Impact of High Employee Turnover - Literature review Example

 Table of Contents Introduction 1 Employee Retention 1 Factors leading to employee turnover 1 Impact of High Employee Turnover 2 Retention Techniques 2 Getting Good People 2 Creating a Retention Plan 2 Job Satisfaction 3 Reward Structure and performance appraisal 3 Defined Career Path 3 Frequent and Honest Communication 4 Conclusion 4 References 5 Introduction With the increase in globalization, competition and deregulation, companies have to constantly evolve and improve. This includes improvement on two aspects: investing in technology that enables companies to stay efficient and investing in retaining the best talent with them. It is important to hire skilled people for an organization, but it is even more important to keep them in the organization and utilize their skills to the best possible extent. With the advent of information age, talented people will always find better exciting opportunities and may switch jobs. When an employee leaves the organization, he along with him also takes the knowledge, company policies, and strategies along with him to the competitor. Moreover, selecting another candidate and aligning him to company culture add another cost to the organization. Although the problem of employee retention has been in existence since a long time, the problem is getting grimmer and serious with time. In this context, it is important for companies to retain their employees. This has led to an increased interest in research in the area of Employee Retention. Employee retention is the set of tools, processes and techniques that HR managers shall use to encourage employees to be in the organization for maximum amount of time. The main objective of employee retention processes is to reduce the voluntary turnover. It is important to note that these are not just a set of HR practices but it also requires an understanding of the psyche of the employees and their interrelationships with their subordinates and managers. This paper does a literature review of the various research papers that have been published in this area. Employee Retention Factors leading to employee turnover The research focusing on reasons on voluntary turnover by employees has mainly pointed out two categories of reasons: family (personal) reasons or professional reasons. Often, employees leaving the organization leave it because they do not find a fit between the organizational goals and their own goals. One of the propositions on why employees leave is based on the fact that employees are having a psychological contract with the organization where each has a set of expected outcomes from the other party. If an employee feels that the organization is not fulfilling its duty in terms of what it owes to the employee, he is more likely to quit the job (Vos and Megank, 2007). Job dissatisfaction among an employee may be the result of job stress, repetitive work, ambiguous role or excessive workload. Economic factors such as pay, rewards, bonuses and other benefits also play an important in influencing the job satisfaction of the employees. Besides, unfair rewards is another reason, an employee may leave an organization (Rashid et al.,2009). At the same time job alternatives available in the market also lead to employee turnover. An employee who is having more job alternatives is more likely to leave an organization than an employee with fewer alternatives and same dissatisfaction level. The other set of reasons an employee might leave are the set of personal and family reasons: health issues, life changing events such as marriage, kid or death or just personal preferences. Another set of reasons might be corporate changes such as mergers. Impact of High Employee Turnover High Voluntary Turnover within a company has significant negative affects to the operations of a company. The literature on the study of impacts of high turnover has majorly been focusing on these aspects: Reduction in productivity and motivation and high costs of turnover to the company. When an employee resigns, the productivity and quality of work will decline because of drop in the level of commitment and motivation of the resigning employee (Arnold, 2005). Moreover, the new recruit requires significant learning curve to be able to be operating at the same efficiency levels as the previous employee. Besides, voluntary turnover will also have a negative effect on the motivation levels of other team members. Moreover, if the employee resigning is a high level manager, he along with him also takes corporate strategy and useful insider knowledge which may be used by the new company in which he is joining. These employees also have established close relationships with clients. These clients may move with the employee. In addition to it, the monetary cost of voluntary turnover is also quite high: exit interview time, administrative requirements, payout of the unused vacation time, and the cost of temporary, contracted or overtime for co-workers substituting the leaving employee (Mitchell et al., 2001). The cost also includes advertising for the post, processing and screening of candidates, interviewing, and selection. In addition to it, training costs also add considerably to the overall cost of the separation. Retention Techniques The major aim of retention techniques are to ensure that the company does not has to deal with a large amount of voluntary retirement. These techniques are aimed to be used by the HR managers of organizations to contain voluntary turnover. These techniques are very closely based on the reasons employees actually leave the organization. Getting Good People That is the first thing that the HR managers shall do to reduce turnover. An interview is the first stage at which the HR managers can ensure that the employee does not leave their organization in a short span of time. In order to do this, apart from judging the candidate by his skill, it is necessary to also ensure that his thought process is aligned with that of the organization. The interviewer shall enquire the location and shift preference of the employee. It is also important to enquire: What is the background of the employee? How the employee has been in terms of sticking to the deadlines? What are his references? These techniques which ensure that the employee being selected is the best fit for the organizational requirements are the first step towards reducing retention (Peterson, 2005). Creating a Retention Plan While it is important to get good people, it is also necessary to retain them. In order to be able to do it, it is important to study the retention trends in the company. The HR managers shall study how many people are leaving, who is leaving, what are the costs to replace them and so on. The HR managers shall conduct exit interviews once an employee leaves. At the same time, external consultants shall be hired to conduct exit interview after