Best practices

Does size matter? Putting a value on employee tenure

Does size matter? Putting a value on employee tenure

In the data-driven world of HR, a high employee retention rate is good news. It may be one simple stat, but what it represents is traditionally viewed as gold dust by businesses. High on the list of benefits is an engaged and loyal workforce. This is closely followed by lower costs and higher productivity. The icing on the cake? Organizational and workforce stability and better overall business success.

Looking at it this way, the picture is pretty clear. Focus on retention, underpinned by growing employee tenure, and you’ll get a good ROI.

But is that the full picture? Is it worth holding onto employees, no questions asked? Asking questions is what we’re here for. So let’s find out.

What is employee tenure, and how is it measured?

Employee tenure is the cornerstone of employee retention. The latter is a well-understood (and well-used) concept in business circles. It refers to strategies organizations use to stop good employees from leaving a company. And is usually calculated using a formula and expressed as a statistic. But the phrase “employee tenure” is less common. So what is it, and how does it sync with retention?

Simply put, employee tenure represents the amount of continuous time an employee has been with one organization. When it comes to measuring employee tenure, it’s usually expressed in years or months. And is often split into three categories. Short (or “bad”) tenure refers to a period of 2 years or fewer. Average (or “median”) tenure lasts between 2 to 4 years. And long (or “good”) tenure is 5 years and above.

Employee tenure is the key metric used when devising and evaluating employee retention strategies.

Moving the (employee tenure) goalposts

That said, times are changing. Movements like the Great Resignation and the “job-hopping” mindset of a new generation of younger workers are redefining those time frames used for measuring employee tenure. And the perception of what’s considered a “good” or “bad” length of tenure.

According to the U.S. Bureau of Labor, average employee tenure has dropped over the past 10 years from 4.7 years in 2012 to 4.1 years in 2022. Breakdown the average tenure according to generations and stats show how the differences in mindset play out. While Boomers have an average tenure of 9.8 years, the figure drops to 2.8 years for Millennials. And for Gen-Zers, it’s even lower at 2 years and 3 months. (There’s some inevitability in this, given that many Gen-Zers will have just entered the workforce. But it reinforces the trend set by their predecessors. And indicates that a downward trajectory is set to continue.)

The highs and lows of employee tenure: Exploring the statistical differences

Age isn’t the only differentiator when it comes to average employee tenure. Gender also plays a part. Men tend to stay longer (5 years) with one firm than women (4.7 years). Where people work and what they do also factor.

Average employee tenure by industry

When it comes to average employee tenure by industry type, one of the biggest discrepancies exists between the private and public sectors. Take the US for example. Here, government employees (federal, state, and local) stay with their employer for an extended period of 6.8 years. Yet, wage and salary workers in the private sector only last an average of 3.7 years. Dig deeper into the world of private enterprise, and there are further variations. Generally speaking, people in service industries (the tertiary sector) usually have a lower tenure than the primary and secondary sectors. For example, manufacturing and mining sit at the top, with an average employee tenure of 5.2 years. While leisure and hospitality and wholesale retail lurk at the bottom with an average of 2 and 3.1 years respectively.

Focusing on professions, management emerges as one of the occupations with the highest median years of tenure at 6.3 years. Other “white collar” professions follow closely. In January 2022, the US Bureau of Labor recorded an average employee tenure of 5.5 years for educational, training, and library workers. With architecture and engineering occupations clocking up 5.2 years. And legal experts averaging in at 4.7 years.

The impact of employee tenure: 10 benefits of long-term employment

For HR teams, stats like the ones just shared provide context and useful benchmarks. They’re helpful during the hiring process, where length of service may be considered an influencing factor. They also show how and where leaders should focus their employee tenure strategies. This last point is a particularly important one because improving employee tenure rates brings big benefits to businesses.

1. Age diversity

An over-reliance on either younger or older employees can limit an organization’s ability to fully understand its customer base. And stifle its ability to adapt to changing market conditions. Longer employee tenure doesn’t always mean a higher proportion of older workers. What it does do is increase the chance of a workforce that has a good mix of both older and younger employees.

Pro tip: Increasing the proportion of older workers by 10% equates to more than a year of growth.

2. Mentoring opportunities

A flexible form of knowledge sharing, mentoring, and coaching programs are an effective and efficient addition to L&D initiatives. Having longer-tenured employees in your organization means more potential mentors to add to your pool.

