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High Staff Turnover Rate In IT Sector Commerce Essay

This term paper aimed to study the high turnover rate in IT industry. Initially a literature review was done. Three factors namely pay level satisfaction, job satisfaction and organizational commitment are related to turnover intention. Study aimed to find the best predictor among the three. For this sample survey of 20 Wipro employees was done. Two HR interviews through questionnaire were also conducted.

Another facet studied was lateral hires, their high salary increment and its effect on insiders who grow within the organization.

Lastly, there is a hypothesis that people inspite of having moderate turnover intention don’t leave job unless shock factor force them to do so. This is not conclusively established in the context of IT sector.

Significance of study

After liberalization of Indian economy, IT sector has emerged as big player in GDP contribution. According to NASSCOM, India’s software and services exports were $17.2 billion in the fiscal year ended March 31, 2010.

But the sector is suffering from high attrition rate ranging from 12 to 18%, depending on the economic conditions. A booming economy pushes this figure to higher side and a recessionary one makes job-hoppers to hold on to their jobs tightly. This high turnover arte leads to following negative effects on the company and the IT sector as a whole

Loss of knowledge: Working for some time on different projects gives employees familiarity with the domains they are working on. Apart from the explicit knowledge, they also acquire tacit knowledge in terms of shortcuts in software, better knowledge of company’s procedures.

Recruitment costs: There is a shortage of skilled programmers in IT sectors. Companies like TCS, Infosys have a very low selection ratio. This means that they invest in putting advertisements, calling candidates at a recruitment site, sometimes paying for their travel expenses, paying to hiring agents.

Training costs: Many of the software companies invest heavily on training the freshers.

Loss of productivity cost: In the transition period, when one employee leaves and other takes over his position, there is a performance dip until the time the new employee learns the rope. This is especially evident in cases when an employee leaves mid way in a project.

Indian IT Industry and HRM

By 2010 fiscal end, it is expected that IT sector will provide direct employment of around 2.3 million and 6.5 million indirect employments. Considering such a huge workforce, the role of Human Resource Management becomes more critical.

There are many issues which HR Managers faces while managing the workforce like attrition, compensation, career progression, hiring etc. Our study is focussed on the issue of high attrition or turnover rate in IT sector because of lateral hiring by other companies. If we ask to any manager in IT industry on what biggest challenge he/she faced in the projects, the reply will not be technology, cost, project schedule rather it will be attrition. The factors responsible for turnover could be needs, motivation, career growth, pay satisfaction etc.

We can split the IT workforce into 4 sections or groups based on the years of experience.

0 to 3 years of experience

3 to 7 years of experience

7 to 15 years of experience

More than 15 years of experience

Each section has different factors contributing to attrition. The group of 0 to 3 years mainly belongs to fresher and college recruits and their primary reason for switching job is higher payment in lateral hiring by other companies. Employees belonging to 3 to 7 years section are vested with responsibility providing them a sense of importance to the company. There are other motivational factors other than pay which play role in switching job for this section. The employee belonging to 7 to 15 years section are mainly into managerial roles and seek more responsibility, challenging job, decision making ability, and more power. The reason for job change by the member belonging to more than 15 years section is basically change in guard in the organization or change in focus within the company. In our study we are more focussed towards 0 to 3 years experience group.

The common factors responsible for attrition are

Compensation – This factor is the main concern for the attrition in the IT sector. Company lures existing employees of other companies through the attractive pay packages and this is how lateral hiring comes into picture.

Other Motivational Factors – The money factor is not just the only reason for attrition. There are other motivational factors which play key role to this issue.

Better work content

Organizational Culture

Career growth

Location

Conflict with boss

Shock Factor – Sometimes people leave their job because of factor called shocks. In this scenario people leave their job for reasons other than job satisfaction and many even leave without job search. Factors could be family problems, spouse relocating to new place etc.

