 3% peak in April 2022, according to the DOL.

While the numbers may have employers breathing a sigh of relief that the revolving door has stopped for the time being, experts say, HR leaders shouldn’t get complacent, as high retention driven by macro trends like the economy could lead to disengaged workforces. To mitigate that risk, they say, leaders need to have a handle on engagement metrics and prioritize strategic workforce planning.

Red flags of retention

Amy Marcum, manager of HR services with HR solutions provider Insperity, says retaining talent is always top of mind for employers, so high retention rates may always seem like a positive goal. On the surface, high retention can save businesses money on recruitment, onboarding and training.

Amy Marcum, Insperity
Amy Marcum

“However, excessively high retention rates can indicate larger issues, such as employees staying in roles out of a feeling of necessity, not choice—and this motivator can impact the success of teams and create more problems over time,” she says.

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Marcum adds that employees may become disengaged when they stay with an organization out of necessity. She cites Gallup research that found 17% of workers are actively disengaged, defined as “employees who are disgruntled and disloyal because their workplace needs are unmet.”

She suggests that employers with an overly high retention rate should look closely at their workforce and determine why employees are staying—using interviews or focus groups with employees to understand their motivations.

“Anonymous surveys are another great tool to understand why employees are staying with the company, and it can assess job satisfaction,” Marcum says. “This will help determine if employees are satisfied and engaged in their positions, or if they are staying because they feel they do not have viable options in today’s economy.”

She explains that while retaining top-notch talent for the long term should be the ultimate goal, retaining disengaged employees who negatively impact employee morale and workplace culture can eventually hurt the company’s growth and overall success.

Avoiding ‘hire-fire-hire’ patterns

Prolonged high retention may heighten the risk of employers needing to reduce headcount—in that case, Marcum cautions, communication is “paramount”—which could signal that the organization wasn’t properly anticipating trends influencing turnover.

“Attrition varies widely and is influenced by industry, job market conditions and the organizations’ ability to engage talent,” she says. “Employers should consider these factors as they develop their human capital management strategies and adapt accordingly to meet workforce needs.”

Research from The Hackett Group has found that employers facing an oversupply of people have most likely been reactive in their approach to managing talent.

“They probably were late to respond to the Great Resignation, experienced higher-than-average turnover, then over-compensated to fill the gaps,” says Hackett Group Senior Research Director Anthony DiRomualdo.

In particular, he adds, it’s a sign that those employers are lacking in strategic workforce planning (SWP) and talent intelligence capabilities, and they fail to provide a range of internal mobility opportunities to their workforce.

Anthony DiRomualdo
Anthony DiRomualdo

“I suspect that they don’t understand very well how the talent/skills needs of their business are changing and are unable to anticipate important shifts in talent supply and demand,” he explains.

DiRomualdo notes that this is consistent with findings from The Hackett Group’s recently completed study on SWP, which found that 60% of respondents are not effective or don’t have the capability to define and measure internal demand for talent.

The study also found that 37% of respondents are not effective or don’t have the capability to translate business strategy into implications for talent.

Related, the firm’s research on employee mobility and career development revealed that companies that enable internal employee mobility using tools like internal marketplaces better understand internal skills supply and demand. Additionally, these companies can better identify and shift people from areas of excess capacity to parts of the business needing these skills.

“As a result, they avoid hire-fire-hire scenarios that so many organizations fall prey to,” he says.

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Tom Starner
Tom Starner is a freelance writer based in Philadelphia who has been covering the human resource space and all of its component processes for over two decades. He can be reached at [email protected].