Compensation and Benefits: Minimizing the Employee Turnover
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1.1 Background of Studies
Employee turnover is the hottest and current issue that always discusses by the government, since we are confronted with the global economic crisis on 2008. The crisis of economic is directly affected to the corporation, especially the production line and manufacturing company. The unexpected crisis will arise in the employee turnover rate happened no matter for the voluntary or involuntary case and it achieved the highest rate within the past 20 years in Malaysia as well. Therefore, other than the efforts and measurements had been taken by the government like donated sustention fund to secondary industry, the efforts of employers are vital to minimize the employee turnover.
On the other hand, the advance knowledge likes the significant of the compensation and benefits package toward the employee and the preference of employees toward the different types of the compensation and benefits package are necessary to implant and infuse to all the employers in order to retain their quality workers. There are some factors are directly influenced to the employee turnover in the real working environment. The employers will enjoy the benefits if they manage to retain their employees or minimize the employee turnover problem by implementing the felicitously compensation and benefits package.
The higher employee turnover rate is considering the severely problem to a particular country because it is absolutely bringing negative effects in progressing development. The employee turnover rate definitely cannot be terminated, but I sincerely wish that this problem can fully minimize. I strongly believe that the compensation and benefits ways might be able to minimize the employee turnover in the working place.
Turnover rate is considering the severely problem to a particular country because it is absolutely bringing negative effects in progressing development. The employee turnover rate definitely cannot be terminated, but I sincerely wish that this problem can be fully minimized. I strongly believe that the compensation and benefits ways might be able to minimize the employee turnover in the working place.
This research is related to how the compensation and benefits way in minimizing the employee turnover rate. In fact, compensation and benefits play a vital role in retaining the employees in an organization. Compensation and benefits can be defined as the process that taken by the Human Resource Management on every single day like setting the rules and procedures around the salaries, a direct way as cash paid and indirect way like given benefits to the employees. This element is highly mentioned in the employment contract and concerned by the employees as well.
On the other hand, compensation and benefits can be taken as different meaning from the perspective of a member of society, a stockholder, a manager, or an employee. Therefore, let us recognize the meaning by each perspective of the group. Compensation and benefits can be seen as a reflection of justice in society; stockholders are also interested in how employees are paid. Some believe that using stock to pay employees creates a sense of ownership that will improve performance, which will, in turn, increase stockholder wealth; for managers compensation influences their success in two ways. First, it is a major expense and second is the power to influence employee behaviors and to improve the organization's performance; the pay individuals receive in return for the work they perform is usually the major source of their financial security. Hence, pay plays a vital role in a person's economic and social well-being. Employees may see compensation as a return in an exchange between their employer and themselves, as an entitlement for being an employee of the company, or as a reward for a job well done (Milkovich and Newman, 2008).
Employees will emphasize more to the compensation and benefits that provide by the organization or company because they contribute their times, efforts, talents and they wish to get better return in compensation and benefits. The compensation and benefits package for the employees is like the exchange value between the employer and employee. The employers offer the benefits packages such as health care, dependent care, income protection and so on to mitigate t employees' no matter for current or future risk. The employees contribute their efforts in order to appreciate the compensation and benefits package that offered by the employers. Compensation and benefits include pay received directly as cash (for example: base, merit, incentives, cost-of-living adjustment) and indirectly as benefits (for example: pensions, medical insurance, program to help balance work and life demands, brightly colored uniforms (Milkovich and Newman, 2008).
Nowadays, the employees are more emphasizing to cash compensation but there are still quite numbers of employees prefer to non-cash compensation like benefits. Employees may concern to what packages have been offered by the employers and ultimately increase their self-wealth. Employees may have different preferences towards the compensation and benefits package because it takes as the motivation tool to them if it can suit or fit to them. It is crucial to all the employers in understanding the preferences of employees toward the compensation and benefits package because they are come from various genders, religious, geographic location, and age and so on. The employers might be able to retain the workers if apply the proper compensation and benefits to the employees.
Employees often desire to get a liberally and fair compensation and benefits package for their own expectation because it will directly influence to employees' job satisfaction. Meanwhile, this factor will lead to employees' turnover if they thought they didn't deserve expectation returns. Therefore, compensation and benefits is the deep knowledge that should implant to all the employees because it will definitely assist them to retain their workers.
Apart from that, employee turnover can be defined as the number of permanent employees leaving the company within the reported period versus the number of actual Active Permanent employees on the last day of the previous reported period (physical headcount). The number of leavers, that are included in Employee Turnover, only includes natural turnover (resignations, termination, retirement, etc.); it does not reflect any redundancies. Planned redundancies are reported and explained separately if relevant for employee turnover (Laurus & Nobilis, 2008). Mobley (1982) defines employee turnover as the common voluntary cessation of membership in an organization by an individual who receives monetary compensation for participating in that organization. This definition primarily focuses on separation from an organization rather than on accession, transfer, or other. Besides, employee turnover can be also defined as the number of workers who leave from their workplace under certain circumstances.
All the organizations will definitely encounter with the employee turnover because it is unavoidable and inevitable but manageable. Employee turnover can be categorized as voluntary and involuntary turnover. Voluntary turnover occurs when employees leave the organization deliberately (i.e. quitting); this can be contrasted with the involuntary turnover, which occurs when employees leaving the organization without choosing to do so (i.e. being fired or laid off) (Lee, Weller, & Trevor, 2008). Sometimes voluntary turnover happened because the employees desire to seek more salary, while the involuntary happened when they are considered as redundant capital. Therefore, compensation and benefits might be able to influence the voluntary turnover as the cost and expenses will be incurred or increase if voluntary turnover happened in particular organization. The organizations have to spend more costs to provide training and development and seeking for the new employees if they are not able to retain their employees.