Survey Methodology and Analysis of Survey

A survey was conducted among IT professionals. Total 21 samples were collected. Respondents were asked about their lateral recruitment experiences (salary hike range, reasons). Other questions were divided in various categories to measure Organizational Commitment, Job Satisfaction, and Pay Level Satisfaction (This had sub-categories like pay, benefits and raises). Most of the questions used were of 5 point Likert Scale (Strongly Agree to Strongly Disagree or Strongly Satisfied to Strongly Dissatisfied)

After the literature surveys, we wanted to explore the following questions:--

Amongst pay level satisfaction, job satisfaction and organizational commitment, which was the best predictor of turnover intention in IT sector?

Salary increment on job switching and reasons for leaving the job in IT sector?

Is there a presence of “shock factors” in IT sector which precipitate the decision to quit a job?

In the first analysis, relationship of turnover intention with pay level satisfaction, job satisfaction and organizational commitment is explored.

Pay Level Satisfaction

Three different components of pay levels were taken in the survey – pay levels, benefits and raises. For each question, satisfaction or dissatisfaction level on a scale of 1 to 5 with item in question was asked. Some sample questions were.

Pay level

My take-home pay

My current salary

Benefits

My benefits package

Company’s contribution to my pay package

Raises

My most recent raise

Raises I have received in the past

As can be seen from the figure, the relationship is mildly negative. Also, the correlation coefficient comes out to be -0.24. A high level of satisfaction with pay (closer to value ‘5’) indicates a relatively low level of turnover intention (closer to value ‘1’).

Job Satisfaction

Some sample questions asked were

All in all, I am satisfied with my job

In general, I like my current job.

This time again the relationship between job satisfaction and turnover intention turns out to be negatively correlated. The correlation coefficient comes out to be -0.31. As expected, a high level of satisfaction with job indicates a very low value of turnover intention.

Organizational Commitment

Some sample questions asked were

I am willing to put in a great deal of effort beyond that normally expected in order to help this organization be successful.

I talk up this organization to my friends as a great organization to work for.

This time again the relationship between job satisfaction and turnover intention turns out to be negatively correlated. The correlation coefficient comes out to be -0.52. As expected, a high level of organizational commitment indicates a very low value of turnover intention.

From above three analyses, it becomes clear that organizational commitment is more strongly related to turnover intention than pay level satisfaction.

The existing literature on human motivation supports this finding as pay is only one of the many determinants of work motivation

We can use Hertzberg Motivation Hygiene Theory to explain this result.

Factors Affecting Job Attitudes

Hygiene Factors

   Motivation Factors   

Company policy

Supervision

Relationship w/Boss

Work conditions

Salary

Relationship with Peers

Achievement

Recognition

Work itself

Responsibility

Advancement

Growth

Salary and work environment comes under the hygiene factors which can maintain the satisfaction level whereas it is career growth, job content which is the motivational factors. As we will see later, both of these factors –motivation and hygiene- lead people to switch.

Lateral Hiring

Why did you change the job?

As can be seen, career growth is the topmost reason for leaving the job, followed by salary and better work content.

Career growth, better work content and higher education are motivational factors and account for 54% of job switching. Rest 46% of job switch is explained by hygiene factors like organizational culture, salary, conflict with boss and location. Thus both types of factors explain why people leave job.

Do you think in your organization lateral hires get higher salary and better position as compared to insider with similar experience?

More than three quarter of the respondents felt that lateral hires get more salary and better position than those who grow within the organization.

How many times have you switched jobs?

On an average what was the percentage increment in salary each time you switched jobs?

More than 60% of the respondents got a salary increment of more than 30%. 25% got salary hikes in the range of 20-30%.

Integrating above three findings, we can say that a perception exists that job hoppers get better salary than insiders. The salary increment can be more than 30%. Insiders don’t get more than 10-15% salary hike. Also, career growth or better designation is most often cited reason for the job switch along with salary hike.

Thus, a vicious circle is created in which people see others changing jobs, coming to their company at higher salary and better position. This motivates them to become job hoppers themselves.

Shock Factor

In our literature review, we found that one observation was that even though people may have a high turnover intention, they don’t leave unless some shock factor like spouse relocating, escalated conflict with boss or colleague occurs. We wanted to test this hypothesis in IT sector. We asked the following question

Even though one may be thinking about quitting job, he/she doesn’t unless a shock event like conflict with boss/colleague, spouse relocating, sudden lucrative offer from other company happens. Did you experience any such shock events any of the times you quit the job in past?

