Employee Turnover Causes and Effects
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Published: Mon, 17 Jul 2017
In today’s highly dynamic commercial work, it is becoming a challenge for jobseekers to find jobs that best fit their personality, and for employers to hire the right people who can do the job and also integrate well into the company culture. Failure to overcome this issue can be resulted in high turnover of employees. Employee turnover is a part of normal business activity; whereby employees come and go as their life situations change. Most employers realize this and, indeed, large firms typically have entire departments devoted to the management of human resources in order to make the transition as easy as possible for both management and employee and to minimize the associated hiring and training costs.
Employee turnover is a ratio comparison of the number of employees a company must replace in a given time period to the average number of total employees. A huge concern to most companies, employee turnover is a costly expense especially in lower paying job roles, for which the employee turnover rate is higher. Many factors play a role in the employee turnover rate of any company, and these can shoot from both the employer and the employees.
Determining what constitutes ‘high turnover’ is a complex issue, because there is no simple linear relationship between turnover rates and the social and/or economic performance of companies and sites. Too little turnover can be as big a problem as too much. If organizations do not have a reasonable flow through of new personnel, they risk ossification. Also, some turnover is socially desirable because it gives people an opportunity to obtain entry into the labor market and to move to different and better. In today’s dynamic world and increased job insecurity, the “job for life” is no longer existent. People constantly fear their jobs and loss their motivation and commitment to work.
Some reviews and example were being done on manufacturing or dairy business company, basically on First Dairy Farm (M) Sdn. Bhd on high turnover of the employees.
2.0 CAUSES OF EMPLOYEE TURNOVER
2.1 Job Satisfaction
Job satisfaction is described as the positive attitude and emotion towards one’s job and work environment. It reveals their value judgment about their expectations and perceptions of the effort they put in and the outcomes that they receive. One of the reason that caused a highly employee turnover is because of the low job satisfaction offered by an organization. Job satisfaction includes the payroll and financial rewards, work environment, co-workers, supervision, scope of work, amount of work, career future, company identity, and physical working condition.
To ensure an employee’s satisfaction, an organization need to reward fairly for the work they have done by making sure rewards were for genuine contribution to the organization and consistent with reward policies. The reward also includes a variety of benefits other than monetary gains. However, many companies failed to do so. Unsatisfactory performance appraisal is one of the reasons for employees leaving a company. A lack of appreciation, a lack of teamwork and the perception that business owners don’t care about their employees are consistently the highest-rated reasons for low job satisfaction. Many employees choose to leave because they believe their work has been unappreciated by the organization. When employees are committed to their organizations, they accept the corporate goals and values, and will put in extra effort to achieve organizational effectiveness. Nonetheless, many also leave their jobs because they don’t believe their companies value their contribution.
Most environmental contributors to turnover can be directly traced to management practices. Turnover tends to be higher in environments where employees feel they are taken advantage of, where they feel undervalued or ignored, and where they feel helpless or unimportant. Clearly, if managers are impersonal, arbitrary, and demanding, there is greater risk of alienation and turnover. Management policies can also affect the environment in basic ways such as whether employee benefits and incentives appear generous or stingy, or whether the company is responsive to employees’ needs and wants. Management’s handling of major corporate events such as mergers or layoffs is also an important influence on the work environment afterwards.
Salary Scale is also known for the most common cause of the employee turnover rate being so high. Employees are in search of jobs, which pay well. If the company, which they are working in, does not offer good and reasonable salary, they tend to hunt for jobs that pay them considerably well. The prospect of getting higher pay elsewhere is one of the most obvious contributors to turnover. This practice can be regularly observed at all levels of the economic ladder, from executives and generously paid professionals in high-stress positions to entry-level workers in relatively undemanding jobs.
Employees always flock to companies who offer more benefits. There are many employees who are not aware of the benefits that are provided to them in their compensation package. The employers need to reduce their bureaucratic procedures in order for the employees to receive the best available benefits without any difficulty. They should make a note of what all benefits other organizations are providing, which may attract their current employees.
Employees that contain negative relationship with its supervisor are likely to have lower job satisfaction, which could also lead to employee turnover. According to experts, while most managers believe employees leave due to money issues, in actuality it is an employee’s relationship with their supervisor that has the greatest impact on whether they stay or go, because a supervisor has control over the compensation, opportunity, recognition, and environment that create job satisfaction. And that is why it is important to hold supervisors accountable for retaining a thriving workforce.