In English, “compensation” means something that counterbalances, offset, or make up for something else. However, if we look at the origin of the word in different languages, we get a sense of the richness of the meaning, which combines entitlement, return, and reward.
In China, the traditional characters for the word “compensation” are based on the symbols for logs and water; compensation provides the necessities in life. In the recent past, the state owned all enterprises and compensation was treated as an entitlement. In today's China, compensation takes on a more subtle meaning. A new word, dai yu, is used. It refers to how you are being treated- your wages, benefits, training opportunities, and so on. When people talk about compensation, they ask each other about the dai yu in their companies. Rather than assuming that everyone is entitled to the same treatment, the meaning of compensation now included a broader sense of returns as well entitlement.
“Compensation” in Japanese is kyuyo, which is made up of two separate characters ( kyu and yo), both meaning “giving something.” Kyu is an honorific used to indicate that the person doing the giving is someone of high rank, such as a feudal lord, an emperor, or a samurai leader. Traditionally, compensation is thought of as something has given by one's superior. Today, business consultants in Japan try to substitute the word hou-syu, which means “reward” and has no associations with notions of superiors. The many allowances that are part of Japanese compensation systems translate as teate, which means “taking care of something.” Teate is regarded as compensation that takes care of employees' financial needs. This concept is consistent with the family, housing, and commuting allowance that are still used in many Japanese companies.
These contrasting ideas about compensation- multiple views (societal, stockholder, managerial, employee, and even global) and multiple meanings (returns, rewards, entitlement) - add richness to this topic (Milkovich and Newman, 2008). That is the reason why compensation and benefits are more emphasized by the employers because it is essential in minimizing the employee turnover.
1.4 Research Objective
1.4.1 To identify the relationship between compensation and benefits in minimizing the employee turnover.
The research conducted on the link between dissatisfaction with the pay and voluntary turnover appears to be inconclusive. Tang (1991) recommended that the most crucial reason for voluntary turnover is regarding to higher wages/career opportunity. There is an inverse relationship between relative wages and turnover (i.e. establishments with higher relative pay had lower turnover) (Martin, 2003). Salary growth had a pronounced effect on turnover in the studies that related to compensation. Particularly, salary growth effects on turnover were greatest for high performers, that is, high salary growth significantly reduced turnover for high performing employees. Compensation and benefits package are defined in this study as it helps to retain the workers and minimize the turnover rate (Park, Ofori-Dankwa, & Bishop, 1994; Trevor, Barry, & Boudreau, 1997).
1.4.2 To identify the preference of components of compensation and benefits toward the employees.
According to Milkovich and Newman, (2008) the employees contribute their efforts in order to appreciate the compensation and benefits package that offered by the employers. Compensation and benefits include pay received directly as cash (for example: base, merit, incentives, cost-of-living adjustment) and indirectly as benefits (for example: pensions, medical insurance, program to help balance work and life demands, brightly colored uniforms. The employees might have different types of preference based on their requirements. Some of them will prefer to directly as cash but some of them will prefer to indirectly as benefits. The preference of components of compensation and benefits are defined in this study as it helps to distinguish their desired needs and retain the talented workers in an organization.
1.4.3 To identify the significant of the compensation and benefits package toward the employees.
Pay and pay-related variables have a modest effect on turnover (Griffeth et al, 2000). Their investigation also integrated studies that examined the relationship between pay, a person's performance and turnover. They concluded that when high performers are inadequately rewarded, they will choose to leave an organization. Milkovich and Newman (1999) stated that where collective reward programs substitute individual incentives, their introduction may tend to higher turnover among high performers. The significant of the compensation and benefits package toward the employees is defined in this study as the turnover will definitely incur higher cost expenses if an organization may not be able to retain their workers.
1.4.4 To identify the advantages if the company able to retain their employees.
Employee turnover is a topic of immense importance to public and private sector organizations. In part, this importance reflects the tremendous costs—financial and otherwise—often associated with the turnover (Staw 1980; Balfour & Neff 1993). Financially, turnover may lead to increased personnel expenses—particularly in the areas of recruitment and training (Staw 1980; Balfour & Neff 1993). However, employee turnover can also bring about a loss of organizational knowledge, history, and memory (Staw 1980; Moynihan & Pandey 2008). Therefore, all those consequences will not happen if an organization success to retain their employees. The advantage to retain employees is defined in this study as it guarantees to help the process of development.
1.4.5 To recognize the satisfaction and expectation of employees in diversified industry that may influence the employee turnover.
A theory stated that there are two basic types of needs, which are the need for psychological growth or motivating factors and the need to avoid pain or hygiene factors (Herzberg, 1973). The motivating factors comprise the essentials like achievement and advancement. These are positive elements that contribute towards job satisfaction and motivation. Hygiene factors such as company or organizational policies, quality of supervision, working condition, salary, relationship with peers and subordinates, status and security are negative elements in Hygiene's factors that could cause dissatisfaction at work. The satisfaction and expectation of employees are defined in this study as it plays a vital role in manipulating the employee turnover.
1.5 Problem Statement
- How to implement compensation and benefits package in order to minimize employee turnover?
- How to recognize the preference of employees toward the compensation and benefits package?
- How the important role of the compensation and benefits package to the employees in their real working environment?
- What benefits for a particular company if the employee turnover rate is low?
- How to examine the satisfaction and expectation of customers toward their compensation and benefits package?
1.6 Scope of Studies
The scope of studies is focused on the compensation and benefits package that implemented to the employees at several industries because it is efficiency in minimizing the employee turnover. Besides, this research is a tendency to the theoretical factors but not technological way. Moreover, this research also discussed with the preference of the compensation and benefits package by the employees because everybody has different demands in the real life. This research provides the knowledge about the factors that lead to employee turnover and the significant of implementing compensation and benefits in retaining the employees. Therefore, the employers must take actions in order to prevent the increment of employee turnover.
