Employee attrition

When you pour your heart and soul into building a valuable product and scaling your startup, the last thing you want is a revolving door of employees. High employee attrition can cripple productivity, erode institutional knowledge, and drain resources through constant hiring and training. 

What is employee attrition?

Employee attrition is when a company’s workforce shrinks and is not replenished quickly. These reductions in workforce may be due to voluntary or involuntary employee departures. Attrition focuses specifically on employee departures that result in long-term vacancies or eliminated roles, which reduce the number of employees at a company over time.

Attrition vs. employee turnover

While attrition and employee turnover are related, they’re not the same. Employee turnover refers to the total number of employees who leave an organization during a specific period, including those who are replaced. Attrition focuses only on the reduction in the workforce due to positions remaining unfilled or eliminated.

For example, imagine an organization has 100 employees and 10 employees leave during a year. If five positions are refilled, the employee turnover rate would be 10%, while the attrition rate would be 5%. Attrition is a more specific metric that measures the organization's ability to maintain its workforce size and retain talent over time.

Attrition rate

Attrition rate measures a company’s ability to retain talent and maintain a stable workforce. It’s a key metric for startups that shows the percentage of employees leaving an organization over a specific period.

How to calculate employee attrition rate

To calculate employee attrition, use the following formula:

Attrition Rate = (Number of employee departures / Average number of employees during the same period) x 100

For example, if you had an average of 500 employees and 50 employees left during the year without being replaced, the attrition rate would be 10%:

Attrition Rate = (50 / 500) x 100 = 10%

Tracking attrition rate over time can help you identify trends and potential issues that may be contributing to higher than desired attrition levels. It’s important to assess attrition rates with other metrics like employee engagement scores, exit interview data, and industry benchmarks, to understand what’s really going on.

Types of employee attrition

Employee attrition can be categorized into three main types: involuntary, voluntary, and retirement.

Involuntary attrition

Involuntary attrition occurs when employees are terminated due to performance issues, misconduct, or organizational restructuring. This type of attrition is often necessary for maintaining performance standards and organizational health but can also lead to morale and trust issues among remaining staff.

While involuntary attrition is often unavoidable, organizations can take steps to minimize its impact through effective workforce planning, clear communication, and support for affected employees.

Voluntary attrition

Voluntary attrition happens when an employee chooses to leave their company on their own accord. This can happen for many reasons, like seeking better pay, dissatisfaction with their current role, or personal reasons.

Understanding why employees voluntarily leave can help you create an effective retention strategy. Let’s dive into some common reasons employees quit: 

1. Inadequate compensation and benefits: While compensation is not the sole driver of employee satisfaction, it plays a huge role. Employees often leave their current company to get better pay, equity, and benefits —especially if they feel undervalued or underpaid compared to industry standards or their peers.

2. Poor management and leadership: Ineffective management, lack of support, and poor communication from higher ups can significantly impact employee satisfaction and engagement. Employees are more likely to leave when they feel undervalued, unsupported, or misunderstood by their managers.

3. Lack of growth opportunities: Employees, particularly those in the early stages of their careers, often want structured career paths and opportunities for professional development. When employees feel stuck in their roles or lack clear growth prospects, they may seek greener pastures elsewhere.

4. Lack of work-life balance: More employees are prioritizing work-life balance and emotional well-being. Excessive workloads, long hours, and inflexible work arrangements can lead to burnout and increased attrition.

5. Company culture and values misalignment: When an employee's values and beliefs don’t align with company culture, they may feel disconnected and seek a better fit elsewhere. A positive and inclusive company culture that promotes a sense of belonging and purpose is essential for retaining top talent.

6. Personal reasons: Employees may leave due to relocation, family obligations, or other personal circumstances that are often beyond a company’s control.

Understanding why your employees quit can help you address the root causes. If there’s a trend of employees leaving for more competitive pay, it might be time to adjust your compensation benchmarks. But, if poor management is a leading cause, higher compensation won’t necessarily help, and you should look at improving your management training. 

Retirement attrition

This type of attrition is often predictable because it happens when employees retire. You can get ahead of retirement attrition by identifying employees nearing retirement age and implementing strategies to capture and transfer their institutional knowledge.

