It is a well-known fact that the tech talent shortage is a big issue impacting businesses of all sizes. Still, companies sometimes overlook the cost of high voluntary employee turnover and a low employee retention rate.
Even if a company finds and hires the talent they need, which, by itself, is a difficult task, there is no guarantee that employees will stick around for the long term. For example, top market cap companies like Amazon, with employee perks like free food and massages, still suffer from a low median employee tenure of around one year.
Software developers tend to change jobs frequently in tech, with an average tenure of around two years. There are numerous reasons to leave one company for another, but most boil down to people feeling unhappy, understimulated, or undervalued in their roles.
Even so, some companies retain their talent exceptionally well, so what are their secrets? Let’s look at retention strategies from a high level and discuss how to keep remote development teams invested in their roles for the long term.
What does retention rate mean?
Essentially, a company’s retention rate refers to its ability to hold onto staff over some time. This indicator also heavily influences employee engagement with the company.
So what is a high retention rate? The answer to this depends on the industry. Since tech has a pretty high turnover rate, the retention rate might be lower than in other industries and still be considered acceptable.
According to a report by LinkedIn, in which the social network analyzed 500 million professionals, the industry with the highest churn rates is technology and software development, with 13.2%. Companies as successful as Google are struggling with some of the highest turnover rates in the business, only holding on to their new employees for a little over a year.
One of the biggest problems companies face today regarding developer and engineer retention rates is high demand and rising compensation in the industry—as offers get more competitive, these professionals are eager to try new opportunities.
The situation has only become harder with the pandemic. According to the 2020 Worldwide Developer Population and Demographic Study by Evans Data, the global population of developers has seen stunted growth since COVID-19 arrived (from the predicted 4% to 2.4%), while demand has continued to rise. As a result, developers and software engineers are becoming a luxury in modern times.
The pandemic has also caused the majority of workers to go remote, shifting the regular company dynamics and affecting some of the cultural benefits companies provided pre-COVID. In addition, this trend has reduced some of the benefits companies offer on their premises (snacks, beverages, on-site activities, etc.), affecting employees' perceptions of the companies they work for and what they have to offer.
How does a low retention rate impact a company?
Attrition has a severe financial impact on startups. For each employee a company loses, the cost could rise to 250% of the annual salary. Additionally, startups can risk losing critical knowledge from that employee when he or she leaves, which can also mean a rework of a product or specific processes, especially if that individual is a top performer.
Low employee retention rates represent higher expenses in advertising and HR processes and onboarding process and training costs. It can also mean:
- productivity loss for the team or department that employee was a part of
- a cultural impact on the rest of the company
- lower employee morale and engagement loss
In addition to the loss of productivity from a team, new employees can take up to two years to reach the same productivity level as the former employee.
Top Tech Companies with High Retention Rates
The average tenure in the tech industry is approximately two years, and this number can be even lower when it comes to top performers. Contrary to popular belief, some of the biggest names in tech, such as Amazon, are the ones who struggle the most to keep their top talent.
According to LinkedIn, turnover rates have shifted in recent years. Facebook consistently boasted one of the highest retention rates in the tech industry but no longer holds first place in 2021. Today, the companies with the best retention rates in the tech industry are:
The San Jose-based software company led by Shantanu Narayen has a median tenure of 5.1 years and a turnover of four years, which is impressive considering only 40% of its staff of over 20,000 works in its HQ.
The graphics processing and integrated circuit company from Santa Clara has a median tenure of 6 years and a turnover rate of 3.8 years.
Hewlett Packard (HP)
With a median tenure of 7.7 years and a turnover rate of 3.5 years, the Palo Alto company led by Enrique Lores is highly successful in terms of retention.
With an average turnover rate of 4.6 years and a median tenure of 6 years, this San José-based e-commerce company has undoubtedly made its mark regarding employee retention.
With a median tenure of 5.5 years and a turnover rate of 3.5 years, Apple’s employee retention rate has significantly improved under Tim Cook’s leadership.
Led by CEO Dan Schulman, the electronic payments company currently has a median tenure of 4.9 years and an average turnover rate of 3.2 years, one of the highest in the tech industry.
This global virtual solutions and cloud infrastructure provider from Palo Alto, and a part of Dell since 2016, has a median tenure of 4.2 years and a turnover rate of 3.3 years, earning its place in this list.
Despite its struggles in past years, Google today boasts a turnover rate of 3.3 years, registering an average tenure of 4.3 years in October 2019, significantly improving on 2018’s 1.1 years.
Other tech companies that boast some of the best turnover rates in the industry to this date are Intel (6 years), Oracle (6.3 years), Cisco (6.7 years), Yahoo (8.7 years), Symantec (7.8 years), and Space Systems/Loral (9.6 years).
Top Tech Companies with the Lowest Retention Rates
The software company located in Santa Clara, California, registered a median tenure in 2019 of 2.7 years and a turnover rate of 2.2 years.
The Palo Alto company led by Elon Musk has a median turnover rate of 2.3 years, recording an average of 3 years’ tenure in 2019.
Amazon has become a significant player in the retail business. Yet, due to the growth it has experienced and the high level of competitiveness in the industry, Amazon’s employee retention rate currently is one of the lowest in the U.S., with a median employee tenure of just one year.
With a median tenure of 1.8 years, the transportation app has struggled to retain its employees over time. Yet, according to the organization, working for Uber is considered a part-time solution instead of a full-time job, which is why the churn rate makes sense.
Dropbox (2.1 years), Airbnb (2.6 years), and Twitter (2.9 years) represent other tech companies with the lowest tenure in the industry.
