Causes of High Labour Turnover
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“Employee turnover” is the term which is a big concern for many organisations in the UK and worldwide. Although there has been a lot of research and studies which were conducted on this topic, most of these studies and research focused on the causes of the labour turnover and little or no focus has been made on examining the effects and advising different strategies which can be used by the managers within their organisation to make sure that they don't loose their employee.
The purpose of this research is to explore the possible reasons for the high level of labour turnover in the company X and to explore the perceptions of the managers of the company X on the strategic management of labour turnover within their organisation and also to suggest few recommendations to the managers and the organisation on how to handle this situation. Most of the theories and procedures discussed in this report will someway or the other suggests us on how to approach this situation of high labour turnover in the company X.
Organisations need labour to function and these days organisations are quickly realizing that employees are their major source of competitive advantage to succeed in this highly competitive world. This notion applies equally to almost any organisation in the world. For an organisation to succeed it has to manage it resources effectively.
When an employee leaves the organisation it not only has an impact on the organisation but also on the employee and wider society (Mobley, 1982). These impacts can be both positive and negative (Mobley, 1982; Hom and Griffeth, 1995), and a greater knowledge of the evolution of labour turnover can improve the extent to which organisations and employees within organisations can control these effects (Dalton et al., 1981).
These days' organisations invest a lot on their employees in terms of training and development, maintaining, and retaining them within their organisation. So, there is a need for the managers to lessen the employee turnover rates within their organisations. This research will look in to the company X, which is a part of the large retail outlet group. For the reasons of ethics the name of the company will not be revealed at any part of this report and will be referred throughout as company X.
Company X is a part of large retail outlet with stores which are spread throughout the UK and worldwide. The business sector in which the company X is operating has a high level of competition and the company X is constantly thriving to maintain their competitive advantage in their sector and gain a huge amount of market share.
The company X operates in a highly competitive environment, it has to continuously deal with the demands and expectations of the customers which is in turn very stressful for the employees in the company X. This high competition, high demands and high expectation creates a hard environment in the company X and which in turn will affect the employees.
The North-East branches of the company X are being focused on this study. The company X has 6 branches in the North-East, each of the branches has a manager, 8 to 10 customer service employees (depending on the location of the branch), and 1 director.
The director of the company was consulted regarding the research study and was asked whether there were any areas of concerns within the company which he wanted researching. As the director was working there for a quite long time, he was in a very good position to answer to this question. The director was aware of the reasons why his staff was leaving, but he wanted to know whether the present staff still had the same concerns. The director also wanted to know the possible ways in which these concerns could be resolved in order to retain his current staff.
The director was fully aware that the turnover levels of the company had a negative impact on his present staff. The times of employee turnover resulted in longer hours for some staff members which affected the present staff both physically and psychologically because they have to now work for long hours. This was followed during the time when there was training for the new staff.
The existing staff had to increase their workload during the times of training the new staff and this in turn affected the level of customer service provided by them. The director noticed that during this period some of their staff was demoralized and were asking for time offs which would further have more impact on the other staff. The hiring and training of new staff seem to have settled this problem. However there is some extent of discontent among the staff of company X regarding the company.
Aims of the Study
The main aim of this research is to assess the reasons for high labour turnover in UK and particularly in the organisation which I have chosen.
- What are the reasons for high labour turnover in company X?
- How is this issue managed and addressed by the management of the company X?
- What does the staff and managers think about this problem of high labour turnover in their organisation?
- Try to suggest solutions in order to reduce the labour turn over in the company X.
According to Adams (1993) 'labour turnover is the rate at which staffs leave an organisation and are replaced by new employees. Too high a labour turnover rate may mean that there is something unsatisfactory about working for the organisation and that action therefore would need to be taken”. There are different kinds of methods in which we can measure the labour turnover.
The term “turnover” is defined by Prince (1997) as: the ratio of number of organisational members who have left during the period being considered divided by the average number of people in that organisation during that period. The labour turnover index is the traditional method to measure the labour turnover. This method is a most common method because of the simplicity of usage and to understand.
Causes of labour turnover
There was a lot of research carried out by academics in the past to answer the question of what makes the employees to leave organisations (for ex, Beck, 2001; Kramer et al., 1995; Saks, 1996). There has been a lot of inconsistency in the findings of the academics which may be because of the variety of employed incorporated by the academics.
There is no single or universal reason for why people leave the organisation. The reasons may be different from one organisation to other and from one person to another (Ongori, 2007), people may quit organisation because they might not be getting what they were expecting from the organisation or they might leave the organisation because of personal reasons such as family responsibilities or problems in personal relationships, nevertheless, all these factors have an impact on the employee and the organisation in which he is working.