→ Learn how to create a compensation philosophy

What causes attrition?

Employees quitting or leaving is one thing, but why do companies choose to leave roles vacant or eliminate them, causing employee attrition? 

1. Financial pressures: During economic downturns, organizations might opt to leave positions unfilled as a cost-cutting measure.

2. Corporate realignment: Mergers or internal restructuring often lead to the strategic elimination of redundant roles.

3. Shifting market dynamics: As industries evolve, certain job functions may become obsolete, prompting their gradual removal.

4. Technological advancements: New technologies can either cause some jobs to become defunct or can improve the efficiency of individual employees enough that when someone departs they don’t need a replacement. 

5. Talent scarcity: When a departing employee has rare expertise, finding a suitable replacement can prove challenging, resulting in prolonged vacancies.

6. Deliberate downsizing: Companies may intentionally reduce their workforce to streamline operations or adapt to market conditions.

7. Labor market tightness: In periods of low unemployment, filling vacancies promptly can be difficult, leading to extended openings.

8. Generational transitions: As seasoned professionals retire, organizations may struggle to find equally qualified successors, leaving positions unfilled.

Startup employee departure trends 

Compared to the overall U.S. economy, employee tenure for employees who receive equity at startups tends to be much shorter. The median job tenure for startup employees on Carta was just 2.2 years as of Q2 2024, versus 4.1 years across all industries.

According to Carta data on employees who started their jobs since 2016, turnover is highest in the first two years of employment. There is around a 51% chance an employee will leave within three years, as shown in the table below:

Sample contains more than 1M employees who started working between 2016 and 2023 at a company that manages its equity on Carta. “Other” category includes death, disability, and unknown causes for termination.

When we look at the yearlong period from Q2 2023 to Q1 2024, Carta’s data shows that the median turnover rate for startup employees with equity is 17.5%. Turnover rates tend to increase as startups grow, but then decrease for very large companies. 

Sample contains more than 1M employees across over 10k companies that manage their equity on Carta and were founded in 2014 or later.

Employee retention strategies

To address high attrition rates and retain top talent, you’ll want to tailor your retention strategies to your employees’ needs and desires. Depending on your workforce and competition in the market, below are some strategies to consider:

1. Competitive compensation and benefits: Offer competitive salaries, bonuses, and benefits packages that align with industry standards and employee expectations. Regularly review and adjust compensation to ensure it remains competitive and fair.

2. Career development and growth opportunities: Provide clear career paths, training programs, mentorship opportunities, and avenues for professional growth and advancement. Invest in developing employees' skills and supporting their career aspirations.

3. Effective leadership and management: Invest in leadership development programs and ensure managers are equipped with the skills to support, motivate, and engage their teams effectively. Foster a culture of open communication, feedback, and trust between managers and employees.

4. Positive company culture and values alignment: Foster a positive and inclusive company culture that aligns with employees' values and beliefs, promoting a sense of belonging and purpose. Encourage employee involvement in shaping the company culture and values.

5. Work-life balance initiatives: Offer flexible work arrangements, remote work options, and programs that support employees' well-being. Promote a culture that values work-life balance and encourages employees to prioritize their personal and family commitments.

6. Employee recognition and rewards: Implement programs that recognize and reward employee contributions, achievements, and milestones. Celebrate successes and milestones, both individually and as a team.

7. Continuous feedback and communication: Encourage open communication channels and regular feedback loops to understand employee concerns, address issues promptly, and foster a culture of transparency and trust. Conduct regular employee engagement surveys and act on the feedback received.

8. Learning and development opportunities: Invest in employee training and development programs that enhance their skills and knowledge, keeping them engaged and motivated. Provide opportunities for cross-functional collaboration and knowledge sharing.

9. Employee wellness programs: Implement initiatives that promote physical, mental, and emotional well-being, such as fitness challenges, stress management workshops, and employee assistance programs. A healthy and supported workforce is more likely to be engaged and productive.

10. Diversity, equity, and inclusion initiatives: Foster an inclusive workplace that values diversity and provides equal opportunities for all employees, regardless of their background or identity. This helps promote a culture of respect, understanding, and belonging.