3. Lower hiring costs

Backfilling is expensive. Every time an employee leaves, a lengthy process kicks in. From advertising and sourcing candidates to interviewing, assessing, onboarding, and then training, each step comes at a price. Then there’s the temporary impact on productivity. In short, organizations save money when they retain employees for longer periods.

4. Institutional knowledge

Every organization’s different. It has its own story, character traits, best practices, processes, values, and culture. Acquired over time, this type of “firm-specific human capital” becomes intuitive and deeply embedded through employee tenure. This familiarity drives better organizational efficiency and higher productivity. It also ensures consistency. And cultural continuity as acquired knowledge and traditions are passed down to newer employees.

5. Better performance and productivity

In 2023, HBR put the organizational value of age and tenure under the spotlight. One of the main takeaways was that age has no statistically significant effect on financial outcomes. But tenure does. In particular, the length of service of leaders and managers. This, it seems, is a key driver of improved performance within teams. The impact of employee tenure on productivity is also clear. Experienced and long-serving employees help keep productivity high and on target.

6. Employee engagement

There’s a close link between employee tenure and employee loyalty and engagement. When employees stay with a company for longer, they feel more stable, secure, and invested in an organization. They’re more likely to feel motivated to contribute to company success. Plus, they also foster an atmosphere that makes other (less established employees) feel the same way.

7. Customer satisfaction

If you run a frontline, outwardly-facing operation, familiarity and consistency matter. Throw too many new faces at clients, and loyalty and confidence start to sink. With a stable, experienced workforce, it’s easier to provide a high-quality, comfortable service to customers. And boost levels of satisfaction and loyalty.

8. Leadership pipeline

Top talent is hard to find. And being able to cultivate future leaders from within an organization builds resilience. And takes the pressure off when it comes to recruitment. The pool of possible leadership candidates is enriched when employees stay with a company for longer periods.

9. Reduced risk

With longer employee tenure, there may be a lower risk of turnover-related issues such as knowledge gaps, disruptions in workflow, or legal challenges. This feeds into better workforce stability.

10. Corporate reputation

Organizations with a history of retaining employees tend to have a positive reputation. This feeds into overall branding, making them more attractive to new hires, existing customers, and prospects.

Does size matter? Putting a value on employee tenure

The darker side of employee tenure: 10 risks of longer-term employment

For all of the reasons we’ve just outlined, losing (good) employees isn’t great. Particularly when good employees quit for bad reasons. But too much focus on tenure can harm as well as heal businesses. The following scenarios show where an overly rigid emphasis on employee tenure may be detrimental:

1. Stifled innovation

Scenario: Long-tenured employees may stick to old habits and existing knowledge. And be less open to adopting new technologies or innovative practices.

Impact: This resistance can stifle an organization’s ability to adapt to industry changes. And potentially put it at a competitive disadvantage.

2. Lack of diversity

Scenario: An HR strategy that’s heavily focused on tenure can lead to a disproportionate reluctance to hire externally. Or seek out individuals from different industries, locations, or backgrounds.

Impact: Without the fresh perspectives, experiences, and ideas that newcomers bring, diversity in thought suffers.

3. Skill set stagnation

Scenario: It can be harder for long-standing employees to know if their skills match current industry trends or standards. And because of this, personal skills development may be viewed with less urgency.

Impact: This stagnation can result in a workforce that lacks the latest competencies needed to stay relevant and competitive.

4. Reduced adaptability

Scenario: Too much emphasis on tenure may create a culture resistant to change. And a growing inability to function reactively.

Impact: Lack of adaptability can hinder the company’s ability to pivot quickly in the face of market shifts. Or navigate turbulent times or economic challenges. All of which can potentially lead to financial setbacks and missed opportunities.

5. Demotivation

Scenario: Employees with shorter lengths of service (often younger employees) may feel that it’s impossible to compete with colleagues with a longer tenure. And be reluctant to apply for promotions or put themselves forward for new opportunities.

Impact: Lower morale, decreased engagement, and increased turnover may follow from this feeling of stunted growth or ambition-thwarted.

6. Operational inefficiencies

Scenario: A company that values tenure over efficiency may retain employees in roles where they are no longer the best fit.

Impact: This can lead to operational inefficiencies, increased costs, and a workforce out of sync with the company’s goals.

7. High employee benefits costs

Scenario: The longer employees stay in an organization the greater their package of benefits becomes. Compensation levels ramp up, too.

