Benefits as a Retention Tool: The Data

Everyone says benefits help with retention. But what does the data actually show? Here's what we've learned from analyzing employer benefits alongside turnover patterns.

The Correlation

Employers with above-median benefits competitiveness scores show:

• Lower voluntary turnover rates
• Higher employee satisfaction scores (where measured)
• Stronger recruiting outcomes
• Longer average tenure

This correlation holds across industries and company sizes, though the magnitude varies.

What Matters Most

Not all benefits contribute equally to retention:

High impact:
• Medical plan design and cost-sharing
• Employer contribution levels
• Mental health benefits
• PTO policies (though not strictly "benefits")

Moderate impact:
• Dental and vision coverage
• Life and disability insurance
• HSA/FSA options

Lower impact (but still matters):
• Voluntary benefit options
• Wellness programs
• Ancillary perks

The hierarchy isn't surprising—medical coverage is the most expensive and most used benefit. It matters most.

The Family Factor

Family coverage is particularly important for retention:

• Employees with dependents on their health plan are significantly less likely to leave
• The hassle of changing family coverage creates switching costs
• Poor family-tier contributions are a common reason employees cite when leaving

Employers who skimp on family benefits may save money short-term but pay in turnover.

The Awareness Gap

Benefits only drive retention if employees understand their value:

• Many employees underestimate their benefits' market value
• Total compensation statements help close this gap
• Regular communication beyond open enrollment matters
• Exit interviews often reveal benefits were better than employees realized

Employers with great benefits but poor communication don't capture the retention advantage.

Calculating ROI

Is investing in benefits worth it? The math:

Cost of turnover: 50-200% of annual salary depending on role Cost of benefits enhancement: Often 2-5% of compensation Breakeven: If better benefits prevent even one turnover per 20-50 employees, the investment pays off

This rough calculation suggests benefits investments often have positive ROI—but specifics depend on your turnover rates, replacement costs, and competitive position.

The Benchmarking Connection

To use benefits as a retention tool effectively:

1. Know where you stand vs. competitors
2. Identify your biggest gaps
3. Prioritize high-impact areas
4. Communicate value to employees
5. Measure results over time

Benchmarking is the foundation. You can't improve what you don't measure.