What is Employee Retention Risk?
Employee retention risk is the probability that key employees will voluntarily leave the organization within the next 6-12 months. It is a leading indicator, high retention risk predicts future turnover, giving leaders the chance to intervene before resignations happen. Risk is driven by ten interconnected factors: current turnover rate trends, themes from exit interviews, compensation competitiveness versus market, clarity of career paths, manager quality, onboarding experience, benefits package strength, alignment between company culture and employee values, workload balance and burnout levels, and external market demand for the specific roles your people hold. A senior developer in a hot market with a weak manager and no career path has extreme flight risk even if they appear content on the surface. Traditional HR metrics measure what has already happened (turnover rate, time to fill), retention risk assessment measures what is about to happen so leaders can act before it is too late.
The Formula
Employee Retention Risk Score = Sum of 10 category scores (Turnover Rate, Exit Interview Themes, Compensation Competitiveness, Career Path Clarity, Manager Quality, Onboarding Experience, Benefits Package, Culture Alignment, Workload Balance, Market Demand for Roles)
Above 70 indicates low flight risk with strong retention fundamentals. Between 40-70 is moderate risk with specific areas to address. Below 40 signals an imminent retention crisis. The national employer average is 43.
Worked Example
A US tech company with 60 employees was losing senior developers one after another. Three had resigned in four months, two joining competitors for similar money, one moving into management elsewhere. The CEO assumed it was a market pay issue and was preparing to raise engineering salaries by 15% ($380,000 annual cost). Before doing so, the head of people ran a retention risk assessment to find the actual drivers.
- Turnover Rate: 22% annual turnover (rising from 12% two years ago), 2/10
- Exit Interview Themes: All three exits cited "lack of progression" and "manager did not invest in my growth", 2/10
- Compensation Competitiveness: 85th percentile for base pay but no equity for non-founders, 6/10
- Career Path Clarity: No defined levels, no progression criteria, promotions ad-hoc, 2/10
- Manager Quality: Engineering managers were promoted from IC roles with zero training, 3/10
- Onboarding Experience: Informal, buddy-dependent, no 30/60/90 plan, 4/10
- Benefits Package: Standard SME package, no learning budget, no wellbeing support, 4/10
- Culture Alignment: Originally collaborative, now top-down as company scaled, 3/10
- Workload Balance: 50+ hour weeks normalised, weekend pings common, 2/10
- Market Demand for Roles: Extremely high demand for senior engineers, 1/10
- Total score: 29/100, extreme retention risk
📌 The CEO scrapped the $380,000 salary raise and instead invested $75,000 across six months: manager training for all 6 engineering managers ($18k), a defined career progression framework with documented levels and criteria ($15k consulting), individual development plans for every senior engineer, a $2,000/year learning budget per engineer, documented working hours policy, and monthly stay interviews with top performers. The retention risk score climbed from 29 to 68 within 9 months. No senior engineers resigned in the following 12 months, saving the business an estimated $450,000 in replacement costs and preserving customer-critical product knowledge. The lesson: turnover is rarely about pay. Flight risk is driven by managers, career paths, and workload, fix those and you retain people salary alone could never keep.
Why This Matters
Replacement costs are 50-200% of annual salary
SHRM and Gallup research show that replacing an employee costs 50-200% of their annual salary when you count recruitment fees (15-25% of salary for senior roles), onboarding time, lost productivity during the learning curve, and the knowledge that walks out the door. For a $60,000 senior role, real replacement cost is $30,000-120,000. Preventing a single resignation typically saves more than a year of engagement investment for the entire team. Use the Employee Turnover Calculator to quantify your current turnover cost.
Knowledge and relationships walk out the door
The direct replacement cost is only part of the loss. When a senior employee resigns, they take institutional knowledge, customer relationships, technical context, and political capital that cannot be documented or transferred. A senior salesperson leaving may cost $50,000 to replace, but the customer relationships they take can cost the business hundreds of thousands in lost revenue. Retention risk assessment catches these critical exits before they happen, when intervention is still possible.
Turnover compounds and damages team morale
Turnover is contagious. When one person leaves, their remaining colleagues question their own tenure, pick up the extra workload, and start updating their CVs. Research from Gartner shows that after a colleague resigns, the flight risk of remaining team members increases by 9-12% within six months. This creates turnover cascades where a single resignation triggers a string of departures. Proactive retention risk management breaks the cascade before it starts.
Common Mistakes
❌ Only reacting after someone resigns
The biggest retention mistake is waiting until someone hands in their notice before trying to keep them. By the time an employee resigns, they have usually decided months earlier, the resignation is the last step, not the first. Counter-offers retain only 20% of leavers beyond 12 months according to research. The fix is proactive stay interviews with high performers every 6 months, asking what makes them stay and what might make them leave. Act on answers before notice is given, not after.
❌ Ignoring middle managers as the root cause
Gallup research shows managers explain 70% of the variance in team engagement and retention. One bad manager destroys retention regardless of pay, benefits, or mission. Yet most organizations address retention with perks, pay rises, and recognition programmes, not with manager development. The highest-ROI retention investment is manager training. A $1,500 training programme per manager typically pays back 10-20x by preventing a single resignation from their team.
❌ Competing on salary alone
When employees resign, most say "the new offer pays more", but LinkedIn research shows that is the surface reason. The underlying reasons are lack of career growth (cited by 94% of employees as a reason they would stay longer), poor management, and burnout. Raising salaries across the board buys time but does not fix the underlying drivers. Within 12-18 months, the same people will leave again, only now you are paying more to lose them.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| Technology companies | Retention risk score 65+, regrettable turnover below 8% | Score 45-65, regrettable turnover 10-15% | Score below 40, regrettable turnover above 18%, common at fast-scaling startups and firms with weak managers |
| Professional services (consulting, law, accounting) | Score 60+, regrettable turnover below 12% | Score 40-60, turnover 15-20% | Score below 35, turnover above 22%, common at firms with up-or-out cultures and poor work-life balance |
| Retail and hospitality | Score 55+, turnover below 30% | Score 35-55, turnover 30-50% | Score below 30, turnover above 60%, chronic issue for customer-facing roles with weak management |
Source: SHRM (Society for Human Resource Management) Resourcing and Talent Planning Report
Benchmark data sourced from SHRM (Society for Human Resource Management) Resourcing and Talent Planning Report.