According to Firth et al., (2004), the strain associated with job, a variety of aspects that advance to job associated strain, absence of dedication with in the organisations; and job related frustrations make employee to quit the organisations. This apparently marks that these are particular decisions which makes an individual to leave the organisation.
These days there are few jobs which are very stressful such as customer service jobs or a sales job which involves the employees to work both physically and mentally and this will have an adverse impact on the employee which might lead to turnover. Manu et al., (2004) argues that economic factors may be one of the reasons why employees leave organisations. They further argued that economic model can be used to predict the labour turnover in the market.
One other reason for the labour turnover might be expectation of promotion or advancement of wages within the employee (Ongori, 2004). Employees working within an organisation might expect a promotion and might be demoralized if he couldn't manage to get a promotion and might lead to turnover, in the same way an employee working for a long time within an organisation might expect a pay rise and will be demoralized and downsized if he couldn't manage to get a pay rise and this might in turn lead to turnover.
According to Feaster et al., (1990), to guarantee organisational commitment well-built organisations can provide employees with enhanced option of progression and higher wages. It is evident that huge organisations have many operations, job roles and are spread throughout the country, so there is high possibility that an employee might think about the chances of getting promoted and getting high pay.
According to Tor et al., (1997), inadequate data on how to perform a specified job, obscure anticipation of managers, supervisors and peers, uncertainty of performance evaluation procedures, massive job related burdens, and absence of agreement on job duties may cause staff to feel less involved and less satisfied with their jobs, less committed to their organisation, and ultimately exhibit a tendency to quit the organisation. If the employees are not sure of their job role and responsibilities, and if these roles and responsibilities are not clearly mentioned by the management of the organisation, this in turn would lead to the high level of labour turnover within the organisation.
Sometimes there arise some factors which are, in part, outside the jurisdiction of the management. These factors may include demise or inability of the employee (Ongori, 2004). Employees are normal human beings and they do grow, mature, and die. So, it is inevitable to control these natural factors. Sometimes due to some internal or external factors highly skilled employees do loose their ability and interest to work, these kind of factors are inevitable and out of control organisations. These factors fall under Voluntary turnover.
Other factors have been classified as involuntary turnover factors by Ongori (2004) such as necessity to provide attention to offspring or elderly relatives. Employees do have family and children and often they tend to get deviated from work responsibilities because they are more concerned with their family and children. The employees might even have elderly parent and relatives whom they want to take care of and this might lead to shift of concentration from work and might lead to turnover.
On the other hand Simon et al., (2007) argue that these days such factors should not be considered as involuntary turnover because both the regulations of the government and policies of the companies create the opportunities for such staff to return back to their work, or to continue their current work through flexible working or work at home concept. Many organisations these days do provide rehabilitation centers and counseling centers for their employees to take care of their employees.
These counseling centers are responsible for handling the psychological aspects of the employee and make sure that they are in good state to work. These days many organisations in UK are providing return to work training for employees who went out for long leaves (for ex such as maternity leave or higher education). This training does help the employee to cope up with the current changes in the organisation and make them ready for work.
Zuber (2001) argues that the level of instability of the organisations has an impact on the degree of high turnover. There is a high amount of probability that employees stay within an organisation when there is a foreseeable work environment and vice versa. In companies where there exists a high level of inefficiency there was also high level of labour turnover (Alexander et al., 1994).
It is obvious as a human being when an employee suspects that his organisation is not stable anymore or if he suspects that there is going to redundancy within the organisation he might leave the job due to the feeling of insecurity on the other hand when the employee feels like that the organisation is stable he would not bother about quitting his present job.
Therefore, in the cases of unstable organisations, employees are more likely to leave the organisation and try to join the more stable organisation, because people normally think that more stable organisations will provide them with more opportunity to advance in their career.
According to Labov (1997), organisations with a good communication system have lower or less labour turnover because employees have a strong need to be informed. The employees are always eager to know what's going on within their organisation and a good communication system will keep them informed continuously so that they know what's going on in the organisation, so when an employee is not sure about what's going on within his organisation he might be in a panic state and might lead to turnover.
Magner et al., (1996) observed that employees feel at ease to stay longer, in positions where they are involved in some level of decision making process that is employees should fully understand about the issues that affect their working atmosphere. When there is no level of empowerment involved in the organisation for an employee, if the employee has always nee to follow the written rules and never has given an opportunity to think beyond his job he might be demoralized and might lead to turnover.
