1. After some probation period, fire only as a last resort or for really terrible behaviour. Have a plan to correct behavior in all other cases.
2. No layoffs unless the firm's very existence is threatened. It's a tough year? Too bad, that's part of the risk involved in being the owner.
3. Keep pay up to market/replacement rates. If someone is 20% more valuable with his new knowledge, pay him 20% more. 4. Have good benefits/vacation policies.
5. Make sure there's lots of interesting and challenging work to do. Allow people to switch roles/teams on a regular basis if they're interested.
6. Hire good people.
That's a company I'd be loyal to, and I think a lot of others would be too. Sure, you'd get people who would leave for their own thing, or a dream job, or because their husband/wife got a job 2000 miles away, but I don't think you'd see people jump ship nearly as often.
The other stupid thing is companies trot out how much it costs to hire a new person, but never want to invest in just retaining their employees.
This is a great way to earn loyalty from the person not being fired and at the same time alienate multiple other employees who may have to work with someone who just might be a bad fit or incompetent. I've seen the situation happen too many times where a company's reluctance to let one person go without a long, dragged-out process of formal correctional measures caused several other, much more valuable team members, to leave instead.
Internal processes only take as long as you make them. Correct the issue in 2 weeks. Not solved? Let them go. It doesn't have to be some 6 month ordeal of trying to get things worked out. The point is to have a process to deal with these things rather than telling the employee to pack up their shit and get out.