When it comes to Netflix’s employee retention rate, according to official sources, the company has an attrition rate of 3% to 4% and a turnover rate of only 11% a year, which is two percentage points below the 13% annual average for tech companies. Currently, Netflix’s median tenure is 3.1 years, which places the company in the lower retention rate section of the list.
In terms of Microsoft’s employee retention rate, Bill Gates’ company has a median tenure of around three years, with 25% of employees, on average, leaving before reaching their second year in the company.
How to calculate employee retention rate
To calculate employee retention rate, simply divide the number of employees on the last day of a particular period by the number of employees your company had on the first day. Afterward, multiply the number by 100 to get the rate.
Unlike the retention rate, we can calculate the turnover rate by dividing the number of separated employees by the average number of employees during the same period. To get the rate, multiply the result by 100, then compare both numbers with the average employee retention rate in the industry to understand where your rates stand against other companies.
At Nearsure, we measure retention rates and set out specific goals to improve them when necessary. To identify retention rates, we use two indicators: the attrition rate, which essentially is the number of individuals or items that leave a company over a specific time frame, and the satisfaction survey, which we created to specifically address motivation, employee experiences at Nearsure, the benefits package, and salary.
We carefully analyze both indicators to identify trends in employee movements. This approach helps us recognize when our benefits package, careers opportunities, or salary policy need updating and make sure people feel their opinions matter.
One-on-one meetings are also a great way to get insights on every employee and ask for feedback about their coworkers and managers. After all, an employee’s happiness depends 23.3% more on their coworkers than on their managers. They can also offer the chance to follow up on people’s career plans and any concerns or suggestions they might have at a more personalized level.
By making employees a part of the process and asking for their opinion, they feel involved, considered, and valued. By doing this, you can build so much more than a company; you can create a community.
How to improve employee retention rate
There are several reasons why developers leave their job for another: better pay, more challenging professional opportunities, career advancement, better benefits, a better work-life balance, etc. Therefore, the retention rate of a company isn’t related to one specific action but several. Consider the following actions to start improving your company’s retention rate today.
- Offer the right compensation
Compensation is always one of the first actions companies take, and a right one, according to Gallup’s statistics on employee retention and remote work. For example, stats indicate that 44% of employees would leave their job for another that offered 20% higher pay.
Yet, salaries are already very high in the tech industry, so a better wage might get the employee interested. Still, unless several other opportunities accompany it, this will not be enough to keep that individual for a more extended period.
- Improve your onboarding process
A good onboarding experience can be vital to improving the retention rate, with 69% of employees more likely to remain at a company that provides a good onboarding process.
You can speed up the adaptation process and lower the risk of that person leaving by ensuring they are profoundly acquainted with the company’s values and policies, their new role, and their colleagues.
- Provide flexibility and autonomy
Choosing to escape traditional workspaces where every employee needs to be present from 9 to 5 has become almost mandatory at this point, especially for the software industry, where more and more companies are opting to hire top talent outside their country of residence.
Having the chance to work remotely at least once a week can have an extremely positive impact on your employees. It allows them the autonomy to organize their workflow and schedule in a way that fits them. Plus, they can combine their day-to-day responsibilities outside work with their work schedule in a more convenient way, and it can help them save money and cut commuting times, etc.
Remote work is at the core of what Nearsure does and can make a huge difference for an employee. It’s an extremely popular and valued benefit among employees since it provides more independence and the opportunity to achieve a better work-life balance.
- Offer a well thought out benefits package
A competitive benefits package is key to complementing salaries. It dramatically impacts employee satisfaction and can be a decisive factor for a candidate weighing different job offers.
To be effective, make sure to ask your employees what benefits they value the most from your offer and which ones they would like to have. This approach is the best way to start reviewing your benefits package and consider the different options. Companies should constantly tailor and adjust benefits packages to what teams need or want.
At Nearsure, we review our benefits package regularly to ensure it still meets our developers’ expectations. Unlike other companies, we assign a fixed budget per person to use in any activity related to any of the following categories:
- health and wellbeing (gym membership, health insurance, etc.)
- training (online courses, certificates, etc.)
- finances (paying for an accountant)
- entertainment (video games, other hobbies)
- digital subscriptions (Netflix, Medium, etc.)
Virtual employees have specific needs that may not align with traditional in-house employee benefits packages regarding remote worker retention rates. Make sure to consider benefits that may appeal to workers at home, such as an allowance to modernize their working gear (chair, desk, monitors, laptop, headphones, etc.) or a food allowance to pay for lunches from home. Consider the specific needs and wants of your team.
- Build a strong company culture
Defining the company’s core values is key to the identity of any organization. They are the moral compass that employees should follow to guide their actions. Core values are also crucial when hiring new employees: the HR team generally turns to them to find candidates who represent what the company stands for.
Transparency should also be a key element in this culture. Recent studies show that improving transparency from management can lead to up to 30% higher retention.
To build a company culture and continue improving the bond between team members, at Nearsure, we also provide specific team building activities outside the benefits package budget. These include conversational classes in English with a native speaker, online video game competitions, self-massage sessions, active pauses, virtual coffee sessions where we share news, and quarterly meetings, where we discuss company growth, vital stats, and future endeavors.
These are some of the many ways a company can address the retention rate, the reasons behind that rate, and strengthen the qualities that make the organization unique and attractive to developers and top performers.
However, there are many different solutions to improve your employee retention rate and strengthen the organization. The key is to regularly review and update company policies to reflect what their team wants and needs.