New hire retention is a measure that organizations often use to assess the strength of their recruiting process. However, the importance of this measure and its impact on the business goes far beyond recruiting.

In this column, after breaking down cross-industry data for new hire retention, we discuss the risks that organizations face when their retention is lower than it should be and the role that groups across the business can play to help strengthen it. Given the impact that poor new hire retention has across the business and the collective effort that is needed to keep it strong, this is a measure that should be on everyone’s dashboard.

Cross-industry data shows nearly 20% turnover at the median

New hire retention rate calculates the percentage of new hires (including middle management, specialists, operational workers or office staff, senior management and executives) who are still employed at the business entity 12 months after accepting a job offer. At the median, organizations retain about 83 out of every 100 new employees—which also means they lose about 17 out of every 100 employees within their first year. Organizations with the highest new hire retention (those at the 75th percentile) see around 13 out of every 100 employees leave before their first year is up, while those at the 25th percentile see about 22 out of every 100 employees leave.

The stakes of new hire retention

Retaining more than 80% of your new employees sounds good at face value. But the inverse—losing almost one out of every five employees before their first year is up—represents a lot of potentially avoidable spending. Organizations that struggle to retain new employees will likely see higher recruitment costs as they work to advertise and fill the same positions repeatedly. It’s also easy to imagine how the effects of low retention can ripple out beyond recruiting into HR more broadly and ultimately into the business. For example:

HR will need to carry out additional work related to benefits, compensation and onboarding to replace employees who leave.
Training and development professionals will need to train and onboard a higher volume of employees.
Hiring managers will need to spend more time vetting and interviewing candidates, leaving less time to coach and mentor existing employees.
Teams may need to cover work from unfilled positions, leading to declining morale and job satisfaction and increasing the likelihood of further turnover.

Given such widespread and varied impacts across different areas, new hire retention is a measure that everyone should be tracking and doing their part to improve.

Interpreting your new hire retention rate

The costs associated with turnover mean that you may have an opportunity to save money by retaining new hires. However, it’s important to set realistic targets for improvement. No organization is going to retain 100% of its employees over their first year, nor should this be the goal. Instead, you’ll need to determine what good performance looks like for your organization and the degree to which you can sustainably improve from where you sit today.

There are a number of factors to consider when evaluating your organization’s performance and setting future targets for this measure. For example, your organization’s size and industry can both play a role in shaping what your retention looks like. We found that organizations with less than $100 million in annual revenue tend to have higher new hire retention rates (up to 93%), while organizations with revenue between $5 billion and $10 billion have some of the lowest retention rates (around 76% at the low end). Further, some industries like distribution and transportation (with about 81% new hire retention at the median) naturally have higher levels of employee churn.

Job roles may be an even more important consideration. Frontline or low-skill jobs may have lower new hire retention rates because more people are qualified for these roles and some of these positions are less desirable—whether because of the pay, the effort involved or both. Roles that are in high demand and short supply (for example, data scientists) also tend to have lower new hire retention rates. Keep factors like these in mind as you think about what a “good” rate looks like for you.

Poor new hire retention can be a warning sign for these measures

Poor or declining new hire retention can be a red flag indicator that there may be deeper issues related to your organization’s overall employment deal, organizational culture, and management or leadership capabilities. It can also signal potential issues for measures like:

Total cost to recruit
Onboarding cost
Time to productivity
Time to hire

If you’re cutting costs or headcount within HR, declining retention can also be an indicator that you’ve gone too far with these cuts. For example, cutting too much from training and development may result in a subpar onboarding experience that both increases time to productivity and leaves employees less engaged and more likely to leave as a result.

Engage stakeholders about their role in retention

Groups across the enterprise have a stake in new hire retention and also have a role to play in helping to strengthen it. Below, we provide steps that each stakeholder group can carry out to help drive better new hire retention.

Add your own guidance for each group based on the specifics of your organization to create a checklist of actions your organization will take to help improve your new hire retention rate. Then, make sure that each of these groups knows what their role is and set them up for success with resources and support.

Steps for driving better new hire retention

Recruiters:

Set realistic expectations about the job as well as opportunities for development and promotion.
Take action on exit interview and exit survey results and recommendations.

Hiring managers:

Work with recruiters to set realistic expectations about what the job involves and what an employee’s career trajectory might look like.
Take a proactive, comprehensive role in onboarding and continually engage with new employees over their first year.
Take action on new hire engagement survey results and recommendations.

Teammates and co-workers:

Take a proactive role in onboarding new employees for their specific role.
Help orient new employees to your organization’s culture.

HR Services/HR Information and Analytics

Track, monitor and work to improve the new hire experience when employees reach out to ask questions or manage their benefits.
Collect, analyze and disseminate engagement survey results specific to new hires.

Training and development

Collect new hire feedback related to onboarding, both in terms of the role and organizational culture.
Take action on this feedback and track the results.
Provide training for managers so they can play an effective role in recruiting and onboarding.

Rewards and retention

Conduct stay interviews, distribute results and provide a mechanism for tracking what actions have been taken and to what effect.
Track exit interview and exit survey feedback and take action on the results.
Benchmark total rewards against talent competitors.

Key takeaways

Poor or declining new hire retention can impact your organization in many different ways, from greater resource expenditure to declining morale and engagement among existing employees. The good news is that HR and partners across the business can do a lot to help improve new hire retention. Engage these stakeholders about why retention matters and what role they can play. A collective effort by every group involved in the employee experience will help strengthen new hire retention in a sustainable way that benefits everyone.

Data in this content was accurate at the time of publication. For the most current data, visit www.apqc.org.

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