Advancement and promotion policies are the prime reason why many mid-level executives leave the company. Due to no potential opportunity for advancements or promotions, they prefer other companies, which may provide them with higher posts and increased compensation packages. The companies need to evaluate and modify their promotion policies in a fair way, which would enable promotions for candidates.
The condition of the organization could also be a factor. If it is unstable, the employees will surely look for a more stable organization. They would not want to stay long in an organization that could close any time. Employees will not exert as much effort in achieving organizational objectives if there are not reassured that their jobs are secure.
2.2 Organizational Commitment
Organizational commitment is the relative strength of an employee’s attachment or involvement with the organization where he or she is employed, in this case the dairy business. Organizational commitment is important because committed employees are less likely to leave for another job and are more likely to perform at higher levels. An organization would have a higher productivity by creating a higher job satisfaction for the employees. By this, they would believe that the organization would be a career path and a tremendous future in the long run, which would make them concern about the quality of their work. Hence, they would be more committed to the organization, and the organization would have higher retention rates and lower employee turnover. With this, organization commitment also includes as a cause of employee turnover. Organizational commitment is when individuals who were highly committed to their organization would be less likely to think about leaving the organization. When an employee’s need and desires has been satisfied and their skill has been utilized, an organizational commitment of an employee has been developed. It has become a very strong negative effect on turnover, which means, the lower the organizational commitment, the higher the tendency for an employee to leave. Throughout the workplace employees must be given numerous opportunities to feel committed to the organization. Overall management culture and style driven by the top management actions are strongly related to the degree of employee commitment. These correlations bring to light the importance of having strong managers and their roles in the overall organization. If employees are directly committed to their group, their commitment to the overall organization will be higher.
Organizational Commitment is highly valuable. Studies have highlighted that commitment has a great impact on the successful performance of an organization. This is because a highly committed employee will identify with the goals and values of the organization, has a stronger desire to belong to the organization and is willing to display greater organizational citizenship behavior i.e., a willingness to go over and beyond their required job duties. And if human resources are said to be an organization’s greatest assets, then committed human resources should be regarded as an organization’s competitive advantage.
Committed employees are more likely to perform beyond the call of duty to meet customers’ needs and organization’s goal. They are highly motivated to work to the best of their ability. These traits are essential for continued customer commitment and ongoing revenue and growth for an organization. Committed employees remained in the employment of the company longer, resisted competitive job offers, did not actively look for other employment and recommend the company to others as a good place to work. The longer the companies kept their employees, there would be no need for additional expenditure to train new employees.
2.3 Job Hopping
An individual with strong desire to try different jobs for fun or and readily changed their jobs for as little as one Malaysian Ringgit is a sign of job hopping behavior. This type of individual also leads to employee turnover. Some with highly educated individuals are more keen to job hop due to the availability of vast options in the job market. Younger generations are thought to be job-hopping to be materialistic, and as a result they tend to hop from one job to another for a better salary and benefit. A huge concern to most companies, employee turnover is a costly expense especially in lower paying job roles, for which the employee turnover rate is highest. Weak company identity tends to face higher employee turnover as the employee worry about their career future.
3.0 IMPACT AND EFFECT OF EMPLOYEE TURNOVERS
There are many negative impacts to an organization due to employee turnovers compared to positive impacts. However, despite substantial evidence regarding turnover’s negative consequences for firms, several studies including many of those above are noted offsetting positive effects. For example, the economic perspective on turnover suggests that turnover reflects the beneficial aspects of worker mobility, such as the improvement of matches between employees and firms over time. Companies should take a deep interest in their employee turnover rate because it is costly part of doing business. When a company must replace a worker, the company incurs direct and indirect expenses. These expenses include the cost of advertising, headhunting fees, human resources cost, loss of productivity, new hire training, and customer retention.
On the contrary, turnover can adversely affects operational efficiency, especially for complex processes that require close teamwork and high amounts of assumed knowledge. Where there is continuing instability in the workforce, consequences can include increased stress and tension amongst those remaining employees who have to fill the gaps left by departing employees, declining employee morale, and decreased productivity due to loss of work group synergy.
