What is an Employee Retention Plan?

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  • Written By: J. Airman
  • Edited By: Melissa Wiley
  • Last Modified Date: 22 September 2019
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An employee retention plan is a plan for operating a business using techniques designed to keep good employees. Employee retention is beneficial for the business because retaining employees reduces costs spent hiring and training new employees to replace lost employees. Factors that affect employee retention are many, and include rewards, communication, and a sense of purpose in the job. By working to discern what employees want out of a job, an employer can come up with an effective employee retention plan to help develop a company workforce that is content on a long-term basis.

Rewards constitute an important part of a successful employee retention plan, but they must be rewards the employees want. Many employers make the mistake of trying to guess at what rewards employees want out of a job situation. Often, listening to the employees and asking them what they want can reveal problems that can easily solved or desires that can be fulfilled for minimal extra cost. For instance, if a company hires employees and promises them premium, high-quality coffee at work and then switches to generic grocery store coffee, employees may become upset that their perks are being cut and seek other employment, especially if few other incentives are offered. An employee retention plan would take into account employees' desire for quality coffee to avoid losing employees whose retention is dependent upon quality coffee, and the difference in coffee cost will likely be less than the cost of processing new employees.


Poor employee retention can be an indication of overall problems in the company. No matter what steps an employer takes in an employee retention plan, rewards and incentives will only serve as a temporary fix for fundamental problems in the company. Deep-seated company problems like overall low pay or a hostile work environment will always cause poor employee retention, and these problems can only be solved by directly addressing them and changing the conditions contributing to the workplace problems. Employers that harbor or allow the development of poor work conditions or an overly sexualized workplace will only be able to retain employees willing to deal with unpleasant work conditions; employees with skill who are employable elsewhere will leave poor conditions as soon as a suitable position opens up.

Exit interviews with employees who are leaving the company can offer a valuable source of information about how company practices affect individual employees' desire to stay with the company. When employees are leaving the company, they often feel more free to express their opinions about the problems within the company than they did while employed. Though a well-trained employee may already have been lost at the exit interview, the interviewer may be able to get valuable information from the exiting employee that can prevent a similar situation from causing employee loss in the future.


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Post 2

Bankrupt companies have to be particularly careful about retention plans, especially executive or management incentive plans.

In a lot of cases, companies try to convince creditors and the court that the bonuses are necessary to keep key departments running. However, they are really designed to disguise attempts to line the pockets of outgoing executives.

Courts do not always agree with giving a chief executive officer a large chunk of the company's remaining funds, which should be going to creditors.

Post 1

Employee retention programs are frequently used in bankruptcy cases, especially by companies that are liquidating or transitioning to a new owner as part of its restructuring.

In these cases, usually only a bare bones staff remains because other employees have been laid off.

The employees who remain are those with knowledge or skills critical to the continued operation or wind down of the company.

The incentives involved in this sort of retention plan are not the same as in most other companies. These employees usually know that they will not be with the company after a certain event or date.

As a result, they are given cash rewards in recognition of plan confirmation, sale and other milestones met.

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