The root cause behind your employee retention problem
17 Aug 2023
Did you know that the cost of replacing an employee who resigns unexpectedly is a staggering EUR 50,000*?
In today's dynamic and competitive job market, employee retention is an ever-growing challenge for organizations. With an abundance of opportunities and a high demand for talent, holding onto your employees has transformed into a painful puzzle.
In this short blog, we delve into the core of the employee retention problem, uncovering its root cause, and exploring actionable solutions.
Employee retention: a major concern for your business
A recent study by Mercer reveals that the average voluntary turnover rate was 18% in 2022**, with this number consistently rising over the years. To put this in perspective: your entire workforce could essentially be completely different every ±5 years, on average!
This trend carries a substantial financial burden, ranging from 50% to 200% of the employee's annual salary*** when replacing a voluntarily departing employee—which on average amounts to EUR 50,000. This encompasses costs such as recruitment, training, onboarding, and more.
A whole host of employee concerns are driving this attrition, with two prominent ones being:
Level of compensation and benefits
Perceived lack of career growth
These two concerns are driven by one major force looming underneath: the employee’s uncertainty about their financial future. Why? Let’s dive in.
The pivotal role of financial certainty in resignations
Research conducted by PwC sheds light on a crucial insight: employees facing financial uncertainty are 2x more likely to switch jobs****. Put simply, these employees worry whether their current employer will enable them reaching their envisioned future. A future with for example home ownership, certain trips they want to make or pursuing early retirement.
Ironically, many of these concerns are unwarranted. Switching employers is not going to solve this uncertainty for them. Effective personal financial management and financial planning play a more substantial role in shaping their financial future.
In general: effectively managing their current financial situation typically has a more profound impact on their financial future than a slightly higher salary when their finances are sub-optimally managed.
For example: the impact of having a better budget, and putting extra savings to work by investing it often times outweighs just a slight salary increase in the long rung.
It’s therefore important that your employees become aware of this before it’s too late.
Take action with a solution for this root cause
As an employer, you have the power to address this root cause by integrating a commitment to employee financial planning and financial well-being into the fabric of your organization.
Solutions include providing your employees with financial literacy education, offering 1:1 conversations with independent financial planners, and equipping them with specific tools to gain personal insights into their holistic financial situation.
By taking these steps, you also communicate a powerful message: you recognize that success goes beyond the office. As employees thrive financially through smart planning, your company's brand becomes known for stability, care, and opportunity. Your proactive approach shows your commitment to helping your employees succeed financially and in life more broadly. This is a strong component of your employer brand.
Want to dive deeper into employee financial well-being? Read our exclusive whitepaper here: “Employee Financial Well-being is the Next Frontier for Employers”
In a nutshell, the intricate issue of employee turnover is often fueled by employees’ uncertainty regarding their financial future. This uncertainty underpins the frequently mentioned concerns about compensation and career growth. To combat this, employers can provide financial planning support to their employees. In doing so, you not only improve employee retention. You also convey a message of stability, care and opportunity.