It is clear that this hypothesis is not proved conclusively as the results favour lack of dominance of such shock factors. But a 40% yes says that many a times such factors are definitely present.

Survey of HRs

When HRs were asked “Many a times organization need to pay more for a lateral recruit. Do you think its worth to pursue this strategy?”, both of them said it is the right strategy. When asked “There is a view that the lateral recruitment has created a vicious cycle of leaving and joining company, increasing cost of labour for software industry. What is your opinion?”, one of them said,” so thats the trend which is followed, One leaves other joins .. but some more cost is added.”

Explanation of the survey results using Work Motivation Theories

Need Hierarchy Theory

Maslow proposed a sequential hierarchical order of the development of five basic needs.

The crux of this theory is that as one need becomes fulfilled, its strength diminishes while the strength of the next need higher in the hierarchy increases. As most of the respondents rated career growth, better job content and better salary as reasons for switching the job, they are trying to satisfy the esteem need. They derive confidence and a sense of achievement from their new jobs. Thus, for most of the respondents, physiological, safety and belongingness needs are fulfilled.

At the same time, this survey has been conducted in relatively safe times. During recession or extended periods of job loss, attritions due to career growth taper down and safety needs once again take prominence.

Expectancy Theory

Vroom hypothesises that in order for a person to be motivated that effort, performance and motivation must be linked. He proposes three variables to account for this, which he calls Valence, Expectancy and Instrumentality.

Expectancy is the belief that increased effort will lead to increased performance i.e. if I work harder than this will be better. This is affected by such things as:

Having the right resources available (e.g. raw materials, time)

Having the right skills to do the job

Having the necessary support to get the job done (e.g. supervisor support, or correct information on the job)

Instrumentality is the belief that if you perform well that a valued outcome will be received i.e. if I do a good job, there is something in it for me. This is affected by such things as:

Clear understanding of the relationship between performance and outcomes – e.g. the rules of the reward ‘game’

Trust in the people who will take the decisions on who gets what outcome

Transparency of the process that decides who gets what outcome

Valence is the importance that the individual places upon the expected outcome. For example, if I am mainly motivated by money, I might not value offers of additional time off.

In the current scenario, even if a person puts in effort to come out with good performance (right expectancy); he may not get a salary increment of 30% range (right valence for him). This is because of lack of instrumentality i.e. Even if one puts an excellent performance; he will not receive the outcome whose valence is high in his opinion.

Equity

In an organization people want to be treated fairly in all facets of compensation, including base pay, incentives, and benefits. The concept of equity is perception of fairness of the relation between what a person does (inputs) and what the person receives (outcomes). Inputs are what a person brings to the organization along with him/her that includes education level, age, experience, productivity, skills etc. Outcomes are what person receives from the organization such as rewards, pay, benefits, recognition etc. Individual judge equity in compensation by comparing the effort and performance they give with the effort and performance of others and rewards those others receive.

A sense of inequity occurs when the comparison process results in an imbalance between input and outcomes.

In our case, internal employees will face under-reward equity which results when the ratio of outcomes (salary, designation) and inputs (effort, skills) is seen to be less than that for lateral hires.

Internal Equity

Equity that employee receive compensation in relation to the knowledge, skills, and abilities which they use in their jobs as well as responsibilities and accomplishments. Procedural justice and distributive justice are two issues that relate to internal equity.

Pay Openness

Degree to which organizations are open to let employee know regarding pay system they are following. Since many organizations keep the pay information secret, employees are not informed about the compensation system and hence they are not aware whether their compensation falls within pay grade. Such information allows employee to make more accurate equity comparisons.

External Equity

Externally the organization must provide compensation that is seen as equitable in relation to the compensation paid in other organization for similar kind of job. If an employer does not provide compensation equitable with other organization, employee may prefer switching jobs.

