Labor Turnover in Indian Companies - Essay Example

LABOR TURNOVER IN INDIAN COMPANIES Scope  Labor Turnover is a challenging task before the HRD Managers throughout the world.  The resources invested on training a person is loss to the company.  Recruitment and retraining involves additional strain and burden to the management.  The management has to constantly strive to adopt the best policies and review their strategies to minimize the impact of labor turnover to the business.  Labor Turnover Labor Turnover refers to the ratio of number of employees leave an organization in a year to the total number of employees on payroll during the period.  There may be so many reasons for the employees to leave the company ranging from voluntary resignations to dismissal.    Measurement of labor turnover The calculation is very simple.  The number of employees leaving in a year is calculated as a percentage of the total number of employees during the same period.  It is also known as separation rate. Number of leavers / average no employed during the period x 100 Employees in the beginning and closing of the year are averaged for this purpose.  However, if the monthly beginning or closing figures for the twelve months are averaged, it would be better. Some times the companies calculate a retention rate, and alternative method of calculation.  It is also called as Stability Index and worked out as below. Number of employees with one or more years’ service now / Number employed one year ago x 100 or simply it is the number of employees retained to the total number of employees. Limitations The figures in the calculation will be unduly inflated if the replacements are frequent during the year.  For example 85% of the employees are retained.  If the vacancies caused during the year are replaced twice, the labor turnover ratio works out to 30%, if replaced only once, it works out to 15%.  Therefore retention ratio is preferred.     Another problem is in averaging.  If there is huge variation during the year from beginning to end or average, the ratio will be vitiated.  In a country like India, this may happen due to seasonal factors also.  For examples, if rain gods play a trick on farmers, production, consequently the employment is affected in sugar industry.      Michael Hanni and Mark Knold pointed out, ’construction, retail trade, administrative services, and accommodation and food services. Together, these four industries make up 35 percent of all employment, yet constitute 52.2 percent of all job separations (separations were the minimum variable of the numerator for 2006). In other words, these four industries account for a disproportionate amount of job churning.’ Labor Turnover in Utah, Source: U.S. Bureau of Census, LED data.http://jobs.utah.gov/opencms/wi/pubs/specialreports/laborturnover08.pdf We usually consider ‘Year’ as a basis for calculation.  However, year may not be appropriate in some industries, for example, construction industry, where the project run for few years, and a new project is taken in a different location. A block of 3 or 4 years may have to be considered in some cases on account of contracts entered into with the employees for 3 or 4 years. Role of HRD A detailed analysis is also made with reference to age group, different divisions of the organization, skilled, unskilled and managerial, voluntary or forced, interdivision transfers and complete separation, etc.  The management also introduces voluntary retirement schemes, popularly known as VRS, as a cost cutting measure or to infuse new blood. Highest number of turnover is generally occurring in newly recruited employees who have the experience of less than a year in the company.  Labor turnover among the experienced employees would be very limited, as they are used to the culture of the company and enjoy established relationship with the others. However, in all these cases, the role of the HRD is dynamic and important for effective implementation of any scheme or strategy to improve the efficiency of the organization, to find out the causes and take remedial measures to sustain the long term growth of the company.    Evidence  Worldwide the Governments are also concerned about labor turnover in industries at it affects the growth of the industry in general.  In the report of the Labour Bureau of the Government of India, labour turnover amongst directly employed regular workers by states during the Year 2002 with percentage comparison for the years 2001 and 2002 along with the percentage of factories reporting labor turnover. It can be observed that the lower turnover is at the lowest in public Sector, and highest at private sector, which is closer to average.  The employees in general prefer public sector jobs as it offers security and other benefits, and the retrenchment in public sector is rare.     SUMMARY OF ANNUAL SURVEY OF INDUSTRIES, 2002-03 Vol. REPORT  ON ABSENTEEISM, LABOUR TURNOVER, EMPLOYMENT & LABOUR COST IN SAMPLE SECTOR                                                                                          Sl. State    Percentage  Average      Percentage of Labour Turnover No.              of      No. of            During the Year             Factories   Workers  -------------------------------------              Reporting   During         2002                2001               Labour    the      -----------------   -----------------              Turnover   Year      Acc.      