High turnover rate can do a lot of damage to your organization than overworking your employees. One of which is the turnover cost. When you lose an employee, you need to look for someone new to fill the post. Although the person is qualified, you still need to train the person, consider a few errors during the operation, and go through the adjustment period. Apart from the cost you incurred, it will also give you a bad image in the public. They will speculate about the reasons why your employees do not last long in the organization. They will question the management skill of the leaders of the organizations. Consequently, this will also affect the judgment of your potential investors.
Minimizing employee turnover rate is one of the most important tasks of managers. This is because a high turnover rate among others implies that the organizations concerned are probably incurring high costs of operations. The costs of employee turnover are due to the costs of retaining workers, the costs of training and development loss of business, loss of productivity, and also increased in business risks. Therefore, companies that are not able to reduce their employee turnover figure will likely lose their competitiveness in the long run.
High turnover can be a serious obstacle to productivity, quality, and profitability at firms of all sizes. For the smallest of companies, a high turnover rate can mean that simply having enough staff to fulfill daily functions is a challenge, even beyond the issue of how well the work is done when staff is available. Turnover is no less a problem for major companies, which often spend millions of dollars a year on turnover-related costs. When the employee leaves, productivity will usually take a downturn because other workers may have to add the former employee’s duties to their own workload, at least temporarily. For service-oriented professions, such as management consulting or account management, high employee turnover can also lead to customer dissatisfaction and turnover, as clients feel little attachment to a revolving contact. Customers are also likely to experience dips in the quality of service each time their representative changes.
When long-time employees leave, they often take valuable institutional knowledge or intellectual assets with them. It would costs employers a lot of time and money to replace these assets. Many business owners are mistaken that the cost of replacing employees is merely the price of an advertisement and headhunter fees. However, both direct and indirect cost must be taken into consideration. When an employee gives notice (usually two to four weeks), he or she has already mentally “checked out” months prior to the announcement, costing the company significant dollars for a nonproductive employee. The current employees never want to see one of their colleagues leave. The atmosphere in the office takes on a different tone. Current employees question their own career decision. These scenarios slow down the organization’s productivity. And they also cost money. The current employees gain increased workloads to offset the vacant position. This causes burnout, inefficiencies and unproductive workers, which again can be costly. One must realize that it usually takes a new employee approximately six months to get up to speed. Those first six months are a costly investment for the employer without any true benefits for the newly hired talent and the company until six months or more into the future.
Human resource development is less likely to be a priority for management. Companies will be disinclined to invest in training and career development for staff if they believe that they cannot hold staff. In addition, where there is high employee turnover human resource personnel are likely to be pre-occupied with the ‘base level’ tasks of recruiting and training new staff. This, in turn, means that there will be fewer opportunities to implement staff development initiatives and other strategies that could enhance the skills and productivity of existing employees.
Organizational psychologists have also claimed that workers’ efforts may be highest when they first join an organization and may decrease over time. These conflicting views concerning the effects of turnover suggest that one must not view turnover as a monolithic concept, but rather as a contingent phenomenon. The relevant question thus becomes not whether turnover has positive or negative effects on performance, but rather under what conditions it is more harmful or beneficial to the firm.
4.0 IMPROVING THE MANAGEMENT OF EMPLOYEE TURNOVER
Today, most of the companies believed that in order to achieve and sustained effectively, human resource management (HRM) needs to be efficient. Effective HRM can be main factor for the success of an organization. In the new economy, it has become a trend of employees staying on for a short duration in any one organization, which results to many problems. Failure in managing human capital will create fatal problems to the company, especially in country like Malaysia, which is a multiracial country. Therefore, most of the organizations, both domestic companies and multinational cooperation (MNCs) tend to focus more on HRM as a key of success.
4.1 Hiring the right people
Hiring the right people from the start would also reduce turnover. Managers should have a clear idea of the types of people they want to hire for each position, write detailed job descriptions and commit to hiring the best candidates rather than the first candidates who meet minimum requirements. An organization is encouraged to use personality traits and leadership style theories to determine the personality type and leadership style posses by job applicants and future candidates before actually employing them. A computer-based application that integrates personality traits and leadership styles will be valuable to any organization seeking the right people with the right personality and the right competencies. With this, there are more chances for an employee to be satisfied with the job given, and reduce employee turnover.
