Why Career Development Enhances Retention More Than Ever
Author: Victoria Kelleher, XpertHR Lead Survey Specialist
Date: April 14, 2023
The goal of retaining talent underlies a variety of strategic HR initiatives. It drives various decisions that shape the employee experience from onboarding to retirement.
Talent retention has always been a priority for business leaders, but its importance may be amplified now more than ever. In a recent study from Executive Networks, 83% of CHROs reported a significant talent retention problem at their organizations. In fact, nearly a quarter of these respondents said the severity of this issue has prompted the Board of Directors at their organizations to get directly involved.
With the ongoing chaos of the "Great Resignation," this anxiety around retention is understandable. EN's research found that some industries are reporting turnover rates as high as 20%, and turnover has consequences. Replacing an employee has been estimated to cost up to nine months of their salary. When employees leave, there are additional effects that are more difficult to quantify; coworkers left behind sometimes show:
With so much on the line, taking practical steps to increase retention is crucial. But these steps can only be effective if they directly address the reasons employees leave. Although it certainly plays a role, compensation is not the only factor in this decision. In fact, Executive Network's Global CHRO of the Future research found that a lack of career advancement and development opportunities was ranked as a top factor contributing to turnover more often than concerns about compensation.
Various other studies have also highlighted the importance of presenting employees with opportunities for growth and development, or revealed the consequences of failing to do so. For example, a recent report from McKinsey & Company revealed that employees who choose to switch jobs in search of opportunities to develop and leverage their skills end up transitioning to a different company more than 80% of the time.
Career Development Resources
The link between career development and retention is well known. Companies that invest in talent development and mobility tend to have better employee engagement, which translates into greater productivity and, ultimately, higher retention rates.
The strength of this relationship is hardly surprising. Employees are people, after all. Beyond basic needs for survival and security, people tend to strive for growth. When companies invest in career development resources, employees are empowered to refine their skillsets and advance in their careers. If paths to advancement are not clearly accessible, however, employees may feel stagnant in their careers and begin to look for paths to advance elsewhere.
Talent Mobility: Retention in the Internal Talent Marketplace
Organizations that value continual career development must invest in tools that are built to facilitate it. For these tools to be effective, they must be easily accessible and enable employees to take inventory of the potential career paths that suit them.
Internal talent marketplaces are one of the most common tools used by organizations to help employees envision possibilities for career advancement. These marketplaces can be very effective at enhancing talent mobility, as they can match employees to job openings across an organization based on their unique skillsets and interests. This enables employees to become aware of new positions that may have otherwise escaped their notice, and it allows employers to facilitate movement and development within the existing workforce instead of having to search for talent elsewhere.
Recent data from the Global CHRO of the Future study appears to provide evidence for the efficacy of internal talent marketplaces. Those who offered an internal talent marketplace to employees had an average turnover rate of 13% last year, while those who did not use an internal talent marketplace had a turnover rate of 19% (see Chart 1).
Chart 1: Talent Marketplaces and Turnover
Although internal talent marketplaces are common, they are not used at every organization. Nearly a third of organizations do not have one. In addition, 41% of CHROs sampled in the EN study reported that the talent marketplaces used by their organizations were limited in scope.
The limited use of internal talent marketplaces may be due to the effort and technical expertise required to build them, as well as the struggle to define skills in a way that can match employees to relevant positions. However, organizations can dodge the pains of starting from scratch by working with a vendor or investing in established tools that aid in this process.
More broadly, the HR function can demonstrate a commitment to enabling talent mobility by dedicating resources toward the upskilling and reskilling of employees. This is perhaps the reason that the CHROs surveyed in EN's research ranked upskilling and reskilling as one of the top five priorities for the HR function in the upcoming year.
Investing in Leadership: Career Coaching and Turnover
Retention is important at every level of an organization, but employers are especially invested in top talent. Organizations often have methods to identify employees who show leadership potential, and these employees may be given higher incentives to stay and greater access to resources for development. In fact, CHROs rank leadership development as the second priority they would dedicate resources to if their HR budget were expanded.
Some organizations offer leadership coaching programs to high potentials and established leaders alike. These programs can help leaders to develop the skills needed for effective leadership through personalized one-on-one coaching. The benefits of these programs are two-fold: they help to ensure that the organization is operating under the control of well-trained leaders, and they allow top talent to receive ample support as they develop to their full potential.
The Global CHRO of the Future study also found a disparity in turnover based on the use of leadership coaching programs. Those who did not offer leadership coaching reported an average turnover rate of 21% over the past year. However, those who offered leadership coaching reported a much lower turnover rate, although there wasn't a notable difference between those with internal coaches (13%) and those with external coaches (14%; see Chart 2).
Chart 2: Leadership Coaching and Turnover
This result is in line with the outcomes of some previous studies. For example, highly engaged employees are much more likely than disengaged employees to report that their organization does a good job developing future leaders.
The connection between these resources and turnover matches the common assumption that talent development enhances retention. These findings may indicate that providing employees with internal talent marketplaces or leadership coaching can help to buffer against rising turnover. In such uncertain times, investing in the development of these resources may be an effective way to increase retention and protect organizations from the instability associated with rising turnover rates across the market.