1.7 Organization of Research
This research is basically divided into three main areas;
- The first part is literature review and the journals that have been collected will be used. Besides, the journals will assist to identify the role of compensation and benefits to minimize the employee turnover. There are some other independent variables will be examined toward the employee turnover. Moreover, through the reviews, a framework will be developed, a framework will be developed and to understand the variables.
- Once the framework is being done, a questionnaire will be created to understand the preferences of the compensation and benefits package toward the employees. This questionnaire will then be distributed for results. It will present the significant of the compensation and benefits package in the real working environment.
- The third part of the research will be analyzed once the collected result of the questionnaire comes with scientifically conclusion and reasons. After that, I will formulate some measures in order to make the situation become more favourable.
This chapter discussed about the relationship between compensation and benefits toward the employee turnover. The literatures of the research relevant to this area of study are explored and the same are organized based on the topic of discussion, compensation and benefits, organization culture, supervisor, Job Analysis and job characteristic, and working condition.
2.1 Employee Turnover
According to Campion, (1991) the turnover principle includes various dimensions with the most obvious being whether it is voluntary or involuntary. Although the turnover decision might be classified, but it seems failed to fully consider because it might hide with several but complexity reasons. Additionally, there are some troubles with turnover dimension and lack of agreement on the explanation of ‘voluntary' because it depends on who you ask as to why the employee left his or her job. Maertz and Campion (1998) defined the voluntary turnover as the management aspect agrees that the employee had the physical chance to continue employment with the company and at the time of termination as well. There was no impediment to continued employment from physical disability or from corporation management through the conveyed of voluntaries, such as non-mandatory retirement, quitting for family resettlement, or quitting for a self-perceived more desirable job. That is, even though the employee may know to stay is extremely costly but he/she still does the same decision because employee turnover implies with an individual choice. The limitation of article is the further investigation should be carrying out to examine the factors that lead to voluntary turnover because it is extremely incurring more expenses if an organization desire to employ new workers. Besides, this article didn't list out the main reason of involuntary turnover which is reluctant to workers especially during the recession period. The employees were being informed that their organization encountered with this problem severely and forced to leave the organization eventually. Sometimes the employees could be able to contribute more to an organization, but they couldn't to do so. This issue supposes to discuss with all the readers as well as the public.
Grifeth and Hom (1994) stated that employee turnover will definitely contribute to the potential benefits and disadvantages for an organization. For instance, dislocation of poor performance, infusion of new knowledge and technology, reducing labor costs when facing stiffer competition, maintaining ties with exiting employees and providing new business ventures, or enhancing promotional opportunities for the remaining staff can be considered as positive ramifications. The negative effects cover economic costs, productivity losses, impaired service quality, lost business opportunities, increased administrative burden and loss of morale among the remaining staff. Employee turnover incurred some influences toward the organization but basically negative effect will definitely more than the positive effect and this is the main reason some organizations are implementing the compensation and benefits package to retain their workers. In addition, employee turnover costs are not only monetary but the company may have also lost the ‘knowledge' possessed by the departing employee (Gomez-Mejia et al, 2001). Intelligence and knowledgeable workers are really hard to acquire in the market nowadays. Knowledge not only plays the role as the core of competence but is also a value-created device, especially for those organizations that face the global competitive challenges in the market. The knowledge that is embodied in human beings (as human capital) and in technology has always been central to companies' visibility and economic development. Harnessing new technologies and innovation will be the source of long-term employment and productivity growth for companies and countries in a knowledge-based economy (Noe et al, 2002). The limitation is this article is the negative effect of employee turnover didn't explain widely and brief. We strongly agree that the negative effect is definitely more than the positive effect because it extremely influenced to the development of particular organization. The negative effect has incurred no matter in monetary or non-monetary aspects. The publics are interesting to know how the negative effects affect an organization if they didn't retain their talented employees. Hence, the author might list some latest examples to readers about the negative effect toward an organization regard to turnover problems. All the managers of particular organization definitely take some measurements in order to prevent the employee turnover.
According to Abassi and Hollman (2000) turnover is the circle of rotation of workers around the labor market between the firms, jobs and occupations; and between the states of employment and unemployment. This workforce activity can be diversified into two categories which are voluntary and involuntary turnover. Involuntary turnover can be defined as the dismissal of employees, whereas voluntary turnover occurs when employees resign. Voluntary turnover often results in departing employees migrating to competing firms, creating an even more critical situation, since this knowledge can now be used against the organization. In conformity to Kransdorff (1996) voluntary turnover has in fact been accelerating over the past decade, as recent studies have shown that employees on average switch employers every six years. This situation demands senior management to consider the repercussions of voluntary turnover, and immediately create contingency plans. The turnover of best performers will directly cause the senior management been caught unprepared. Johnson et al (2000) said that functional turnover such as bad performers left and good performers stay can help to reduce sub-optimal organizational performance; excessive turnover can be detrimental to the firm's productivity. This can result in the loss of business and relationships, and can even make vulnerable the realization of the firm's objectives. To compound the negative side-effects of turnover, not all the departing employees are considered sub-optimal performer. According to Abassi and Hollman (2000) dysfunctional turnover (i.e. good performers leave, bad performers stay) damages the organization through decreased innovation, delayed services, sluggish implementation of new programs, and degenerated into productivity. Such activity can radically affect the firm's ability to flourish in today's competitive economy; leaving even the most striving firms unable to succeed due to the inability to retain the right employees. If it is presumed that the smartest and most talented employees are often the most upwardly mobile, then strong organizations may become unable to actualize strategies and complete key business transactions, if they do not proactively manage their turnover. The limitation in this article is it didn't state out of the measurement to solve the employee turnover. In this study, it just examined to us about the voluntary turnover and sorted as functional and dysfunctional turnover. As what the author mentioned in this article, the managers were caught unprepared once this issue happened to them. Therefore, the author supposes to discuss some measurements to deal with the turnover problem after explain the definition and effect to each turnover.
