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Most of the organizations today are worried about the shortage of the talented employees which cause by the retiring of the "baby boomers" and the competitive market for talented employees. The retention program is important day to day, to retention the talented and experienced employees in the company is one of the factor that can reduce their costs and maximized the organization profit. Any organization needs to have a vision and a well defined strategy on hiring for the future. There are several methods can be used to retain the employee. In the classic Harvard Business Review article, "One More Time, How Do You Motivate employees," author Frederick Herzberg (1968) asserted that the way to motivate employees was to enrich their jobs. Managers agree that retaining best employees ensures customer satisfaction, product sales, satisfied co-workers and reporting staff and effective planning for the existing business.
In an organization, turnover incurred various costs. Leaving employees often left with their valuable knowledge and expertise gained through experience. In addition to these indirect and unquantifiable costs, organizations face many costs directly related to turnover, including exit interview, payout of unused holidays, and the salary for temporary workers. According to Mitchell, Holtom, and Lee (2001), the recruitment is more costing and time consuming compare to retain the employees. To retain the employees the organization should understand the needs of the employees, and set a strategy and policy to fulfill their needs. In addition, there are argument about financial compensation and non financial compensation by the past researchers. But they thinks that the most of the employees leaving the organization mostly with some unpredictable events but not for the money.
But, there are research state there are relationship between pay and the employee retention. According to Gooden and Bailey, (2001) finding, welfare to work employees is tending to retain their job rather than non-welfare to work employee. However, one important thing is the increased likelihood of full-time, white-collar employees to retain their jobs. The stable earnings and benefits connected with full-time employment suggest a win-win relationship for both employees and employers.
There are a number of researches done by the researchers about the relationship of job satisfaction, organizational commitment with the employee turnover or retention rate. In the Mitchell, Holtom, and Lee, (2001) finding they have mentioned about the employee satisfaction affects the employee retention. They stated that the higher the employees satisfaction the higher the employee retention. Employees who satisfied with their jobs by evaluate positively their pay, supervision, chances for promotion, work environment, and tasks they do will stay. For those, who are not satisfied with their pay, supervision and so on will leave.
Employee Benefit and Policies
Accuracy of job description
Accuracy of job description is very importance nowadays. A job is a task that the employees responsible to do. A task is a unit of work that needed to produce some result, for example, writing a memo. Job descriptions are the lists of the general function and task and the responsibilities of the position of the job. They also include the reports is to whom, the specification and the qualification that the person need in a job. Besides that, conducting a job analysis can develop job description. Job analysis includes examining and sequences the tasks that need to perform the job. Job analysis can be used in compensation to identify the skills level of the employee, the environment, the responsibility and the level of the education.
Actually, job description is advertising to fill up an open position. Besides that, it also can determine the basis performance and the compensation of the job. In most of the company, the compensation of the job is depending on the job performance of the employees. Accuracy of the employees in doing their job is very important. In today's organization, the company will depend on the accuracy of the job description to give the benefit and policies to the employees. On the other hand, the organization will retain the professional employees in the company by providing the accuracy of the job description to the employees. Another factor that will enhance the job description is by enriching the job of the employees. In the 21st century, there are many competitive in the organization. So, enrich job description is a necessary for most of the employees to compete with each other's and get a better benefit.
According to the book named "Why Employees Don't Do What They're Supposed to Do and What to Do about It" from Fedinand Fournies, (1999) & "First Break All the Rules" agree that a satisfied employee knows clearly what is expected from him every day at work. Changing expectations keep people on edge and create unhealthy stress. They hold up the employee of internal security and make the employee feel unsuccessful. Therefore, an accuracy job description is important for the employee to understand what they are expected by the employer.
Pay is negatively related to job satisfaction. Most managers believe that money is the major retention factor and many employees refer to better pay or higher compensation for departing one employer for another (Mathis and Jackson, 2003). Actually, salary is the main issue to the employees whether continue to work or not. Nowadays, low salary to a person that will responsible for the whole family will not afford. Salary review is one of the benefits and the policy of the employees. Employees will know how much salary will get every month so that they can estimate their expense. Besides that, salary is also important for the company to estimate how much expense they should pay and the accuracy of the salary to each employee.
Salary review is one of the ways of the organization to maintain their employees. Organization should pay the reasonable rate of the salary to the correct employees. A competitive salary is the main key in employee retention. Some of the employees will get the salary higher than the expectation of the performance. It is not fair to the other employees. For those employees who felt unfair in their pay will easily leaving the organization when other organization pay them a little bit higher of their current salary. In the other hand, managers think that talented employees should get the competitive salary which can reduce them from job leaving. So, the organization must make sure that the salary should be given consistently to every employee.
Job Changes/ Promotion
Employee benefit packages increase worker commitment to the organization and reduce the tendency to think about other job opportunities (Mitchell et al., 2001). A commitment model developed by Rusbult and Farrell (1983), based partly on job benefits, shows the absence of adequate benefits is one of the main factors contributing to employee intent to leave. Mitchell also found that portable benefits, such as defined contribution pensions, reduced anxiety involved in intent to leave. Employees were more likely to leave an organization if their personal attributes do not fit with one's job (Chan, 1996).