Costly et al. (1987) argues that a heavy labour turnover may mean down-and-out personnel policies, bad recruitment policies, unfavorable supervisory practices, fruitless grievance procedures, or lack of motivation. All these factors tend to heavy labour turnover in the sense that there is no acceptable management practices and policies on personnel matters hence employees are not recruited scientifically, promotions of employees are not based on spelled out policies, no grievance procedures in place and thus employees decides to quit.
Griffeth et al. (2000) noted that pay and pay-related aspects have a decent effect on turnover. Their analysis also included studies that examined the relationship between pay, a person's performance and turnover. They concluded that when high performers are not handled and rewarded properly, they quit. If jobs provide sufficient financial incentives then employees are more likely to remain within the organisation and vice versa.
There are also other factors which make employees to quit from organisations and these are poor hiring practices, managerial style, lack of recognition, lack of competitive compensation system in the organisation and toxic workplace environment (Abassi et al. 2000). When a person with less or no competencies is hired for a job which require a higher level of competency, knowledge and skill it is more likely that this person would quit or would be sacked from his job because of the inability and inefficiency, this is a result of poor recruitment strategy or poor hiring practices.
In the same way people always compare what they get with other people of the same position and if they sense that they are not being paid well or under paid they might leave their current job for a better paid job, this is the result of lack of competitive compensation system within the organisation. The management style plays a crucial role in turnover; if the employee is not handled properly or not managed properly the employee may not give his best and in turn will be demoralized and might quit his job.
According to CIPD (2007) the main reason why people leave their present job is that they look for high paying job or for a chance of promotion. The survey conducted by CIPD states that this was the reason for 68% of the employees leaving organisations.
The survey also stated that 38% of employees quit their job for a change of career and other reasons included family commitments, health problems, amount of work load, timings, and difficulties with their colleagues at work place. It is evident from the survey findings that people continuously look for better opportunities, better pay and better position, so if an organisation fails to provide them then they might be attracted to the competition and lead to turnover.
It is evident that a lot of people leave because of unsatisfactory pay levels, even though with the introduction of the minimum wage rule employees are still not satisfied with their wages because this minimum wage rule is only applicable for those jobs which are to paid hourly and not for the jobs which are paid annually. Taylor (2000) tried to explore whether there is a relationship between pension scheme and turnover.
He states that the relationship between turnover and pension scheme is not high, however, he also stated that 'While pension schemes are frequently perceived to play a role both in the attraction of staff to an organisation and in reducing employee turnover, it is on the later that most attention has been focused in public research'.
Now-a-days people are not expecting a job for life unlike olden days. These days it is evident that people are mostly looking for transferable skills that they can apply in other jobs. However, some people prefer to stick to one job and one company many people try to move from one company to other in search of better jobs and opportunities.
Labour turnover in UK
The big issue the organisations within UK are facing these days is labour turnover. According to CIPD (2007) survey labour turnover rates and the cost of labour turnover are at an all time high. The surveys states that the labour turnover rate in 2006 was 18.3% and in 2007 was 18.1% which is almost the same, i.e., turnover is not under control and is affecting the organisations at the same pace, it is interesting to compare the findings of 2005 and 2007, where in 2005 the labour turnover rate was 15.7 and in 2007 it was 18.1%, so we can observe that there is a rapid growth in the labour turnover rates which is alarming to the UK organisations. The survey also reported that the private sector had a highest rate of labour turnover which was around 22.6%.
The CIPD (2007) survey shows that change of career was deemed to be the most common reason for voluntary turnover. Around 52% of turnover was due to change of career. Other reasons included promotion outside the organisations (47%), level of pay (39%) and lack of career development opportunities (39%).
These survey findings strongly support the views of the academics like Zuber (2001), Alexander et al (2004), Simon et al (2007), and Labov (1997) who continuously argued these reasons for the turnover of employees. So it is evident that the empirical studies and the views of academics do match when it comes to the reasons for why employees leave organisations.
The survey conducted by CIPD in 2000 stated that 'the wholesale and retail trade has the highest turnover in the UK – at 56% the wholesale and retail trade lead the turnover table'. The following is a graph which shows the turnover figures in the retail industry in UK during the year 1998-2000, which is broken down by the occupational class.
Looking at the graph clearly states that there has been an increase in labour turnover of the administrative jobs during the year 2000. Even though the findings of sales jobs are encouraging it is observed that turnover rate of managers is the same during the year 1998 and 2000. This is alarming because it is hard and costly to find and replace a managerial position (IPD, 1997). The findings of routine, operative and sales jobs are very encouraging as it shows that the turnover rates are gradually decreasing year by year from 1998 to 2000.