Employee loyalty is the foundation of customer satisfaction in the organization (Abassi and Hollman, 2000). While employee loyalty has often enabled firms to retain strong employees, senior management cannot be longer relying on relationships to incentive good workers to stay. Abassi and Hollman (2000) said that eroding employee loyalty is highlighting the importance of attracting and maintaining good people as the key to strategic staffing in the modern workplace. This is forcing organizations to revisit their HR practices to meet the diverse needs of the workforce in order to retain strong employees, and therefore, maximize the overall success of the firm. Abassi and Hollman (2000) highlighted five reasons for employee turnover in the organization:
- Hiring practices;
- Managerial style;
- Lack of recognition;
- Lack of competitive compensation systems; and
- Toxic workplace environments.
Morrell (2001) examined that turnover means voluntary cessation of membership of an organization by an employee of that organization. Besides on that, turnover intention is broadly defined as attitudinal (thinking of quitting), decisional (intention to leave), and behavioral (searching for a new job) processes proceeding with voluntary turnover (Sager et al., 1998; Khatri, 2001). According to Dess (2001) employee turnover incurs some significant costs, both in terms of direct costs (replacement, recruitment and selection, temporary staff, management time), and also (and perhaps more significantly) in terms of indirect costs (morale, pressure on remaining staff, costs of learning, product/service quality, organizational memory) and the loss of social capital. Apart from that, employee turnover is a major concern for companies in many Asian countries such as Singapore, Hong Kong, South Korea, Malaysia, and Taiwan (Khatri, Chang, & Budhwar, 2001). Global Reporting Initiative (GRI) has recognized the importance of workforce turnover as a sustainability issue, which has included turnover as a core social performance indicator in its Sustainability Reporting Guidelines (GRI 2002). Moreover, employee turnover is giving restless nights to human resource managers in the textile sector of Pakistan. There are two reasons to explain why the textile sector has been selected. Bohla and Hameed (2001) analyzed there is an alarming employee turnover rate i.e. 12%. The textile industry represents Pakistan's biggest employer as well as the key sector for the economy having almost 68% of total export income is the largest sector of Pakistan. The limitation in this article is the author didn't list out the employee turnover rate that occurs in Malaysia. The data and statistic are important because it can alert how severely for the case of unemployment that caused by voluntary and involuntary turnover. Besides on that, the author may discuss why the turnover problems occur severely in Asian countries if compare to Europe? Is it the Asian people encounter with certain troublesome? This issue must fully examine in order to minimize until the lowest percentage.
DeBare (2001) examined that one of the major reasons for employee turnover in the retail sector is that stores have established to be a training ground, allowing the employee an opportunity to gain valuable skills. All new hires of employees such as cashier and general manager that stand in different levels are given extensive training at a majority of larger companies in today's market. Meanwhile, many“mid-career” individuals are less likely to change directions; there has a tendency showed that the criteria such as money, better scheduling, increased or better hours are preferred most by younger employees and experience is their tool to secure a position at elsewhere. Besides on that, there has an outlook which determined that the moving from one job to another is perfectly conducted among the majority of employees especially those younger than 30 if it allows for more pay, and continued growth and development. In addition, the high turnover rate in retail stores attracts potential hires due, mostly to the “revolving door” effect. There are always employees coming and going, which allows for opportunities to exist. The limitation in this article is low-career individuals didn't discuss by the author regard to their turnover problems. Most of them desire to seek better pay and benefits package if they feel dissatisfied to what they received currently. The young teenagers are not only seeking for better pay in their job, they also desire to get a more challenging job if compare with those who are 40 years old and above.
Lane et.al (1996) discussed that it is interesting to note that even though retail and services consist of 20 percent of U.S. jobs, those same sectors create nearly 50 percent of worker turnover. In addition, Lane, (2000) had analyzed that only 16.6% of cashier jobs are created as new positions, the remaining 82.4% is related to turnover while " 11 low-skill occupations with 6.5 million job openings per year and only 1million are new jobs". Jovanovic (1979) examined that some turnover is required under economic theories of job matching. Therefore, some positive turnover must be beneficial, since it is rational for both employers and workers to continue an employment contract only if the workers' productivity is matched by their pay, while mismatches should separate. Dess and Shaw (2001) noted that no organization-level studies have yet supported the curvilinear, inverted U-shaped, cost-benefit prediction. Much more common is the finding of a negative link between turnover and performance. Glebbeek and Bax (2004) said that the position has some diverse today because it just with having found signs even though not statistically significant ones, of an inverted U-shaped relationship. According to Harris et.al (2006) found a curvilinear relationship, but at an aggregate level in a cross-firm study using Australian data. Moreover, there is an existing of usual negative relationship (Shaw, Gupta, Delery, Duffy, Johnson, and Lockhart, 2005). However, “unobservable” such as the management ability, affect performance and confound the true turnover-performance link are the difficulty of testing these theories empirically. The limitation in this study is the author do failure in testing other theories that influence to turnover. All the level of publics can understand more toward the factors that lead to turnover if the author success to examine it. In addition, the study can't deliver a clear picture to the public about the U-shaped, cost-benefit prediction and so forth. The public couldn't catch the real meaning about this if they just simply glance through the article.
