The Challenge Of Employee Retention In Business Management Essay

Employee retention, especially of a company’s best, most desirable employees, is a key challenge in organizations today, which often leads them to the greatest heights of success, if managed efficiently. Hence, this study highlights the major ’employee retention strategies’ all of which contribute significantly to employee retention as in raising their morale at work, as perceived by the employees themselves.

An employee leaving a company creates imbalance which can be extremely costly as high employee turnover can cost a company in recruiting and administrative fees, lack of attention to quality from employees on their way out, and reduced productivity resulting in poor quality and production delays. Therefore, employee retention has become an essential focus area in today’s competitive world. Hence, subsequent to investing substantial time and money to recruit and train its employees, a company must also strive to make sure those valuable individuals are retained by the firm as losing a knowledgeable worker nearly always leads to considerable loss to any firm. Furthermore, keeping employees’ morale high, and retaining valuable employees has other benefits as well such as retaining the vault of knowledge that has been accumulated, skills learned, customer satisfaction through the trust and relationships they have built with customers and co-workers, effective succession planning and deeply imbedded organizational knowledge and learning. Therefore, high employee morale and key employee retention is crucial for the long term health and success of all businesses, today.

The following study has been limited to the banking industry of Pakistan in order to obtain a valid set of results, and is based on the foundation that in order to have better employee morale, employees have to be retained and motivated externally by the organizations’ managements as retaining employees is a skill which can and must be learnt by the management in order to ensure the survival and success of any business.

Moreover, this study hereby focuses on exploring employees’ perceptions towards the relationship between ’employee morale’ and the given ’employee retention strategies’, while the sole objective of this research is to scrutinize the relative impact of each of the retention strategies on employee morale in private commercial banks of Pakistan.

Problem Statement

Two of the greatest challenges facing organizations in Pakistan today are the intensifying competitive atmosphere and the continuous increase in employees’ expectations in terms of better employee retention plans. Therefore, there is a need for organizations to realize and prioritize the importance of retention strategies to not only attract but also to retain quality employees by boosting their motivational level at workplace. Hence, the problem statement which has been focused on throughout the study is “To study the effects of employee retention strategies on employee morale.”

Hypotheses

This study holds ’employee retention strategies’ as the independent variables and ’employee morale’ as the dependent variable. Through this relationship, the following hypotheses have been developed in order to sustain the reliability of the study once they have been tested:

H1: A significant positive relationship exists between ‘Compensation & Benefits’ and `Employee

Morale’

H2: A significant positive relationship exists between ‘Corporate Culture’ and ‘Employee Morale’

H3: A significant positive relationship exists between ‘Style of Leadership & Management’ and

‘Employee Morale’

H4: A significant positive relationship exists between ‘Employee Development Opportunities’ and

‘Employee Morale’

H5: A significant positive relationship exists between ‘Rewards & Recognition’ and ‘Employee

Morale’

Outline of the Study

This thesis is designed and structured into the following five chapters:

CHAPTER ONE – Introduction: It presents the introduction of the thesis topic along with a brief overview related to the area of study. It basically entails the rationale of the topic chosen, objective of the research, problem statement, hypotheses as well as the definitions of the independent and dependent variables of the study in order to provide readers with a clear understanding of each respectively.

CHAPTER TWO – Literature Review: In this chapter, the concept of ’employee retention’ & ’employee retention strategies’ are elaborated in detail. The benefits of successful employee retention are also discussed along with the major reasons influencing employees to leave their jobs. The major part of this section consists of the explanation of five of the major retention strategies as adopted by most organizations around the globe, as per other researchers’ studies so as to for a strong theoretical background for the research.

CHAPTER THREE – Research Methodology: This chapter presents the detailed research plan which includes the survey population, sampling method and sample size, data collection methods, sources of data, circulation method and respondents’ feedback, the reliability and validity of the survey instrument (questionnaires) as well as brief discussion over the research model and the statistical technique utilized.

CHAPTER FOUR – Results: This chapter presents the data analysis and the research findings of this study, obtained through the only primary data collection tool, i.e. Questionnaire. Hence, interpretation of the statistical results generated through SPSS 17 is given in this section.

CHAPTER FIVE – Discussion, Implications, Future Research and Conclusions: This chapter of the study concludes the findings from the data analyzed and reported in chapter four, making a clear understanding of the association between ‘Employee Morale’ and ‘Employee Retention Strategies’. Furthermore, recommendations, research implications and recommendations for further research are also here.

Definitions

The following definitions are of the main variables involved in the research study, and hence will aid in the better understanding of each variable individually.