Sep.      Acc.      Sep.   1       2        3        4        5         6         7         8  1  All India  60.08    848804     19.20     18.24     19.27     19.18  2  Public     47.39     10903      7.62      9.57      7.00      8.16  3  Joint      61.45     12943     14.56     17.35     21.30     28.88  4  Private    60.18    824959     19.43     18.36     19.39     19.18 Similarly, Labour Turnover Amongst Directly Employed Regular Workers in States by Sectors     during the Year 2002 is given in Table 3.2.1. (Given in appendices) Labor turnover in Software companies of India Growth during the past decade in software sector in India has been phenomenal.  There are several private Indian companies that have established their names worldwide in software sector.   Labour turnover in the leading and top four software companies in India has been compared below. In an article about attrition rates of frontline Indian software companies, it is stated,               ‘In spite of being IT giants, these 4 companies are facing high attrition rates. They are facing problems in retaining their employees irrespective of the fact that they are providing an attractive compensation packages to their employees. The TCS, Infosys and Wipro faced high attrition rates.  Wipro: The attrition rate of Wipro is 16.2% during the last quarter of 2006-07. On annual basis, the attrition rate of Wipro BPO was 48 %. The main reasons being told are the odd working hours and the higher studies. Wipro’s attrition rate is the highest in the industry.  Satyam:  Attrition rate for Satyam for the period January-March 2007 was 15.7%. It has declined to 14.9%.  Infosys:  Attrition rate for infosys for the period April-June 2006 was 11.9%. But now it has increased to 13.7 % same as in the last quarter.                 TCS:  The attrition rate for TCS is 11.5 %, up from 10.6% last year.’ Attrition rates of Wipro, TCS, Satyam and Infosys, http://retention.naukrihub.com/attrition-rates.html Labor turnover in US According to the Latest BLS Employee Turnover Rates For Year Ending August, 2006, released in October 11, 2006 (findings) Overall U.S. voluntary turnover increased slightly to 23.4% annually, up from 22.7% the previous year. The highest turnover by far is still in the Accommodation and Food Services sector at 56. The only sectors seeing a (slight) decrease in turnover were Real Estate, Natural Resources and Mining, and Professional and Business Services.         In the Government sector, turnover was up slightly at 8.2% with the Federal sector increasing the most to 9.3% up from 5.7%. (U.S. Department of Labor, Bureau of Labor Statistics (BLS). http://www.nobscot.com/survey/index.cfm, Web Mar 22, 2010.)  Labor turnover in UK In a report on survey conducted by Stephen Taylor and CIPD staff, it is stated, ‘Our Recruitment, retention and turnover survey 2009 reported the overall employee turnover rate for the UK to be 15.7%.’ (July 2009). http://www.cipd.co.uk/subjects/hrpract/turnover/empturnretent.htm. The cost of Labor Turnover  A CIPD article states ‘Measuring the costs of employee turnover is vital in building the business case for effective recruitment and retention initiatives.’ www.cipd.co.uk/subjects/hrpract/turnover/empturnretent.htm The cost of labor turnover to the company is difficult to estimate.  But, the impact of labor turnover is multifarious.  There are several direct expenses on account of advertisements, training programs, seminars, salary paid during the training period and orientation involved could be calculated.      However, the indirect impact of labor turnover can affect productivity, involves overtime payment and other intangibles. Benefits of Labor turnover New blood is infused to the manpower in the process of labor turnover that brings in new ideas and skills.  It is called natural or desired level of wastage for the healthy growth of an organization.  Causes of labor turnover Any abnormal level of labor turnover is the symptom of growing dissatisfaction among the work force.  There are internal as well as external factors in this respect.   Internal causes:  Recruitment and personnel policy of the company, failure in selecting right person for the right job due to inefficient selection process, compensation structure is not commensurate with the industry standard or local standard, lack of promotional chances in the organization, lack of motivation, leadership and integrity of the management, etc. are the major internal causes for abnormal level of labor turnover.   ‘Results indicate the following as being the key reasons that would determine respondents to resign from their current position • Lack of career opportunities • Dissatisfaction with the job scope • Lack of challenges’ Global Supply Chain Human Resources Research 2008, http://europhia.com/docs/europhia-research-what-drives-logistics-professionals.pdf External factors: There are numerous factors such as better prospects elsewhere, size of the company, looking for a change consequent upon finishing higher education, marriages, transfer of jobs of the parents, etc. are some of the main external factors.       