According to Gimpelson and Lippoldt (2001) the total turnover rate around the world was 46% in 1998. Besides, the turnover of unskilled workers was high in the mid of 1990s while firms seem that hoarded white-collar labor. Brown and Earle (2003) correspondingly find that labor flows, particularly job destruction and separation in the Russian industrial sector increased in magnitude during the 1990s. The total worker flows were nine percentage points higher in 1999 than in 1990. In addition, the churning rate which defined as the worker flows less the absolute value of employment change was 30-40% during the 1990s. Gimpelson (2004) examined a survey of 304 Russian industrial enterprises in 2003, and he also finds that 77% of firms experienced a deficit of managers and professionals or highly qualified workers or both, indicating tight labor markets. The limitation in this article is the data can't represent the turnover problem in Russia entirely because it just did the survey through the limited group. The percentage of turnover can't even get an increase if the author conducts the survey to diversify industries. It can reflect to deeper level of employees through the survey. Unskilled labors are not being examined by the author as well.
2.2 Compensation and Benefits
Murphy and Kevin (1999) has examined that most executive compensation packages are consisted of four basic components, which are base salary, annual bonus tied to the accounting performance, stock option and long term incentive plan such as restricted stock plans and multi-year accounting based performance plan. In addition to that, executive retirement plans and participates in some broad-based employee benefit plans are also considered as one of the compensation ways that offers to employees. According to Milkovich (2005) benefit plans can be referred to that part of the total compensation package (other than the pay for time spent on work) that is provided to the employee in whole or in part by payments from the employer. In addition, benefits are grouping membership rewards that provide security for workers and their family members. Basically, benefit plans are generally conceptualized in two ways. The narrow definitions are the employer provides retirement, health, welfare and fringe benefits of benefit plans to the employees. Moreover, employee benefits should have included with some social insurance programmes in order to fulfill employees' requirements. In particular, William et al (2002) examined that benefit satisfaction includes not only the types and levels of specific benefits received, but also satisfaction with the way the benefit system operates, especially from the perspective of international justice. Employee benefits protect employees from risks that could endanger their health and monetary security. For instance, the employers may also provide some services or facilities that many employees find valuable. In addition, Gomez-Mejia et al (2001) discussed that benefit plans that are designed to rise in value over time push employees to remain with their employer, consequently, they have a moderating effect on firm productivity, irrespective of industry or firm size. Moreover, Tsai and Wang (2005) analyzed that the effect is greater in small to medium-sized enterprises (SMEs) than in large firms. The limitation in this article is the compensation package is less discussed by the author. We can get the information and knowledge clearly from the author after we read through the article. On the other hand, how the sort of compensation package seldom to discuss at all. The author supposes to deliver some further information about the compensation package because it could enhance the employee's knowledge toward their compensation and benefits package.
According to Haaparanta (2003) showed the studies about the motivations for providing non-wage benefits have been discussed mostly in the context of developed market economies while a provision of non-wage, or fringe, benefits for workers are a widespread phenomenon. However, industrial firms were also charged with supplying a great diversity of non-wage benefits in the planned Soviet economy. In particular, the supporting social assets such as housing, medical facilities and daycare services were considered by them when they shouldered the obligation. Many firms actively continue to provide social services in spite of a law on transfer of social assets to municipalities in the mid-1990s and generally heavy restructuring of the Russian economy. The shift, instead, has been away from keeping assets within the firm to other forms of employee support. The idea that non-wage benefits can be used by firms to decrease labor turnover is barely new. However, Even and Macpherson, (1996) conducted a survey and said that the attachment device treated in the majority of related papers is specific to the pension plans and health insurance that constitute the bulk of non-wage benefits to workers in developed economies. Besides on that, the pension plan is a form of deferred payment in a framework similar to bonding or efficiency-wage models that imposed a separation penalty on the worker (i.e. all or part of a worker's contribution is forfeited if they quit before vesting), and hence limits turnover. This can be clarified represent that the employers must implement the compensation and benefits package to their employees if the employees are well-contributed and high performance to productivity line. Moreover, Ippolito (2002) showed that some of the firms were offering pension plans may be seen to attract saver-types who are less likely to quit alternatively. Empirically, Decressin et al (2005) showed on a large US data set that health benefits do indeed reduce worker churning. In contrast, the employers provided and subsidized the service and facilities of non-wage benefits in Russian firms and these include housing, day care, recreation, and medical services. Consumption of these services is instant rather than delayed, though they may still carry a severance penalty. Some of the case is a worker who quits is likely to incur fixed costs for arranging new housing, day care or medical care. According to Oyer (2005) also found that a fact that it is costly for workers to match with firms that offer the benefits they value affects firms' decisions about which benefits to offer in the United States . These matching costs are the higher the lower the number of alternative providers of these services in the region. The limitation in this article is just limited of benefits are being discussed by the author. Some of the employees will prefer more to learning opportunity, challenging job, and job recognition. The pension fund and healthy plan are strictly considered by every single of an employee but sometimes for those who are more talented and high productivity, they desired to get extra benefits from an organization as well.
Commander and Schankerman (1997) were among the first ones in the Russian perspective to point out that any reformation of firm-provided social benefits depends crucially on the accessibility of alternative providers. In this framework, social benefits represent an in-kind compensating differential for the quality of local social infrastructure. Russia provided a good ground for testing this hypothesis with its huge disparities in the level of expansion of regional labor markets and markets for social services. There has an opinion that voiced out that the addition effect of benefits should be especially imperative because the social sector in the country is still heavily synchronized and subsidized, and thus a difficult market to enter for potential new service providers. According to Grosfeld et al (2001) who demonstrated that the Russian labor market is already segmented into a pool of low-productivity workers and a dynamic segment of mobile, high-productivity workers. They argued that the workers are received contrast benefits as what had contributed by them. For instance, fewer productive workers engage in contractual relationships similar to risk insurance contracts, whereby the employee accepts lower wages in exchange for security and social services. It happened and was widespread in Russian firms during the 1990s whereby risk in this setting may be related to the non-payment of wages. Grosfeld et al (2001) structured a theoretical model in and also incorporates the fixed cost for seeking out new service providers incurred by a worker who quits a benefits-providing firm. Another important feature of the Russian labor market is its high local level concentration due to the high geographic concentration of industrial production inherited from the Soviet period. Friebel and Guriev (2005) analyzed the worker attachment in Russia and argued that non-monetary forms of compensation can construct workers' ability to migrate and thus tie them to their current location by the combination with an innate monopsonistic or oligopsonistic local labor market structure. The limitation in this article is the case of compensation and benefits are only focused to low-productivity and high-productivity workers. The author can be wider up to the range of employees in order to achieve the more reliable result.