4.2 Employee Retention
Most companies try to reduce costs by eliminating search, advertising and referral fees. They spend countless hours calculating cost per hire. With the current competitive marketplace, companies often utilize every source available to locate and hire top personnel. Companies should concentrate on retaining key employees, because real costs begin to add up when employees leave. Retaining your most seasoned and talented employees helps ensure your organization’s strength. It’s more important than ever to put strategies in place to avoid the overarching costs of employee turnover causes, and keep skilled, high-level producers motivated and invested.
Employees in an organization have always been key asset, as their departures could have a significant effect on the implementation of the organization’s business plans and may eventually cause a parallel decline in productivity. As such, employee retention was important to the long-term growth and success of the company. Retaining the best employees would ensure customer satisfaction and effective succession planning. It would also increase investor’s confidence, as they are concern with the organization’s capacity to perform in such ways that would positively influence the value of their investment in the company. Hence, it is undeniable that uncontrolled employee turnover could damaged the stability of the company and consequently the national economy.
Too often employee retention is viewed as a process or function of the human resources department. Somehow there is an expectation that the recruiting staff should not only identify and hire employees, but that they should also ensure their retention through some sort of strategy or program. The reality is that employee retention is everyone’s responsibility. Managers are able to reduce unwarranted employee turnover because the most important factors driving employee satisfaction and commitment are largely within the direct view and control of the manager. These included providing recognition, regular feedback and ensuring fair reward accordingly to an employee’s contributions and value to the organization.
4.3 Creating a Positive Relationship between Employer and Employee
Good communication and feedback between management and employees is a means to reduce these problems. A positive relationship between communication and commitment was detected highlighting the importance for management to ensure that communication channels remain open to allow for better transmission of information. Employees may also have a desire to pursue with a higher education or to improve their performance, so that they can accomplish more tasks within the same period of time. By increasing their inputs, employees may get higher outputs such as better pay and benefits. By doing so, it may lead to a higher level of satisfaction. However, factors like the lack of financial resources may prevent the employee from the opportunity of taking additional courses to upgrade themselves. In addition, other factors like problems from outside of work may affect an employee’s job satisfaction. Therefore, employees may wish to discuss and express their concerns with their immediate superiors. Bringing the problems that employees have to the manager’s attention will indeed be benefiting for the employee as they can work together to make any special arrangements in mutual agreement. When employees interact with their superiors, the manager will be able to determine the employees’ level of job satisfaction and in turn determine the employees’ level of commitment.
To maximize human resource and lower employee turnover, companies could focus on building relationship and support, as well as develop programs to handle stress management, decrease work dissatisfaction and enhance loyalty to the organization. It is proactive to deal with turnover at the thinking stage by enhancing commitment that has to do with building relationship and increasing participation as well as contribution to organizational goals. It is also vital to involve staff in the organizational process that not only empowers them but also increases their loyalty to and identification with the company.
There are also cases when the employees leave because of their fellow employees or his superiors. Clashes of personalities are common in the workplace. When an employee can no longer stand the tension in the workplace, he may opt to leave the organization. It does not matter if he finally got his dream job or receiving a generous paycheck. If he no longer has peace of mind, he will look for another job. The relationship between employee and employer or their direct supervisor is also crucial. Not only do organizations need a performance management system that recognizes and rewards supervisors for meeting objectives that reduce employee turnover, supervisors need to understand what steps they can take to meet their responsibility in employee retention and job satisfaction. The only way to truly understand employees is to ask them what they want and to find out what can be done to help them reach their goals. By asking, becoming involved, and being accountable, supervisors can go a long way in improving employee job satisfaction as well as retention.
4.4 Increasing Job Satisfaction
Those employee’s who feel that they are cared for by their organization and managers also have not only higher levels of commitment, but that they are more conscious about their responsibilities, have greater involvement in the organization, and are more innovative. Managers and organizations must reward and support their employees for the work that they do because this perceived support allows for more trust in the organization. All people have a desire to be needed and to feel valuable, including at their place of business. Consistent praise from a manager boosts an employee’s confidence and makes him happy about his place inside the organization. People perform at a much higher level when they feel happy and confident. When they don’t feel important, people become withdrawn and complacent and start looking for other places to work. Being an employer is somewhat like being a parent figure. One must continuously provide security and make your employees feel wanted and needed. In terms of assessment and promotion, the fairness in the decision making process is crucial for commitment. The organization should communicate clearly how decisions are made and why some people and not others did get promotions.