John B. Hope and Patrick C. Mackin state ‘This study has revealed a number of consistent patterns in employee turnover behavior. By using a unique set of data drawn from the National Longitudinal Survey of Youth (NLSY), we were able to determine that, even after accounting for the effects of union membership, fringe benefits, and earnings differences, employees of large establishments stay in their jobs longer than employees of small establishments.’ The Relationship Between Employee Turnover and Employee Compensation in Small Business p.28 (July 2007) the United States Small Business Administration, Solution                                                Containing labor turnover within the reasonable level is a dynamic process.  Constant efforts and continuous review of the strategies in view of the changes in the environment, culture, economy and technology is very important.  When the computers started occupying the tables in offices, the companies in India as in the western countries devised training programs for their employees in consultation with Aptech, NIIT and other computer education companies. Measures to control labor turnover Policies: High absence or labor turnover can often be a symptom of workers’ dissatisfaction.  Policies and procedures consistent with the industry standards and the best management practices will stem the tide of labor turnover.  ‘Analysis of the employees’ records & identification of dissatisfied categories of employees by the manager is necessary to reduce labor turnover. Identification of the factors or sources influencing turnover & exit interviews also help the management to reduce the labor turnover. Separation of controllable factors from uncontrollable will be logical to solve reduction of labor dues. Provision of factory policies, procedures & practices is necessary for reducing labor turnover.   Having identified & analyzed the factors, the unit should chalk out an action plan to remove influencing factors. This will reduce labor turnover.’ Measures to control labor turnover, Causes of labor turnover, www.scribd.com/doc/16321247/Causes-of-Labour-Turnover, 06-11-2009 Salary structure: Salary and perquisites are the important factors for an employee to leave a company for better prospects. ‘In addition, better career opportunities and more competitive salary and benefit packages are the top reasons for employee resignations.’ Thinking made easy. http://ivythesis.typepad.com Resolution of grievances: There should be an established system for resolving grievances. ‘Employee retention involves being sensitive to people’s needs and demonstrating the various strategies in the five families detailed in Roger Herman’s classic book on employee retention, Keeping Good People. 1. Environmental 2. Relationship 3. Support 4. Growth 5. Compensation    Employee retention takes effort, energy, and resources...and the results are worth it.’ Effective communication and interaction: Coordination of the HRD in this regard is very crucial.  The employee should have trust and confidence of the procedure and people maintaining cordial atmosphere in a company.     In an article it was highlighted, ‘The turnover rate at Infosys was around 11% as opposed to industry average for software companies’ of over 25% during the 1990s. ,,,   Infosys’ retention capability was a function both of its rigorous selection procedures as well as proactive HRD practices. About 80% of the middle and senior level executives were promoted from within the organization...’ Narayanamurthy and Infosys , www.icmrindia.org Training & Skills Strategy  The employees should be continuously trained to upgrade their skills.  There are several agencies offering training courses for employees.  For example, www.trainingregistry.com  offers several training courses, organized by various professional bodies for the government employees in America.  Another organization, www.usa.gov offers training in jobs, performance appraisals, career transitions, etc. In India there are institutes in public and private sector, and the corporate bodies make use of such facilities to train their employees to upgrade their skills. Conclusion  The role of HRD in meeting the challenges posed by absenteeism coupled with labor turnover at corporate level has been understood well over a period of time.  Labor turnover within a limit is natural and desirable. It would be advisable to employ a skilled person in a particular job rather than training an existing employee. Recommendations Proper working conditions and safety It includes facilities and provision of essential accessories. Salaries and wages commensurate with the industry standards Income of the employee is the major deciding factor in employment.  There is nothing like cheap in labor.  When the salary structure is poor, it results in recruitment of unqualified, untrained and inexperienced workforce. Perhaps, it is one of the main reasons for labor turnover, and, ultimately proves to be a costly affair.  