Kahneman and Tversky (1979) have argued that by singling out the fringe benefit component, employees may experience the value as larger than a similar incremental in money wages if diminishing sensitivity is a characteristic human nature. Hwang, Mortensen and Reed (1998) examined that establishments of offering low wages and few fringe benefits experience high worker turnover and low labor supply, while establishments offering high wages and many fringe benefits experience low worker turnover and large labor supply. For these latter establishments lower profit per worker is compensated by having more workers. We can know that the compensation and benefits package already played an important role at a long time ago. It is exactly high demand by the employees nowadays especially when we have to face with the inflation problem in the market. Everybody has desired to earn and get more benefits as their exchange of contribution toward the company. The limitation in this article is the fringe benefit components do not explain briefly at all. The author just stated out one of the benefit packages but without explain clarify to readers. Readers even the employees may not understand what kind of fringe benefits that could get from the employers in working place.
Salary growth had a pronounced effect on turnover in the studies that related to compensation. Particularly, salary growth effects on turnover were greatest for high performers, that is, high salary growth significantly reduced turnover for high performing employees (Park, Ofori-Dankwa, & Bishop, 1994; Trevor, Barry, & Boudreau 1997). Obviously, we can see the people that surrounded us are always discussing with their current payment, salary or benefits that provided by their company respectively. The employees are going to seek the better and higher payment that offered by another company. They are emphasizing toward the compensation and benefits package because they have to guarantee the secure of their income and saving. The high performers will not only great contribute to the company; they will also assist the company to save the costs to hire and train the new workers. Abassi and Hollman (2000) have identified lack of recognition and lack of competitive compensation systems are some reasons for employee turnover in the organization through their study. Some of the company had been facing voluntary turnover when the workers were extremely unsatisfied with the compensation system. For instance, they didn't receive any allowances or get the low salary after they made a contribution for the development of the particular company. Apart from that, the recession problems have become more severely around the world during 2008. It made the people having the risk of unemployment. Some of the workers were facing involuntary turnover when they get informed by their employers that the company has redundancy of workers currently. They need some compensation and benefits that provided by the company in order to carry on their daily life.
There has a results of micro firm-level research, employee skills, organizational structures, average pay, benefit plans, health assurance practices, benefits as a percentage of payroll, job ladder length, percentage pay growth, importance of seniority for core job filling, high skill emphasis, employee participation in decision making and in teams, incentives such as high relative pay, and employee security are consistently negative and significantly related to voluntary workforce turnover (Huselid, 1995; Shaw et al., 1998; Batt, 2002; Fairris, 2004). However, incentive compensation systems may actually encourage employees with a poor performance to leave a firm (Huselid, 1995). Whereas electronic monitoring, working time (Shaw, 1998), below-average industry or area wage, pension inducement and the skills of the core workforce are very transferable to firms in other industries, internal promotion was very or extremely important and also (Fairris, 2004) positively related to employee turnover. The limitation in this article is the author did not separate between the relationship between compensation and benefits toward the employee turnover. Certain field of employees might leave the organization because they really dissatisfied toward the compensation system but some of them leave the organization because they can't even get the basic of benefits from their employer. High skill employees desire to get more recognition or upgrade their level in an organization but for those who get the low paid in the working place, they really need more compensation and fringe benefits in order to reduce their burdens.
Lepak and Snell (2002) discussed that transaction cost theory highlights the firms' focus on securing the most proficient form of organizing employment. Firm-specific investments incur costs of monitoring and securing conformity, so that firms attempt to minimize the ex ante and the ex post costs associated with managing employment. The transaction costs able to be reduced once a firm makes a decision to invest in benefit plans to retain valued employees. Otherwise, some benefit plans such as pension plans are shared responsibilities between employer and employee. Thus, the employees must deliberate over everything before they decide to leave a firm or not because trasaction costs and benefits are considered as well. Pension plans are relied on job investment, an essential basis for commitment and retention. Research on commitment similarly conceives of compliance or calculative commitment as identification based on extrinsic inducements. Mathieu and Zajac (1990) discussed that commitment leads the employees to become bounce to a firm because they have personal investment in it and fear losing those investments. The perceived costs of quitting reduced the number of resignations can be search through the employee turnover studies and there are two types of pension plans, which are defined contribution and defined benefit plans. Defined contribution plans are the most clear-cut type. The firm makes a contribution to the employee's pension account, which is owned by the worker for each pay period. The money in the account is invested in interest-bearing securities of some sort, sometimes chosen by the worker and sometimes dictated by the employer or some other organization, like a union. The worker is promised a specific benefit, irrespective of the amount that is in the fund for the defined benefit plan. Milkovich (2005) examined that the employer makes up all shortfalls to the fund using some formula. In this study, pay for the retirement fund is the indicator representing pension plans and the practical pension disbursement is also included as well. The practical pension disbursement indicates a firm's ability to pay which in turn will strengthen the organization's commitment and trust, although the retirement fund implies future security. In order to reduce the costs of employee turnover (market arrangement costs, transaction costs) some firms adopt retirement funds and pension disbursements (internal management costs, bureaucratic costs). On the other hand, the retirement fund and pension disbursement increase work stability and career security while for the employee, the amount of pension increases with tenure and that is, they reduce employee turnover. Moreover, it is a firm's favorable financial signal to strengthen employee retention because the practical pension disbursement also represents the firm's ability to pay. The limitation in this article is the method that accomplished by big organization was unsuitable to small medium enterprise because the employees are the main power to support progression in development stage. Basically small medium enterprise will provide the reasonable benefits to their workers in order to exchange their contribution.