Satisfied employees tend to be more loyal to their organization. Generally, when people are satisfied with their jobs, they will have a positive attitude feeling about their jobs. In their minds, other jobs would not be better than the current one. Therefore, it is unlikely that they will change their jobs. Employees prefer to stay in their company and work hard for a return. If employees feel that the company treats them fairly or well, the workers will feel that they are responsible to keep working hard for their companies. Also, in order to maintain their current satisfied jobs, employees will perform well and work effectively, which is beneficial for the company. Therefore, in order to increase the employees’ level of commitment, the manager can try to increase their employees’ level of job satisfaction. For an organization to be successful, its managers must ensure that their employees have a high level of job satisfaction in order to mutually have a high level of organizational commitment. Managers may also apply job rotation so each employee will have an opportunity to perform different tasks using various skills and talents. By using this method, it may be able to further increase the interests the employees would have in their job. Moreover, managers should motivate employees to be more helpful, considerate, friendly and good-natured to their co-workers and supervisors, because this would increase the employees’ job satisfaction and may motivate the urge to help out other co-workers. Indeed, providing sufficient opportunity for promotion to employees would significantly increase job satisfaction because promotions reflect valued signals about a person’s self- worth.
4.5 Increasing Organizational Commitment
Organizations can increase employee commitment by providing them with fair and reasonable working practices in a rather cost-effective way. Research has found that the more committed the employee is to the organization, the greater the effort exerted by the employee in performing tasks. Highly committed employees wish to remain associated with the organization and advance organizational goals, and are therefore less likely to leave. Job performance has been reported to be higher for employees with strong affective commitment. The underlying assumption is that they will work harder at their jobs and perform them better than those with weaker commitment. On the personal level, there are benefits for strong affective commitment; for example, working in an environment in which one is positive about has implications for reduced stress levels. Alternatively, affective commitment could lead to negative consequences for life beyond the organization.
By obtaining affective commitment from employees may have positive effects for the organization, even though some of the magnitudes of the findings are not very high. To stay committed, employees should feel valued and recognized by management.
Motivation constitutes a central element when going through the process of human learning. If the organization does not possess the ability to motivate its employees, the knowledge within the organization is not practically used to a maximum. Therefore, it becomes the aim of every learning organization to find the factors that enable it to motivate its employees to continuous learning and to take advantage of this knowledge to ensure its living. It is unlikely that employees will be committed if they are not sufficiently motivated. Another key to employee satisfaction is implementing formal training programs that provide employees with clear paths for advancement. Employees are more likely to remain loyal to businesses committed to staff development and promoting from within. Induction training and socialization are carried out, which are vital in gaining employee commitment. It is essential to reinforce a sense of self-worth within newcomers, which can be achieved through a supportive environment.
In addition, employees may try to increase their intrinsic motivation, which is self- applied. If employees set goals for themselves, and these are achieved, the employees will be able to feel a sense of accomplishment. This may in turn lead to an increase in the level of satisfaction at their job and thus affect their level of organizational commitment.
In today’s highly competitive labor market, there is extensive evidence that organizations regardless of size, technological advances, market focus, are facing human resource challenge. Employee turnovers are results of employees’ dissatisfaction of one or more factors. Measures can be taken to prevent turnover and to improve other operating results as well. There need to be greater appreciation of the costs and consequences of high employee turnover, and a willingness to change established personnel management practices. Employees are one of the most important determinants and leading factors that determine the success of an organization in a competitive environment.
Therefore the way people are managed has a major impact on their commitment and on organizational performance. Advantages of gaining employee commitment have been perceived to be lower labor turnover, extra role behavior, and better product quality and employee flexibility leading to the firms’ competitive advantage. Thus, given the contribution that a highly productive trained employee can make to organizational productivity, keeping such an employee should be a high priority to the organization. Organizations can secure this commitment by engaging in fair HR practices such as procedural justice, good communication, increased participation, more supportive management and reasonable rewards.
Finally, it is important to note that simply implementing HRM practices such as benefits, job descriptions, or standard of procedure is not enough to earn employee’s commitment. In order to enjoy the benefits of a fully-committed employees, therefore a stable and high-performing workforce, dairy producers must offer a workplace with effective performance feedback and opportunities for participation.
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