Properly administered incentive schemes and productivity bonus schemes encourages more worker participation. Standard and well defined policies and procedures Well laid procedures for recruitment, promotion, leave, permission, etc without any scope of favoritism and ambiguity leave no scope for discontent among the employees.    Compliance of statutory requirements The modern governments throughout the world enact so many laws for the protection and welfare of the employees.  Compliance of these statutory obligations by the companies instills confidence in the minds of the employees. Motivation Apart from the protection given by the laws of the land, non monetary benefits such as training facilities, medical facilities, higher education facilities, education facilities for the children of the employees, housing at affordable cost, transport facilities, attendance bonus to reduce absenteeism are the important factors of motivation. Active support and protection in the case of accidents and sickness enhances the reliability of the management. Integrity In Indian conditions, job security is viewed as an important criterion.  The people generally prefer government jobs, since job security is assured.  Though the trade unions play an important role with regard to working conditions, incentives, bonus, job security, etc. it is only the attitude of the management in its relationship with the workers that counts in the long run. If the policy of the management is impartial and considerate with empathy, the employees will have a sense of belonging. They will extend unstinted co-operation whole heartedly and give their best in emergencies and exigencies.  The best intentions of the management and its strategies are carried out and fulfilled by  HRD with a sound and balanced background.  The innovation and intuition on the part of the HRD will bring out best results for the welfare of the employees, their commitment and loyalty to the organization.  Impartial, fair and firm policies are always accepted and gain trust and confidence of the employees.  Bibliography        01.Michael Hanni and Mark Knold  ’ Labor Turnover in Utah, Source: U.S. Bureau of Census, LED data.http://jobs.utah.gov/opencms/wi/pubs/specialreports/laborturnover08.pdf 02. ANNUAL SURVEY OF INDUSTRIES, 2002-03 Vol. I REPORT ON ABSENTEEISM, LABOUR TURNOVER, EMPLOYMENT & LABOUR COST IN  SAMPLE SECTOR,  http://labourbureau.nic.in/asi2K2-3%20S%20Contents.htm        03. Attrition rates of Wipro, TCS, Satyam and Infosys, http://retention.naukrihub.com/attrition-rates.html 04. (U.S. Department of Labor, Bureau of Labor Statistics (BLS). http://www.nobscot.com/survey/index.cfm, Web Mar 22, 2010.)  05. Recruitment and retention survey, (July 2009). http://www.cipd.co.uk/subjects/hrpract/turnover/empturnretent.htm, Web.22 Mar 06. Employee turnover and retention, 2009 www.cipd.co.uk/subjects/hrpract/turnover/empturnretent.htm 07. Global Supply Chain Human Resources Research 2008, http://europhia.com/docs/europhia-research-what-drives-logistics-professionals.pdf 08. The Relationship Between Employee Turnover and Employee Compensation in Small Business p.28 (July 2007) the United States Small Business Administration 09. Measures to control labor turnover, Causes of labor turnover, www.scribd.com/doc/16321247/Causes-of-Labour-Turnover, 06-11-2009 10. The effect of human resource policies on labor turnover in broadcast media in Kenya, Thinking made easy. http://ivythesis.typepad.com 11. www.trainingregistry.com 12. www.usa.gov/Federal_Employees/Federal_Employees_Gateway.shtml 13. Narayana Murthy and Inforsys http://www.icmrindia.org/casestudies/catalogue/Leadership%20and%20Entrepreneurship/Narayana%20Murthy%20and%20Infosys-Leadership%20and%20Entrepreneurship-Case%20Studies.htm 14. Roger Herman, Keeping Good People     Appendices  GOVERNMENT OF INDIA LABOUR BUREAU  ANNUAL SURVEY OF INDUSTRIES, 2002-03 Vol. II REPORT ON ABSENTEEISM, LABOUR TURNOVER, EMPLOYMENT & LABOUR COST IN  SAMPLE SECTOR Table 3.1.1 Labour Turnover Amongst Directly Employed Regular Workers by States during the Year 2002 Labour Turnover Amongst Directly Employed Regular Workers by States during the Year 2002 -------------------------------------------------------------------------- Sl. State             Percentage  Average      Percentage of Labour Turnover No.                       of      No. of            During the Year                       Factories   Workers  ----------------------------------                       Reporting   During     2002                2001                       Labour       the    -----------------   --------------                       Turnover     Year   Acc.   Sep.     Acc.    