Yes, wellbeing makes a huge difference to employee retention

The evidence shows employees with higher levels of wellbeing are more likely to stay. Here we look at the research behind retention and wellbeing and then estimate the costs.

If your mind is in a good place and you feel physically healthy, are you more likely to stay in your current job? On the one hand, it seems obvious that high wellbeing would correlate with retention, because moving jobs might upset the situation. Then again, isn’t it possible that those with high levels of wellbeing would also be more restless – keen to take risks and explore new opportunities while they’re feeling good?

It turns out the answer is pretty declaratively the former. High wellbeing is linked not just with lower levels of voluntary departures (so choosing to stay in a job) but also lower levels of involuntary departures (so being terminated for one reason or another).  

This comes from a US study published in Population Health Management (PHM). It looked at thousands of employees who took a wellbeing assessment and calculated whether there was a correlation between wellbeing and health care, productivity, and retention outcomes. There was a significant correlation for all three, but let’s focus on retention.

How’d they measure it?

The researchers looked at the responses from 11,775 finance and insurance industry employees in a Fortune 100 company to a wellbeing survey and then compared them with the 6170 of employees who took the follow-up assessment a year later.  

In the year between, the company introduced a “comprehensive wellbeing improvement program” that involved targeted solutions as well as initiatives aimed at transforming the company’s culture.

The results

The segment of employees with high wellbeing in the first year were more likely to report an intention to stay. They also had 30% fewer voluntary departures and three times fewer involuntary departures than those with lower wellbeing.

As for those whose reported well being improvements in the second year (potentially due to the company’s dedicated initiatives) the paper is worth quoting in full: “On average, employees whose well-being improved exhibited reduced health care costs, fewer unscheduled absences, reduced presenteeism, and increased intentions to stay.”

While statistical significance doesn’t equal causation, the PHM study isn’t the only research to find a link between company departures and wellbeing. A 2019 paper by MIT and Oxford professors found “a strong negative correlation with staff turnover” in a meta-analysis of 339 research studies that looked at the wellbeing of 1,882,131 workers.

At this point, shrewd readers might be wondering about relative costs. Afterall, wellbeing initiatives require money so whether that price exceeds the losses from staff turnover is worth knowing.  

Calculating the cost

The Australian HR Institute (AHRI) states that the cost of replacing an employee is 1.5 times that employee’s salary while US based analytics company Gallup suggests it could be as high as double their salary.  

You can find various other estimates from other reputable organisations, and it’s understandable why. There are so many variables – recruitment costs, training costs – it can be hard to draw a line at where you stop. For example, should you try and estimate the financial effects of poorer employee morale because a key team member left?

For our purposes, let’s keep the maths conservative and use the AHRI figure. Drawing on the PHM research that found those with the highest levels of wellbeing had 30% fewer voluntary departures, and using as baselines the 2023 average salary in Australia ($95,581 according to the ABS) and the 2023 average turnover statistics from Australian Industry Group (9.5%) we can come up with a broad figure.  

For every 100 employees, a company that had all its workforce reporting a high level of wellbeing would be saving itself just over $408,600 a year when compared to a company with typical levels of wellbeing. A large enterprise (defined as a company with 250 employees or more) would be looking at minimum cost savings of $1,021,500 a year.

That’s looking at people who choose to leave their job, but the PHM research also found that those in the high wellbeing segment had three times fewer involuntary departures than employees in the low wellbeing segment.

Of course, since we have no baseline of how many employees are terminated in the average Australian company in a given year, we can’t extrapolate a figure. (Even if we could, the vast difference between employment law in the US and Australia would make a one-to-one comparison inappropriate.) Nevertheless, we can surmise it would have a noticeable impact on an organisation’s turnover costs.

What should be done about this?

Obviously the above calculations are very ‘back of the envelope’. We drew on data from different times and imagined the impossible (a company where every single employee reported high levels of wellbeing). However, it is evocative of the impact wellbeing has in the lives of employees and therefore organisational bottom lines.

Putting it plainly, the evidence is not fuzzy. Given the relative cost of robust wellbeing initiatives, investing in wellbeing could be saving your organisation a significant amount of money. How much would depend on the effectiveness of your program, but an older Australian study from 2010 found that for every $1 invested in employee wellbeing employers saved $5.81.

Those kinds of savings seem reasonable when you remember this article only addresses the costs to organisations derived from employee turnover. It does not factor in the other costs of wellbeing – presenteeism, absenteeism, lower productivity, etc – that can also hurt organisations’ finances.

Healthy Business can co-design a bespoke wellbeing solution for your organisation that will set it on the path to being healthier and wealthier. Get in touch today.

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