This is may be due to the reason that employees working in these positions are getting used to their work environment and are less likely to leave their present job, because these kinds of job roles have less or few opportunities to change careers and get promoted outside the organisation. However it is noticeable that replacing these types of jobs would be easy when compared to that of managerial position and administrative jobs, but it would cause some sort of disruptions and would also cost for the organisations to replace them.
Costs for organisations
The Charted institute of personnel management (CIPD) stated that it would cost around 3500 pounds per employee every time someone leaves the organisation; this was in the year 2004. In 2006 the costs of labour turnover was around 7,750 pounds per job leaver. The figure is almost doubled and it is alarming to the organisations.
Organisations with high labour turnover rates not only suffer financially but also psychologically, because of the staff leaving the organisation there will a loss of customer service and this results in hiring new employees and training them who are having less experience. And during this period the organisation has to compromise on a lot of aspects of it functions. There might be also an increase in the level of risk of accidents in organisations where work is involved in risky areas.
ACAS states that 'if labour turnover is excessive it can indicate management problems'. These management problems have actually been identified as one of the reasons why employees were leaving the company X.
The survey done by IPD (Institute of Personnel Development) in 1997 estimated that it takes an average of 10 weeks for an organisation to fill up a sales vacancy, and it costs around 3,640 pounds for the organisation to find and replace each sales person who left the organisation.
The survey also mentioned that though people at managerial positions are less likely to quit an organisation, they cost much more to replace. The survey states that it would take around 13 weeks for an organisation to find and replace a managerial position and would cost around 5,008 pounds per person.
However, ACAS does agree that high labour turnover can be expensive, and the actual costs are very difficult to estimate. They further stated that the costs also add up the expenses of advertising, recruiting and training, together with the cost of associated management and supervisory time.
It also states that higher costs can be incurred through 'unnecessarily high staffing level and overtime payment, lost or delayed production, interruptions to flow of work, increased production costs, scrap levels and risk of accidents to inexperienced workers, long-term worker becoming unsettled and leaving, low morale resulting low productivity, damage to the organisations local reputation'.
However, some research findings oppose the statement that labour turnover has a negative impact for organisations. Some academics (for ex Jovanovic, 1979) states that employees who are less suitable for a particular job quit the job earlier and hence there is a notion that labour turnover does improve organisation performance as employees of poor worker job matches leaves and that vacancy can be filled by a employee with good worker job matches and this will in turn increase the organisations performance.
This statement can further be supported by the survey which is done by CIPD in 2000 which states that around 55.5% of organisations experienced minor negative effects of labour turnover, around 26.9% of organisations experienced no effect at all and around 4.8% of organisations have experienced a positive effect due to the labour turnover.
Different strategies and approaches to control and minimize turnover
There is no one strategy or approach which when used by an organisation can reduce or control the turnover rate. This is because the reasons vary from person to person and organisation to organisation (Ongori, 2004). So it is evident that in order to reduce the turnover the organisations first need to understand turnover. Dalton et al., (1987) (Cited in Abelson, 1987) stated that for an organisation to completely understand the reasons for turnover it needs to differentiate avoidable and unavoidable turnover.
Avoidable reasons might include employees leaving their current job to find a better job with better pay and working conditions else where. Unavoidable reasons are not under organisations control. These might include an employee moving from current location to another location, or leaving to fulfill family responsibilities. So it is evident that organisations need to identify voluntary turnover within their organisations and take necessary actions to manage turnover.
Research does suggest that it is crucial for an organisation to look and analyze both the quantitative and qualitative information relating to turnover within their organisation (IDS, 2004). Quantitative information is required because it will help the organisation to record, measure and compare its turnover levels.
Qualitative information is also important because with this the organisations can understand the reasons why the employees left the organisations and take measures to overcome them. According to CIPD (2004), it crucial that organisations have an understanding of their turnover rates and how it would affect its performance and effectiveness.
Armstrong (2001) states that in order for organisations to improve their retention rates they need to analyze the number of employees who are leaving and the reasons why they leave. So it is crucial for an organisation to have established methods to investigate why people are leaving. The following is a graph which shows the various methods used by the organisations to investigate why people are leaving.
It is evident from the graph that most of the organisations (90%) use exit interviews to investigate why people are leaving, but it is questionable whether these data collected is used to their full potential.
Ongori (2004) suggest that in order to reduce turnover organisations need to provide empowerment to employees. This approach would motivate employee and the employee feels as a part of the organisation and would not quit his job because of the responsibilities. But on the other hand this approach is not applicable to all types of jobs. This approach might work in managerial and administrative jobs but may not hold good for routine and sales jobs.
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