The reason for studying and applying equity theory in this paper is that in an IT company the existing employee doesn’t perceive fairness in pay package with respect to the lateral hires for the same kind of job and experience. The problem here is related with the distributive justice. It becomes important for HR professionals and managers to develop, administer, and maintain compensation that is perceived equitable by employees. Neglecting this concern causes a vicious circle wherein employees leave the present company for higher compensation and then again return backs at better pay package. Greater loyalty, less turnover and higher commitment to achieve organizational performance objectives are more likely if employees believe they are compensated fairly and will share in the growth of the organization.

Recommendations and Learning

Above shows a four pronged approach which can be used to retain the employees.

Pay and work family balance in IT sector is obviously one approach. But more than this emphasis should be given social relationships. This can be developed by teamwork and team building exercises. This raises the organizational commitment of employees which as we have seen is strong predictor of turnover intention. Thirdly, a better match between job and person gives better job satisfaction score.

For lateral hiring, attempt should be made to get the positions filled internally first. To reduce under-reward equity in insiders, lateral hires should be given work responsibilities which are commensurate with their salary levels.

APPENDIX

Organizational Commitment (Employee)

I am willing to put in a great deal of effort beyond that normally expected in order to help this organization be successful.

I talk up this organization to my friends as a great organization to work for.

I find that my values and the organization’s values are very similar.

For me this is the best possible of all organizations to work for.

Turnover Intentions (Employee)

I often think about quitting my job.

I am currently looking for a job outside my organization.

I would leave this company if I could find a similar position at another organization.

Job Satisfaction (Employee)

All in all, I am satisfied with my job.

In general, I like my current job.

In general, I like working in this organization.

The quality of work is important to mission of the organization

Satisfaction with Pay Level (Employee)

I am satisfied with my take-home pay.

I am satisfied with my current salary.

I am satisfied with my overall level of pay.

I am satisfied with size of my current salary.

Satisfaction with Raises (Employee)

I am satisfied with my most recent raise

I am satisfied with the influence my supervisor has on my pay

I am satisfied with the raises I have typically received in the past

I am satisfied with the information of how my raises are determined

Satisfaction with Benefits (Employee)

I am satisfied with my benefits package.

I am satisfied with amount the organization contributes toward my benefits.

I am satisfied with the value of my benefits.

I am satisfied with the number of benefits I receive.

Satisfaction with Pay Structure and Administration (Employee)

I am satisfied with the Organization’s pay structure.

I am satisfied with information the company communicates about pay issues of concern to me

I am satisfied with the pay of other jobs in the company

I am satisfied with the consistency of the company’s pay policies.

I am satisfied with the differences in pay among jobs in the company.

I am satisfied with the way company administers the pay policies.

Key for compensation satisfaction survey items (5 scale rating used for above surveys):

1=Strongly Disagree

2=Disagree

3=Neutral

4=Agree

5=Strongly Agree

Lateral Hiring (Employee)

Years of experience in IT industry

0-3 years

3-7 years

More than 7years

How many time you have switched job in last 5 years

0

1 (once)

2 (twice)

3 (thrice)

More than 3

On an average what was the percentage increment in salary each time you switched jobs

0-10%

10-20%

20-30%

More than 30%

What motivated you to switch jobs

Options: Salary Raise, Better work content, organizational culture, career growth, location, conflict with boss, marriage, higher education, others

Do you think in your organization lateral hires get higher salary as compared to insider with similar experience (Yes/No)

Even though one may be thinking about quitting job, he/she doesn’t unless a shock event like conflict with boss/colleague, spouse relocating, sudden lucrative offer from other company happens. Did you experience any such shock events any of the times you quit the job in past (5 scale rating)

Lateral Hiring Questionnaire (HR Manager)

What factors do you think that keeps employees in your company motivated

Options: Quality of work, pay level, career growth, organizational culture, proximity of office from home, others.

What is the ratio of lateral recruitment to campus/fresher recruitment over years in your organization

Many a time organization needs to pay more for a lateral recruit. Do you think its worth to pursue this strategy? (Yes/No)

According to you what is the reason most people move out from company?

Do your organization have any special policy/norm which you use to retain female employees (Yes/No)

There is a view that the lateral recruitment has created a vicious cycle of leaving and joining company, increasing cost of labour for software industry. What is your experience regarding it?

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