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Measuring Up
Benchmarking Graduate Retention

Tyers C, Perryman S, Barber L
Report 401, Institute for Employment Studies, June 2003

a study supported by the IES Research Networks

Despite turbulence in the marketplace, employer confidence in the value of recruiting and retaining graduates remains high. This report presents findings which offer a wider and more inclusive range of benchmark data than previously gathered from UK employers regarding graduate retention rates. The research focused on a key element (retention) of a model known as the IES Graduate Value Chain, and was sponsored by the IES Research Networks. As the graduate labour market continues to grow and diversify, the research explored the basis for what is termed the ‘War for Talent’. The findings are based on survey data collected from 362 organisations, 36 interviews with employers and their graduates, and draws on existing research.

Fig. 1: IES graduate value chain — employer model

Source: IES, 2002

Despite the hype

Most employers in our survey are unworried by their levels of graduate retention, and two-thirds expected to keep new recruits for the foreseeable future. Employers also appear realistic, as those with lower actual retention levels were more likely to expect to lose staff in the shorter term. Retention rates are high, 86 per cent on average after three years. One-third of employers had managed to retain their entire graduate intake one year after appointment. However, around a quarter of employers had much lower retention rates, losing up to 50 per cent of their intake within the first year.

Employer size appears to influence retention rates. Whilst small employers have the highest average retention rate, there is much more variation in their performance. The 25 per cent of small employers with the lowest retention rates perform much worse than the same portion of larger organisations. With smaller intakes on average, however, the retention rates of smaller employers are more prone to variations caused by the loss of just one or two graduate staff. Industrial sector also had some effect, with traditionally stable sectors (eg public services) displaying higher retention rates than those more affected by prevailing market conditions (eg consumer services such as retail and catering).

Retention rates are lowest amongst employers recruiting to general roles, rather than those reserved for graduates or involving formal and/or professional training. Graduates value the opportunity to gain further professional qualifications highly, particularly those with a long-term perspective on their career. Salary was also an issue, but to a lesser degree. Employers offering the highest starting salaries (ie £18k or more) had the best retention rates, but the relationship between salary and retention is by no means clear as, on average, those offering the lowest levels (ie £14k or less) also performed well. The overall market appears stable, and starting salaries are predicted to grow only slowly over the coming year.

Why do graduates leave?

Despite the often large investment required to recruit and support graduate employees through the early part of their careers, over 40 per cent of employers lacked any form of monitoring system that might provide insights about why graduates leave. There was some variation by size, however, as less than half of small employers had a monitoring system in place, compared to around three-quarters of larger organisations. Employers offering formal or professional training schemes were the most likely to monitor their investment. Closer examination revealed that operating a monitoring system, in itself, was not necessarily related to higher retention rates, as employers with one fared no better (in their retention rates) overall, than those without. What this research was unable to determine, however, was any indication of the quality of the monitoring systems or the extent to which they were integrated into broader organisational strategy/planning.

The most common reason given by employers for losing graduate staff was that they were unhappy with their role or with the employer they had joined. This may reflect issues with recruitment practices, and reinforces the need for open and honest dialogue at both pre- and post-selection stages. Pay was considered an issue by less than one-third of employers. Other reasons included the desire by new graduates to broaden their CVs by working for a number of employers in their early years in the labour market.

Smaller employers reported different reasons for unwanted turnover than larger organisations. A quarter cited the main reason for losing their graduates as a lack of career opportunities, whereas this figure fell to only one-fifth for larger employers. Some sectors were more focused on pay as being an issue (eg computing and IT companies) whilst for others, external factors (eg their location and/or the lack of social facilities nearby) were felt to influence graduates’ decisions to leave. Around one-fifth of employers lost graduates to an entirely different career or opportunity (eg travelling) and this had the most impact on those employers offering formal management training schemes.

For employers, the main impact of graduate turnover was a loss of their initial investment or a lack of return on that investment. That aside, there was a differential impact on various aspects of the organisation according to a number of characteristics, particularly size. For example, the loss of graduates appeared to impact on service delivery and the motivation and morale of remaining staff more amongst smaller organisations than larger ones. Larger organisations, in contrast, were more concerned than their smaller counterparts about the impact on succession planning and organisational competitiveness.

How do employers keep the best?

So, what techniques do employers use to retain graduate staff? Most employers use a range of techniques. The most popular is to offer some form of technical/professional training, and 90 per cent of employers do so. Mentoring/coaching is also offered at around 80 per cent, and planned career and/or salary progression by around two-thirds. However, the technique considered most useful, planned career progression, was not the most commonly used.

The organisations most likely to offer career development were those offering professional training places to their new-graduate intakes, or those with other formal recruitment patterns. Employers offering the highest starting salaries tended to use the broadest range of measures to retain their graduates, including planned career progression, accelerated promotion, and flexible working patterns. This is likely to reflect the priority that such employers place on their graduate intakes and, related to the up-front investment incurred by these employers, hence the greater willingness/freedom to invest in potentially expensive and resource-intensive development systems.

Conclusions

Despite the hype about serious losses, retention levels amongst most employers are high, and the impact of losing graduates is seen as limited to the loss of initial investment for the majority, or a failure to gain returns on that investment. Over half of all first-year undergraduates are aged over 21 years, and today’s graduates are also likely to have personally made a substantial financial investment in gaining their qualifications, and they too expect returns. Long-term development is therefore seen as an essential part of their careers. Employers who cannot, or do not, offer visible opportunities are likely to lose new-graduate staff.

Smaller employers in particular, need to respond to the needs of their new-graduate recruits in a flexible way, selling the benefits of the opportunities they have (eg close working relationships with senior staff and the ability to get involved across the whole of the business). However, a clear and open dialogue which manages the expectations of potential employees, is vital for all employers to avoid unwanted turnover and the unnecessary expense involved in appointing staff who are at risk of leaving to take up opportunities elsewhere.

Whilst employers appear well informed about their own retention levels, this information is often based on only the crudest figures rather than reliable data. With 40 per cent of employers failing to operate a monitoring system to inform them why they lose graduate staff, their ability to manage retention and respond to difficulties, should they occur in the future, must be called into question. However, the introduction of a monitoring system alone has little added value if the results are not linked into future planning. There is a clear need for an overall graduate strategy (such as that outlined in the IES Graduate Value Chain), which links information from pre-recruitment to performance, and ties in with retention data.

Measuring Up: Benchmarking Graduate Retention, Tyers C, Perryman S, Barber L. Report 401, Institute for Employment Studies, 2003.
ISBN: 978-1-85184-328-2. £19.95. [PDF price: £8.00]

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