Promotion to an employee is one of the benefit or policy to maintain their employees in the organization. Organization can provide the benefit to the employee who will think it is necessary to their life such as salary. Besides that, job changes will be other issues to maintain their employees in the organization. Some of the employees will feel bored when doing the same job in the same position for a few years. So, the organization can provide another position to the employees that related to that field. In the other hand, the employees also can enrich their knowledge and apply in the other job.
Leaves of Absence
Leaves of absence are one of the compensation that can retain the employees in the organization. Leaves of absence are a term describes a period of time that one is to be away from his/her primary job, while maintaining the status of employee. Every organization has their own strategy to give the employees leave of absence. Employees are qualified to apply for an unpaid leave of absence if they have been a regular employee of the organization for at least one year and planned to work 20 hours or more in a week. The manager of the employees will decide on the leave request. The apply for the leave will be reviewed based on the explanation for the request, previous leave requests, previous attendance record and the impact of the absence will have in the organization. If apply for the leave of absence for personal reasons, the employee's manager will decide whether the current position will be held open, or if a position will be made available upon the employees return from leave.
Some of the organization will give 14 days of absence to the employees per year. Some of the organization will give more than 14 days leave of absence to the employees, so that they will retain in the organization. In the most recent years, leaves of absence will become most of the important factor to retain their employees in the organization. This is because the employees will have their holiday without deduct their salary. This is the method that will benefit the organization that will not lose their talent employees and the employees will remain the same salary.
Besides that, leaves of absence also are the problem to the organization. Too many employees take the leaves in the same day will affect the organization performance. The organization will lack of employees to do their work.
Health care Benefits
Health care benefit is one of the compensation that can retain the employees in the organization. Nowadays, health care is an important criterion that employees concern to remain in the existing organization. In the view of Madrian, even among those fortune enough to have employer-provided health insurance, there is increasing concern that it discourages individuals with preexisting conditions from changing jobs and for those who do change jobs, it often means finding a new doctor because insurance plans vary from firm to firm (Madrian, 1994).The provision of health care is tied to the employment. By providing health insurance to all the employees may also postpone the retirement of some elder workers whose employers did not previously provide health insurance (Madrian, 1994).
Health care demand and its communication with insurance selection are essential factors in the growth of health care expenditures. Since the relation between individuals and insurance providers is categorized by informational asymmetries, adverse selection and moral risk problems are likely to concern the demand for services as well as the alternative of insurance. The German health insurance system is categorized by almost entire coverage of the residents. Health insurance is compulsory for all persons with earnings under a cut-off value. There have some exceptions that are civil servants and the self-employed. These as well as individuals with salary above the cut-off can choose to stay on uninsured, to willingly join one of the compulsory health insurances, a private insurance, or a mixture of both. (Riphahn, Wanbach & Million, 2002)
Employees will feel that their life will guarantee when they injured is caused by the work because the organization had provide the health care benefits to the employees. The employees will complement from the insurance company and it will help to increase the employee job satisfaction.
In addition, nowadays there are many organizations providing the panel doctor for their employees and the charge of the medical treatment mostly is paid by the organization. But, there are also some organizations which do not emphasize the employees' health care. Actually health care benefits are important in the employee retention programme.
Retirement benefit also one of the method of how organization retain their employees. There have many retirement benefits such as pension scheme and EPF scheme. The better the retirement benefits, the probability of the employees retain in the organization will be higher.
Employees will get the benefits of pension which are payment of gratuity, monthly pension for length of service more than 25 years and for length of service less than 25 years and the medical benefits. After retirement, employees can enjoy the benefit give by the pension scheme. This is one of the benefits to main the employees in the organization because not every organization will provide the pension scheme to the employees especially private company.
Besides that, EPF scheme will obtain the benefits of the EPF contribution plus the dividend added every year, EPF contribution part is given tax exemption up to RM6000, employees will contribute 11% of their monthly income to the EPF and employer will contribute another 12% to the employee's EPF savings. Additional payment is paid from the EPF income itself and not from the member's savings account. RM 5000 will be paid to the employees if the employees meet the criteria to withdraw all his savings on proof of disability and Death benefit totalling RM2500 will be paid to employee's dependent upon the death of the employee.
After employees retire, they will all depends on the retirement benefits to survive their life. So, retirement benefits are very important to the employees. They will assume the retirement benefits as their monthly benefit. So, retirement benefits also one main issue to the organization to maintain their employees.
Elements of Compensation
1.2.1 Base Pay
Base pay is one of the elements of compensation. Base pay is the flat compensation paid to an employee for performing particular career responsibilities. It is typically paid as a salary at the different rate. Employee base pay will determined when the employee been hired. Changes to an employee's base pay can be made the employees go through their career. Base pay is very necessary to the employees. If the salary of the employees is base on the commission such as employee who doing sales, the employee will get lower base pay. They will hardworking in doing their job. But, nowadays most of the employees will get higher base pay to compare to the last time. This is because most of the organization wants to retain their talent employees in the organization.