2.3 Organization Culture and Commitments
Tharp (2009) examined that the culture of an organization extremely influences its countless decisions and actions. Employees' think, feel, and act really quite often unconsciously regarded to a company's prevailing ideas, values, attitudes, and beliefs. Therefore, understanding culture is fundamental to the description and analysis of organizational phenomena is the initial part to do the understanding of culture. For some, culture can be defined and considered as the “glue” that holds an organization together such as gluing with employees and workers and for others, it is the “compass” that provides direction. Organization culture plays an important role in making influence to employees, whether to retain or leave their company. Sometimes the employees might not be able to adapt some organization culture and this factor may lead them to leave the company. Therefore, some companies have taken some measurement in order to improve their organization culture and retain their talented employees. The limitation in this article is the author just simply explained the definition of organization culture and commitment. The influence of organization culture and commitment should discuss properly because there are a lot of employees leave the company due to this problem nowadays. The deeper discuss will definitely bring the advantages to all the readers.
Despite the unique cultural, social, religious and economic set up, large and capable workforce well versed in English, Pakistan has been ignored in management research (Khilji, 2001). Khilji (2001) argued that Pakistan with its current socio-economic and cultural traditions presents a rich framework to examine turnover and its relationship with HR practices, organizational and demographic factors in the most recent study. Authors disclosed that HR is negatively related to turnover, whereas some demographic factors and performance moderate this relationship significantly based on 508 self-administered questionnaires in 12 different Pakistani organizations. There is a dearth of research studies examining employee turnover in Asian and developing country contexts where this dilemma has given sleepless nights to HR managers, and they put emphasis on the need to carry out research in Asian country contexts (Khatri, Budhwar and Chang, 2001). They further reported that there are a small number of research studies examining the matter of turnover in Asian context and such investigations have used a limited number of variables with small samples, thus this increases concerns of model specification and generalization. Baruch and Budhwar (2006) repeated the call to broaden perspectives of turnover research beyond the limitations of western cultures in a more recent article. The limitation in this article is the author conduct the survey with the limited sample size. It couldn't deliver the big picture to the readers and the data might not be fully accurate to reflect the viral of this variable. Between, the HR practices in Pakistan might not be same with what have implemented in Malaysia as well. Therefore, it just can take as the reference to all the readers.
Cotton and Tuttle (1986) has made some observation that most of the turnover studies have been carried out in the culture of Western and developed countries' work settings by neglecting their cross cultural implications in developing countries. Besides on that, they also support the idea and said that findings of these studies may not be appropriate to the organizations in Asian culture due to vast differences in the economic, social, religious and cultural values. This constitutes a serious gap in the presented literature which has ignored the cross cultural implications of turnover studies. According to Mueller, Wallace, & Price (1992) organizational commitment is the degree to which an employee feels loyalty to a particular organization. The employees will show their loyalty to the employers if they have the commitment and retain in an organization. Organizational commitment as an employee's attitude and as a set of behavioral intentions, the willingness to exert considerable effort on behalf of the organizational and a strong desire to willingly maintain a close relationship and membership with the organizational, (Steers, 1977). The concept of organization commitment has been characterized by three factors in the early studies (Mowday, 1977; Steers and Porter, 1982):
- A willingness to apply considerable effort on behalf of the organization; and
- A strong desire to continue in the organization.
These researchers' description of organizational commitment as the strength of an individual's classification with the organization's goals as well as about positive involvement in developing these shared goals and objectives in that organization. As such, organizational commitment can be considered to be affective attitudes or behaviors, which associate or connect an employee to the organization. Boles et al (2007) examined that it reflects the positive feeling towards the organization and its values. Then, there is Three-Component Model of OC with conceptualization of organizational commitment as a three-dimensional construct of affective commitment, continuance commitment and normative commitment, (Meyer and Allen, 1991).
- Affective commitment refers to the employee's emotional affection to the organization. According to Meyer and Allen (1991) employees with a strong affective commitment remain with the organization because they want to do so. Besides, Agarwal and Ramaswani (1993) discussed that this state of attachment reflects the strength of an individual's identification with and involvement in a particular organization.
- Continuance commitment refers to the degree to which the employee perceives that leaving the organization will be costly. According to Meyer and Allen (1991) employees with a strong continuance commitment remain because they have to do so. On the other hand, Agarwal and Ramaswani (1993) the cost of leaving also is said to reflect on a lack of interchange employment opportunity and / or high personal sacrifice linked with leaving a particular organization.
- Finally, normative commitment refers to the employee's feelings of commitment to the organization and the principle that staying is the ‘right thing' to do. According to Meyer and Allen (1991) employees with a strong normative commitment continue because they feel that they ought to do so.
In summary, the three component-model of commitment attempts to give details about the cumulative strength of individuals associated to an organization because they want to (affective), they need to (continuance), and they ought to (normative) remain in the organization.
Incidentally, Meyer, Stanley, Herscovitch and Topolnytsky, (2002) concluded that affective commitment had a much stronger relationship with desirable outcomes (such as attendance, performance, and organizational citizenship behavior) in a recent meta-analytic review. As such, this research survey is limiting the scope of research to study only affective organizational commitment, the ‘want to' factor in order to investigate deeper into answering the questions above, as the principle of this study is to understand what factors that influence an employee's affective organizational commitment, more so as the turnover rate of knowledge workers in Malaysia is worryingly high. The limitation in this article aid the HR practices at western countries are not examined by the author. The readers can make the comparison with the practices and culture between western countries and Malaysia. Besides on that, the author shall analyze how to analyze the workers throughout the three dimensions of commitments. It is significant to an organization because the employers may take some measurements in order to reinforce the commitment of employees.
