How SMEs can boost employee retention

Understanding what the best talent wants can be a struggle for any business. We asked 1,000 SME employees what they value in a job, what keeps them there, and what would make them leave.

In the wake of COVID-19, quit rates reached a record high. But according to analysts, this Great Resignation is now over, and employees may be seeking more job stability and security. Given how the world of work changed during the pandemic, what do SMEs need to know about employees’ new expectations?

We surveyed over 1,000 people working at companies with between 2 and 250 employees to find out more. This research provides the latest insights into the state of employee retention for UK SMEs in 2023. In this article, we look at employee engagement and retention to investigate what affects people’s decisions to stick with or leave a company. In part two, we will explore how benefits, referral programmes, onboarding, and other crucial HR processes can help retain your top talent. 

You can scroll down to the bottom of this page for the full methodology.

No ‘secret formula’ to employee happiness

The benefits of employee retention for businesses are clear, yet sometimes it’s easier said than done. At the most basic level, retaining employees starts by making sure they are satisfied in their job. There are, of course, many aspects to this, so we asked respondents to pick the five factors that contribute most to their overall level of comfort at work.

The broad spread of answers here reflects the diverse values that today’s workforce has, and does not make for easy or conclusive reading for SMEs. No single factor was chosen by a majority, and nearly every factor was chosen by at least one-fifth of respondents. The most popular choices —a healthy work-life balance and healthy relationships with co-workers— reflect a focus on people’s own physical and mental wellbeing over their financial and career goals. Salary expectations were the next most popular choice, but other material considerations such as benefits and bonuses ranked much lower. 

The picture becomes slightly clearer when we look at what makes people uncomfortable at work.

High stress levels were the leading factor in workplace discomfort, and salary considerations also ranked highly. A lack of recognition was the third most chosen factor.

While it is far from definitive, the data here shows that many factors contribute to employees’ comfort or discomfort at work. It also shows that job satisfaction has financial, occupational, emotional, physical, and mental aspects, with different employees prioritising different things. The remainder of this research will explore what this means for businesses.

What makes a good manager versus a bad one?

Respondents clearly value the relationships they have at work, and few are as consequential as the ones we have with our bosses. A good manager can help employees progress as professionals and as people, whereas a bad one can make working days unbearable.

We asked respondents to pick the top five skills or capabilities that a manager should have to support them in their jobs. Similar to the above data, respondents valued a broad range of skills, but were most likely to say that recognising efforts and acknowledging work were important. Fostering a positive and collaborative work environment within the team and possessing good soft skills were also valuable. This indicates that employees see a good manager as one who is able to provide them with the emotional support to do their job —over and above the practical help they could offer.

Asking this question in reverse yielded more data to support this idea. 48% of respondents selected non-recognition of work as an attribute of a manager that would lead to ineffective support at work. 40% cited the inability to create a positive work environment, 39% highlighted a lack of soft skills, and 40% said that an inability to observe, manage, and adjust employee workloads would be a problem.

Although managers may be focused on their team’s performance, routines, schedules, and outputs, employees highly value a manager that can foster a positive culture and recognise their emotional needs. As the following paragraphs suggest, doing this may be crucial to a good employee retention rate.

‘Soft’ perks encourage employees to stay in current jobs

We now know more about what employees like and dislike, as well as the qualities they like to see in their managers, but how happy are they in their jobs?

Very happy, as it happens. Nearly two-thirds said they were content (44% were satisfied, 19% very satisfied) while only 14% were unsatisfied overall. 23% said they felt neutral. However, this stated sentiment may not necessarily be reflected in employees’ ambitions. More are planning to leave their current role than to remain. Well over one-quarter (28%) are looking to get out within the next year.

This intention to leave does not necessarily mean that employees are dissatisfied. Some may be looking for new challenges, relocation, or the chance of negotiating a better salary deal —all of which may be easier with a new employer. But the fact that a (slight) majority of all the UK SME employees we surveyed want to leave their job should give managers pause for thought. Do they have the plans and resources in place to replace half of their workforce? Or could they take steps now to persuade more people to stay?

Leaders at SMEs may be interested to hear why employees are happy to stay in their current roles. Of the 43% who don’t plan to leave, the most popular reason was that they liked the work-life balance. Four of the top five reasons given related to employee wellbeing or psychological comfort, with salary only chosen as a decisive factor by 39%.

Money talks when it comes to switching jobs

If those who choose to stay value the emotional and wellbeing that their current job provides, does that mean that those who are leaving are seeking the same thing? Not necessarily. The 53% who want to leave are most likely driven by salary considerations, although many factors come into play. High stress levels, lack of recognition, the need for a career change, and insufficient benefits are all contributing factors.

Looking at employees who have a propensity to change jobs frequently offers yet more insight into the reasons behind switching roles. 7% of respondents in our survey said they have changed jobs more than 3 times in the past 5 years. While 28% of these said that this was due to external factors outside of their control (such as redundancy, for example), the data reveals some interesting trends.

Here, salary was the biggest driver of frequent job changes along with flexibility, followed by seeking a better company culture. Many also moved to gain experience in a new environment. 

At this stage, a broad picture is emerging of two types of employee. On one hand, we have those who value emotional and mental wellbeing at work. If they feel they have this, they may be likely to stay in their job, even if they could be negotiating a better salary elsewhere. On the other, we have people who are looking for new challenges and better pay, and who may be more inclined to change roles in order to progress their career and gain a better pay deal.

A complex picture of the retention landscape

The data in this survey gives managers at SMEs a lot to think about in terms of planning an effective employee retention strategy. Workers have complex and varied needs and expect many different things from their bosses. 

The good news for smaller companies is that a good culture can give employees a reason to stay, even when they could be getting more money or opportunities elsewhere. Similarly, a bad company culture —one that negatively impacts people’s wellbeing and employee morale— can drive employees to quit. However, many also leave for more pragmatic reasons.

Managers have to accept that a certain proportion of their staff will be motivated to hop between jobs. Even though they are satisfied with life at your SME, they may want to test themselves in larger enterprises, new locations, different industries, or with more responsibilities and higher pay. SMEs can only do so much to retain these employees, so it makes sense to account for a certain rate of employee turnover and ensure that you have adequate succession planning in place.