Impact: Labor costs that accumulate and increase indefinitely can be unsustainable, leading to inefficiencies and cost-cutting in other areas. Learning to the question: If newer talent with in-demand skills is available at a lower cost, why not look elsewhere?

8. Poor future-proofing

Scenario: A company intent on growing employee tenure at all costs may neglect to identify and groom successors for key roles.

Impact: Lack of succession planning can create a leadership vacuum when key employees retire or leave. And impact business continuity or delay the delivery of projects or campaigns.

9. Complacency

Scenario: ‘Familiarity breeds contempt,’ goes the saying. And employees who feel (too) comfy in their roles due to long tenure can risk becoming complacent.

Impact: Side effects of this can be a drop in productivity and quality of work. And ultimately, a dip in organizational performance as a whole.

10. Burn-out

Scenario: “A change is as good as a rest” is another popular saying that resonates with the topic of employee tenure. Sometimes, working relentlessly in the same environment, with the same people, and with the same processes can feel draining. Even if the role or level of responsibility hasn’t changed.

Impact: A narrow focus and lack of variety can negatively impact mental health and wellbeing. Physical health can suffer, too, with employees suffering from extreme fatigue and mental pressure.

Measure in all things: Best practices for balancing employee tenure with innovation

Time to recap. Yes, employee tenure is a valuable metric. And there are lots of benefits of long-term employment. But left unchecked, it can put businesses at risk. The answer is to find the right balance between length of tenure and new skills, adaptability, creativity, and diversity. And to keep all employees—new and long-standing—engaged. Here, we share some strategies to help do just that.

Optimize onboarding

When you welcome new hires, introduce them to your company culture, values, and expectations. And provide the training and resources they need to quickly integrate into your organization. At the same time, offer opportunities for long-term employees to participate in mentorship or training roles. By sharing their expertise, they become engaged in the process. And may also benefit from ideas and perspectives that new hires may bring.

Keep learning constant

Create a culture of continuous learning that benefits employees of all tenures. Provide equal access to training programs, workshops, and skill development opportunities. Encourage long-term employees to participate in ongoing training to keep their skills relevant and foster a sense of growth. For newer employees, offer career development paths that offer a defined growth trajectory and something to strive for in the long term. Plus, regularly discuss career goals and progress during performance reviews.

Reward fairly

Establish a recognition and rewards system that appreciates both tenure and performance. Acknowledge the contributions of long-term employees who have consistently delivered results. And celebrate milestones to show appreciation for their dedication. But also remember to publicly acknowledge and reward the achievements and efforts of newer employees.

Ask for feedback

Use regular employee engagement surveys to gather feedback from both long-term and new employees. Include questions that address employee tenure and employee engagement. Target areas for improvement. And take action to address the issues raised.

Foster cross-collaboration

Facilitate interactions between employees of different tenures and generations. Implement cross-functional teams or mentorship programs that pair experienced employees with newer ones. And set up discussion groups and informal learning sessions where all employees can share their skills and experiences.

Hire with an open mind

Treat employee tenure metrics flexibly when it comes to recruitment. Don’t set hard and fast rules in terms of very low or very high years of employment. Instead, look deeper into other aspects of a candidate’s application. And combine the information gathered with length of tenure, where appropriate.

Promote diversity and inclusion (D&I) initiatives

Fostering diversity while maintaining employee tenure means promoting a culture of respect and appreciation for individual differences. To do this, implement (D&I) initiatives that emphasize the value of having a diverse workforce. And ensure that these initiatives are inclusive of employees of all tenures and backgrounds.

Invest in wellbeing programs

Offer wellbeing programs that support the physical and mental health of all employees. These programs can help reduce stress and burnout. And ensure that both long-term and newer employees maintain their engagement and enthusiasm for work.

Bring the outside in

To keep ideas and innovations fresh and front of mind, invite external speakers or thought leaders into your organization. And include them in training programs where relevant. Provide opportunities for employees to attend industry conferences or webinars. And offer subscriptions to relevant publications or podcasts.

Setting up the right conditions for growth

Organizations are living entities. What they breathe in is what they breathe out. They need to establish firm and deep roots. And access to a steady source of rich and well-established soil. But they also need fresh air and a constant supply of food for thought to grow. Which is why it’s important to provide the right conditions for both. So, work on employee retention strategies that nurture employee loyalty and keep engagement high. But balance this with L&D and HR initiatives that keep knowledge, new ideas, and shared experiences flowing. And have an eye on recruitment to inject new life when it’s needed.


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