three months of resigning. At the same time conduct frequent employee satisfaction surveys to identify the areas that need improvement. The HR managers shall also study the reasons employees love to be in the company. Based on the findings from these studies, the HR managers shall form a plan to retain employees. This plan shall have fixed targets and get approvals and support from top management. Job Satisfaction Amongst the reasons for leaving a job, job dissatisfaction has often been cited as the most important and frequent cause (Mitchell et al., 2001). An employee starts looking at other job alternatives if he feels dissatisfaction from his current job. This lowers the motivation and the commitment of the employee and the productivity suffers even before he is having any other alternative. In order to increase job satisfaction amongst employees, various techniques have been proposed: Frequent and honest communication, fair and equitable compensation, clear performance expectations, clear roles, providing a work-life balance, and monetary tools such as retention bonuses, stock options, profit sharing, scholarships for relatives, and job assistance. Reward Structure and performance appraisal Many employees leave their job owing to their belief that they are not being paid adequately. In order to ensure that such a thing does not happen, the organization shall introduce wage types such as bonuses, performance incentives and variable components that are linked with the performance of the employee. This will ensure that an employee who performs well is rewarded appropriately (Rashid and Zhao, 2009). Retention bonuses are another tool; HR managers often use to encourage employees to stay with the organization for longer periods of time. While it is important to link the pay with performance, it is also important to ensure that the performance appraisal shall be fair and equitable for employee. This can be done by communicating and discussing goals and targets for the employee as early as possible. Once these goals are set, it is necessary to have regular discussion with the employees to discuss the problems that he might be facing in achieving those goals. Schemes such as occupational pensions might not have considerable affect on the retention of middle or high level managers in terms of potency and extent. However, these schemes play more important role in attracting talent rather than retaining them. Final salary schemes play an important role in improving the effort levels of employees just before the retirement age (Taylor, 2000). Defined Career Path An employee who joins an organization is interested in making a career rather than just participating in a job. Hence, the organization shall have a clearly defined career path for the employee. This involves explaining the various roles and the positions that the employee can be expected to perform at various stages of his relation with the company. At the same time, it also includes providing the employee with sufficient trainings so as to ensure that the employee feels that he is valued by the organization and it provides suitable avenues for his learning and development. Besides training, recruited employees shall be given considerable orientation to make their values aligned to that of the organization. Frequent and Honest Communication Frequent and honest communication about company from the top management is an effective way to make the employees feel that they are important to the company. Such communication can be in the form of e-mails, newsletters or meetings such as town-hall meetings or some other initiatives to connect with the senior leadership. Moreover, those employees who can be seen as the future leaders of the company shall be sent individualized messages about how their development suits and fits into the organizational plan (Martin and Schmidt, 2010). However, studies have suggested that pull communication, that is driven by employee involvement has more significant influence on retention. Companies shall encourage employees to involve employees in generating new ideas, activities and shall make efforts to incorporate those ideas. Conclusion Literature Review of the research done on retention techniques has thrown some significant and very interesting facts. While the reasons for leaving have been cited as job dissatisfaction, job alternatives, or personal reasons; the retention has significant negative impacts on the organizational performance. Voluntary retention leads to decrease in the efficiency and the motivation levels of the team members. At the same time, it also leads to high financial costs for the company in terms of selecting and training of new candidate. Various techniques have been researched to contain retention in an organization. The first tool is to select the appropriate candidates whose ideals and culture fit with those of the company. HR Managers shall also study the retention trends in their organization and formulate a strategy that shall have complete buy-in from the senior manager. HR managers shall develop rewards structure so as to encourage high performance. The reward structure shall be in such a way that the employees feel equitable and justified. The company shall invest certain time in training the employees and charting a clear career path for the employees. Moreover, the company shall make frequent and transparent communications with the employees and individualized communications with the to-be leaders of the company. At the same time, the company shall also encourage pull involvement and encourage employees to suggest new ideas, innovations and suggestions and incorporate them into the organization. Although retention strategies take considerable effort and time of the HR managers and administrators, the benefits of the same outweigh costs. References Arnold, Edwin. (2005). Managing Human Resources to Improve Employee Retention. The Health Care Manager, 24(2), pp132-140. Martin, Jean, and Schmidt, Conrad. (2010). How to Keep Your Top Talent. Harvard Business Review. Mitchell, Terence R., Holtom, Brooks, C., and Lee, Thomas, W. (2001). How to keep your best employees: Developing an effective retention policy. Academy of Management Executive, 15(4), pp 96-108. Peterson, Cloeman, H. (2005). Employee Retention: The Secret Behind Wal-Mart’s Successful Hiring Policies. Human Resource Management, 44(1), pp 85-88. Rashid, Humayun, and Zhao, Lin. (2009). Power of Involvement over Rewards for Retention Likelihood in IT Professionals. World Academy of Science, Engineering and Technology, 60. Taylor, Stephen. (2000). Occupational pensions and employee retention Debate and evidence. Employee Relations, 22(3), pp 246-259. Vos, Ans De, and Meganck, Annelies. (2007). What HR Managers do versus what employees value: Exploring both parties’ views on retention management from a psychological contract perspective. Personal Review, 38(1), pp 45-50. Read More