Sep. --------------------------------------------------------------------------- 1     2                3          4        5         6         7         8 --------------------------------------------------------------------------- 1  Jammu & Kashmir  71.94      1957     25.91     27.06     37.14     32.82 2  Himachal Pradesh 77.94      3804     24.46     22.72     19.28     19.87 3  Punjab           89.38     52038     54.08     49.03     45.37     44.14 4  Chandigarh       67.81      1796     21.05     26.09     23.89     33.41 5  Uttaranchal      72.28      3380     20.46     16.88     16.60     16.06 6  Haryana          81.59     27511     35.22     32.09     28.60     28.40 7  Delhi            76.49     31713     19.66     19.78     19.58     23.13 8  Rajasthan        75.85     35845     25.66     25.67     24.53     27.40 9  Uttar Pradesh    71.10     61264     27.32     25.41     27.50     29.44 10  Bihar           59.43      5407     23.66     25.49     31.80     31.43 11  Assam           29.56      5728      6.13      5.28     64.82      4.74 12  West Bengal     35.01     39248      4.61      5.33      4.25      4.96 13  Jharkhand       61.32      7769     10.54     10.51     16.50     15.72 14  Orissa          46.51      9248      7.32      9.82      8.43      9.76 15  Chhattisgarh    34.98      5155     12.87     13.77     14.72     14.55 16  Madhya Pradesh  74.63     16078     20.88     20.46     17.25     18.56 17  Gujarat         64.21     90362     17.45     18.82     18.36     19.67 18  Daman & Diu     79.14     12391      9.51      9.42     16.61     15.13 19  D & NagarHaveli 86.34      8379     12.02     12.01      8.59      6.28 20  Maharashtra     60.48    114878     18.70     17.68     18.46     20.37 21  Andhra Pradesh  27.35     49240     10.93      8.62     10.34      8.69 22  Karnataka       59.87     58600     18.66     17.47     18.71     16.94 23  Goa             79.91      5328     24.30     19.07     38.15     29.82 24  Kerala          48.53     35042      6.10      8.35      5.93      7.89 25  Tamil Nadu      56.88    162234     13.48     11.76     15.67     14.30 26  Pondicherry     57.87      4416     10.11     10.69     15.99     15.25 --------------------------------------------------------------------------- All India         60.08    848804     19.20     18.24     19.27    19.18 Public     47.39     10903      7.62      9.57      7.00     8.16 Joint     61.45     12943     14.56     17.35     21.30     28.88 Private    60.18    824959     19.43     18.36     19.39     19.18 --------------------------------------------------------------------------- Note: Acc. = Accession, Sep. = Separation. ANNUAL SURVEY OF INDUSTRIES, 2002-03 Vol. II REPORT ON ABSENTEEISM, LABOUR TURNOVER, EMPLOYMENT & LABOUR COST IN  SAMPLE SECTOR  Table 3.2.1 Labour Turnover Amongst Directly Employed Regular Workers in States by Sectors during the Year 2002 --------------------------------------------------------------------------- Sl. State            Percentage of Accession       Percentage of Separation No.                          by Sectors                    by Sectors                     ----------------------------  -------------------------                     Pub.  Joint   Pvt. Overall    Pub.  Joint   Pvt. Overall ---------------------------------------------------------------------------1     2              3      4      5      6        7      8      9      10 --------------------------------------------------------------------------- 1  Jammu & Kashmir  4.74    -    28.16  25.91     2.89    -    29.66  27.06 2  Himachal Pradesh 3.90  59.66  24.13  24.46     5.67  47.64  22.59  22.72 3  Punjab          14.58  47.68  54.78  54.08    21.98  53.32  49.37  49.03 4  Chandigarh        -      -    21.09  21.05      -    37.50  26.09  26.09 5  Uttaranchal      8.73   1.29  22.69  20.46     9.06   2.91  18.45  16.88 6  Haryana         27.42  16.67  35.29  35.22    13.44  16.67  32.23  32.09 7  Delhi             -    10.67  19.67  19.66      -     2.67  19.81  19.78 8  Rajasthan       56.40   9.15  25.68  25.66    24.38  11.67  25.84  25.67 9  Uttar Pradesh   13.20   7.13  27.70  27.32     7.82  11.60  25.74  25.41 10  Bihar           2.45   1.80  25.68  23.66     6.86   4.16  27.44  25.49 11  Assam          12.93   3.19   6.08   6.13    27.59   4.26   5.07   5.28 12  West Bengal    19.10    -     4.26   4.61    10.78   2.00   5.22   5.33 13  Jharkhand       0.86    -    10.93  10.54     1.90  20.69  10.83  10.51 14  Orissa          2.07   0.99   7.61   7.32     9.57   5.63   9.92   9.82 15  Chhattisgarh     -    35.21  12.85  12.87     0.93    -    14.01  13.77 16  Madhya Pradesh  9.88   7.06  21.23  20.88     6.89   5.34  20.85  20.46 17  Gujarat         5.73   7.52  17.62  17.45     6.11  29.42  18.71  18.82 18  Daman & Diu    22.22  38.17   9.35   9.51    44.44  20.61   9.35   9.42 19  D & Nagar Haveli -    15.38  12.02  12.02      -    15.38  12.00  12.01 20  Maharashtra     2.03  29.02  18.56  18.70     9.55  24.06  17.58  17.68 21  Andhra Pradesh  8.19  23.88  10.80  10.93     8.60  27.49   8.37   8.62 22  Karnataka       3.09   6.37  19.04  18.66     5.39   9.18  17.75  17.47 23  Goa              -     3.31  24.83  24.30     7.14   0.66  19.45  19.07 24  Kerala          0.82   2.21   6.58   6.10     4.88   7.26   8.56   8.35 25  Tamil Nadu      2.71   3.42  13.72  13.48    10.03   4.02  11.84  11.76 26  Pondicherry     4.35    -    10.22  10.11     7.83    -    10.76  10.69 --------------------------------------------------------------------------- All India         7.62  14.56  19.43  19.20     9.57  17.35  18.36  18.24 --------------------------------------------------------------------------- Source: http://labourbureau.nic.in/asi2K2-3%20S%20Contents.htm Read More