Lum et al (1998) discussed that many studies have reported a significant association between organizational commitment and turnover intentions. In the study of Tang et al (2000) confirmed the link between commitment and actual turnover and in the analysis of Griffeth al (2000) showed that organizational commitment was a better predictor of turnover than overall job satisfaction. Researchers have recognized that there are different types of organizational commitment. The nature of the link between turnover and the three components of attitudinal commitment: affective commitment refers to employees' emotional attachment to, identification with and involvement in the organization; continuance commitment refers to commitment base on costs that employees associate with leaving the organization; and normative commitment refers to employees' feelings of obligation to remain with the organization, (Allen & Meyer 1990). If we defined to more simply, employees with a strong affective commitment retain with an organization because they want, those with the strong continuance commitment retain because they need to, and those with the strong normative commitment retain because they feel they ought to. In general, most research has found affective commitment to be the most decisive variable linked to turnover but Allen and Meyer's study indicated that all three components of commitment were a negative indicator of turnover. The limitation in this article is the relationship between the independent variable toward the employee turnover does not discuss to clarify at all. The author had stated the link between organization cultures with the employee turnover but the matter is the further information is not sufficient to prove the link. The further information will aid to improve the knowledge of readers.
Firth, Mellor, Moore, & Loquet (2004) found that emotional support from supervisors and self-esteem mediated the impact of stressors on stress reactions, job satisfaction, commitment to the organization and intention to quit. It is suggested that to ameliorate intention to quit and in turn reduce turnover, managers need to actively monitor workloads and the relationships between supervisors and subordinates. Monitoring workloads and supervisor-subordinate relationships by management may reduce an intention to quit and subsequent turnover, thereby saving organizations the considerable financial cost and effort involved in the recruitment, induction and training of replacement staff.
There are quite a number of studies offered judicious support for a negative relationship between satisfaction with supervision and turnover (i.e. the higher the satisfaction with supervision, the lower the turnover) (Mobley et al, 1979). Nowadays, the most obvious example that we go through is the conflict between employees with Superiors. The employees might choose to leave an organization if there has a conflict in opinions at the workplace. Yet, it seems that a very small percentage of past research has focused on the division between the interpersonal relationships with coworkers and their superiors. This is surprising, as it seems realistic that an individual would relate differently to these two groups. Cotton and Tuttle (1986) analyzed that it has been seen that perceptions of a lack of fairness in management practices and dissatisfaction with supervision lead to higher levels of abrasion. Mor Barak (2001) discussed that if the same line of thought is kept, then interpersonal conflict with superiors and coworkers may be far removed from in their relation to organizational and personal outcomes. The limitation in this article is the author did not share the statistic regard to the employees that leave their organization due to the supervisor problem. The conflict between the employees and superior always happen in everywhere, but it should be discussed because it can help to prevent the employee turnover.
Frone et al (2000) examined that though this kind of supervisor-employee dynamic is necessary for the success of both positions, interpersonal conflict that may take place is liable to negatively affect a subordinate's outlook and thoughts regarding their job and, subsequently, and employer. In the context of conflict, differentiating between the employee-coworker relationship and the employee-superior relationship is quite vital. The significance lies in the idea that employees recognize those individuals with a higher ranking in the organization's hierarchy as representatives of the organization. Frone also conducted to test a conceptual model on the basis that conflicts with coworkers' links to poor personal psychological outcomes while conflict with a superior relates to poor organizational outcomes and the model was held true. Results showed negatively related to job satisfaction, negatively related to organizational commitment, and positively related to turnover intentions if the interpersonal conflicts, specifically with a superior occur. The Workplace Employment Relations study (1998) examined that ninety percent of managers thought that the relations with their employees were very good or good, compared with only 54 percent of employees, and just 2 percent of managers rated relations very poor, compared with 19 percent of employees. The current study focuses on the conflict within this dynamic because obviously, there is a discrepancy in the views between these two groups of individuals. The limitation in this article is the author did not share the prevention to eliminate the conflict between superior and employees. The turnover occurs when the conflict couldn't able to solve. Therefore, the author shall provide some opinion to solve this problem in order to minimize it to the top.
2.5 Job Analysis and Characteristic
Job Analysis (JA) is the building block for all HRM activities. The job analysis is a process of obtaining information about jobs (McCormick, 1979). Conducting a JA and subsequently providing employees with a job description prevents the situation in which employees do not know what is expected of them to do. JA forms the foundation upon which virtually all other human resource management systems are built, and it brings impacts on employee turnover in general JA subsumes all other HR activities and therefore, has a significant effect on employee turnover in general (Hoon, et al., 2000). The above review indicates that a firm's HR practices have a significant impact on employee turnover. Given that a firm's resources are limited, firms may not be able to develop best practices in all of their HR activities in a short span of time. Hence, the purpose of this study is to investigate the impact of HR practices on employee turnover by considering HR practices of selected firms simultaneously. Firms that do not have good HR practices can begin a program of developing HR practices that have the greatest impact on employee turnover in a systematic fashion. Based on the above-mentioned literature, realistic job information, job analysis, work family balance, career development, compensation and supervisor support can be identified as HRM practices that have impacts on employee turnover.
According to Samad (2004) several concepts of job characteristics have been focused by scholars. However, they share a common theme that highlighting the nature of work and their implication on job outcomes. Hackman and Oldman (1975) developed an instrument that among the reliable and valid measure of the various job characteristics. This instrument assesses job characteristics based on five core aspects, mainly skill variety, task identity, task significance, autonomy and feedback. Sager and Johnston (1989) recommended that job satisfaction and job characteristics as well as demographic variables (Cotton & Tuttle, 1986; Morrow, 1983; Gregersen & Black, 1982) apply an important effect on employee turnover intention. Despite several empirical studies among organizational scholars, however,
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