Money, remuneration, and several different forms of compensation have been used to catch the attention of, retain, and motivate employees and achieve organizational goals in the USA and around the world (Barber and Bretz, 2000; Chiu et al., 2001; Lazear, 1998; Milkovich and Newman, 1999; Rynes and Gerhart, 2000; Tang et al., 1998, 2000a,b).
Base pay is related to two objectives in compensation that are controlling labor costs and attracting, retaining, and motivating the employees. The higher the base pay, the higher the labor expenses. Organizations with a higher base pay might catch the attention of and retain a qualified workforce (Williams and Dreher, 1992), and reduce training or recruiting costs (Holzer,1990). (article Randy K. Chiu and Vivienne Wai-Mei Luk) Retaining and motivating employees
An education benefit is one of the elements of compensation. Most of the employees will think that, benefit will relate to the salary, vacation, sick leave and others. Actually Educational programs are obviously a great benefit to the employees. Most of the company will provide their advance education when they are working in the organization. Most of the people will compare to each others. Every employee also hopes that they will enhance their knowledge and compete with other employees. In the 21st century, education is very important to all employees and it is a need to employees to enrich their knowledge and apply in their workforce. Most of the organization will provide the education benefits to the employees either with a contract or others agreement. This method will help the organization to retain their employees. The fees of the education will pay by the organization. A higher education qualification could help employees take charge of their future by building skills and confidence and opening up new opportunities in whatever stage of life there are. Offering employee with the education benefits can have a positive effect on the employees. Employees will contribute to the organization and will give more ideas or opinions in the workforce. They will think is it a right way to do the things. They will use the knowledge in the study and use in the work.
Share Option/ Equity Participation
Share option is also called stock option. Stock compensation is an agreement in which employees usually have a high-placed executive and receives the stock in the company instead of cash as salary. If the share price of the organization increase, the stock compensation can be very profitable to the employee. The idea behind stock compensation is to give employee a significant stake in the success of the company, which in turn, encourage the employee to act in the best interest of the shareholders. With this, the employee will retain in the organization and do their best towards the organization.
Equity participation gives the employees an incentive to make a loan because they share in the increased equity of the business. If the employer feels that the business has a good model with a lot of potential, they can have a stake in the organization and will see an increase in the profits as the organization grows. By having equity participation, employees can borrow their money from their organization. It is a benefit to the employees because sometimes employees will need the money for investment or emergency or others. Equity participation transactions offer the employee with additional incentive to make the loan and can make the process of obtaining a business loan more viable by providing innovative and structured loan programs.
Share-ownership schemes may be said to be an alternate of profit-sharing for employees, and it is regular for certain criteria to be met before measures can be described as "profit-sharing". (i) there must be an contract between the employer and his employees; (ii) payment must not include the whole of the employee's salary; (iii) payment must be in addition to what is treated as the "normal" wage, where the "normal" wage is at least as high as would be paid in a comparable firm without a profit-sharing scheme; (iv) the share must be related to the profits. (P.J.White)
Child cares are one of the elements of compensation for the organization to maintain their employees. Child care is an action of caring and supervising children from 0-16 years old. Some of the organization will provide child care benefit to the employees. This is one of the methods for the organization to retain their talent employees. This is the benefit to the employees that they will save a lot of expense to put in their children under certain limit of age. This is because the employees will get a certain amount of money as compensation.
Job security is an assurance employee has about the continuity of gainful employment for employee's work life. Some organization will buy the insurance for the employees. Job security arises from the terms of the contract of the employment, collective bargaining agreement or labor legislation that prevents the subjective termination, layoffs and lockouts. When employees injured just because of the work, then the employees can claim for compensation. The employees also have the benefit of not being layoff from the organization in the agreement stated.
The organization is committed to maintain a safe and secure workplace to the employees. In order to maintain a secure work environment, the organization strictly prohibits employees and visitors from bringing any firearm on organization property. In addition, all visitors are asked to check their things with the receptionist first. Some company will take action towards the employees who fail to comply with the organization policy. This will give more confidence to the employees towards the organization. This also help the organization to maintain their employees rate.
Job security is dependent on economy, prevailing business conditions, and the individual's personal skills. It has been found that people have more job security in times of economic expansion and less in times of a recession. Also, some laws (such as the Civil Rights Act of 1964) bolster job security by making it illegal to fire employees for certain reasons. Unemployment rate is a good indicator of job security and the state of the economy and is tracked by economists, government officials, and banks.
Salary and Benefits Packages
Medical Insurance Package
Company Savings Plan
Job Market Competitiveness of Salary
Share Option Plan
Other Factors Affect the Employee Retention
Develop Individual Career Path
Mentoring and Fast Track Advancement Opportunities
Work with Leading Edge Technologies
Encouraging Risk Taking and Innovation
Maintaining the reputation of the organization