Human resources management is the process of reviewing and retaining employees in a company, among other activities. A retention ratio is a statistical measurement on how many employees leave a company during a specific time period. The different uses of this ratio can be the assessment as to why employees are leaving, a benchmark to compare against the industry standard, and the ability to determine how to better retain employees. In most cases, companies can compute their retention ratio at any time so long as they have the requisite information. The human resources director or other personnel manager is usually in charge of this task.
The retention ratio formula is fairly basic in most cases. A company simply needs to divide the number of employees who have left by the average number of employees working over the same time period. The result from this formula is multiplied by 100 to compute an actual percentage. Using monthly figures is best as this information is most readily available. Companies can then use this figure to assess their retention rates for whatever purposes necessary.
A company’s retention ratio can help it assess why so many employees are leaving. In many cases, employees may go through a separation process. A short questionnaire may ask employees what the driving force was for leaving. Along with the retention ratio, managers can compare answers to discover which problems or issues were most important to leaving the company. Companies may then attempt to change the negative factors that drive employees away.
Like all other data in business, a company’s retention ratio can help it benchmark its operations against the industry standard. For example, a manufacturing firm experiences five-percent employee turnover for the past six months. While this may be bad internally, the company may not really know if this is bad for the industry. Comparing its employee turnover rate to the industry standard helps the company understand how bad its retention problems really are. The company can also compare its current ratio against a previous period to assess potentially increasing turnover.
Employee turnover is often costly to a business. A company can use its retention ratio to find ways to retain employees. For example, if increasing turnover points out dissatisfaction with a new policy, the company can look at changing it. The same goes for any other problem, from low wages to long hours or shifts at specific jobs. Therefore, the retention ratio is a working formula for employee management.