According to Get Les Mckeown, Employee retention is defined as a systematic attempt by employers to create and maintain an environment that encourages current employees to remain employed by providing them with policies and practices that address their diverse needs and keeps them motivated. (http://www.articlesbase.com/human-resources-articles/employee-retention-995426.html)

Compensation & Benefits – Employee compensation refers to all the direct and indirect financial forms of pay given to employees in return to the value they provide the organization with. However today, apart from working for cash, employees expect an ‘extra’ recognition for their efforts. This is known as employee benefits, which consists of non-financial compensation and is offered along with the fixed cash salary. (http://www.entrepreneur.com/encyclopedia/term/82068.html)

Corporate Culture – This is basically the general organizational operating environment which includes ethical and value structures. It encompasses the whole organization, affecting employees, management, and customer relations. It also includes methods of marketing and advertising, production practices and quality of service. (http://www.answers.com/topic/corporate-culture)

Leadership / Management Style – This can be described as the process of social influence in which one person supervises and directs others in the achievement of a common task in any particular organization. (http://www.12manage.com/i_l.html)

Employee Development Opportunities – Refers to the method of encouraging employees to acquire new or advanced skills and knowledge, by providing them with various learning and training facilities, along with avenues where such new ideas can be applied in order to provide them with new work experiences. (http://www.businessdictionary.com/definition/employee-development.html)

Rewards & Recognition – This includes both monetary and non-monetary recognition, provided to acknowledge those employees who deliver great results while demonstrating positive behaviours.  When firms recognize their employees effectively, they reinforce, with their selected means of recognition, the activities and behaviours they most want to see people repeat. (http://humanresources.about.com/od/rewardrecognition/a/recognition_tip.htm)

Employee Morale – Affects how motivated a firm’s employees are to work and suggests how much they will do while on duty, as well as influence how long they will stay with the organization.  Furthermore, it reflects the state of the spirits of an employee as exhibited by confidence, cheerfulness, discipline, and willingness to perform assigned tasks. (http://www.answers.com/topic/morale)

CHAPTER 2: LITERATURE REVIEW

“One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man.” — Elbert Hubbard

The above quotation highlights the fact that nothing can totally replace human resource in an organization. Hence, the greater a company puts effort to retain its employees, the better it is for its overall success. The process of employee retention usually results in benefits which an organization may otherwise not have.

How to keep hold of valuable employees is one of the biggest struggle that plague the various firms prevailing the competitive marketplace of today, as it is a difficult challenge faced by managers to motivate and retain employees in an environment where uncertainties have increased (Mitchell, 2002). Therefore, In order to craft a successful company, employers should consider as many choices as possible when it comes to boosrting employees’ morale. Also, as pointed out by researchers such as Branham (2000) and Herman (2005), the retention of employees is directly linked to cost savings and is about the efforts of the management to keep its productive employees and hence achieve company objectives (Frank, Finnegan & Taylor, 2004). Further, as Herman (2005) points out, a retention plan also facilitates in avoiding unwanted loss of intellectual capital, reducing the costs of employee turnover and strengthens the workforce stability and engagement.

In a study conducted by Ramlall, S. (2003), the researcher sought to understand why employees would choose to leave the organization. According to his study; salary, lack of challenging roles and opportunities in one’s position, and the inability to advance in one’s career were the most significant factors. Other factors identified by the respondents included lack of recognition, ineffective leadership, and a work environment that lacked teamwork. The respondents also indicated a high desirability for their positions to be challenging and that there should be adequate opportunities to learn new tasks and to develop new skills. Work environment and ineffective leadership were also identified as reasons why the respondents’ peers and colleagues have left. With a loss of the critical employees, it can be inferred that the Company’s output, efficiency, motivation, and productivity will decrease.

It has been noted that the morale of employees is higher when the manager uses the teamwork approach and considers their ideas, even when the work situation neither requires this approach nor makes it easy to use Wofford, J. C. (1971). Furthermore, with respect to a study carried out by Khatri, Budhwar, & Fern, (2006), according to the report of a task force on job-hopping in Singapore, high turnover was found to be the major source of poor morale and low productivity in many organizations.

Blake (2004) states that the costs of high employee turnover can be incredible and some of the substantial costs that occur when a person leaves an organization include the following:

1. Recruitment Costs: Includes cost from advertising to the time spent interviewing and sourcing.

2. Training Costs: Includes the cost of orientation materials and trainers’ time, for example;

Inbound call center agents in banks require on average 4 to 6 weeks or more of classroom

training).

3. Lost Productivity Costs: A new employee operates between 25%-50% of productivity levels

for the first three months, not including the time spent by existing employees to assist.

4. Lost Sales Costs: Includes the loss of business when the role is vacant and when clients go in

search of the same employee to the competing firm.

A recent survey was generated by SHRM and a free executive career site of The Wall Street Journal, CareerJournal.com. The survey results include responses from 300 managerial or executive employees from various banks as well as 451 HR professionals. Employees quoted the following three top reasons that would lead them to begin searching for a new job:

53% seek enhanced compensation and benefits.

35% cited displeasure with impending career development plan.

32% said they wanted a new experience.

To add to this, as per a survey conducted by American Media Consultants, Sharon Evans and Beverly Kaye, the most prominent factor in staying with a job was career growth and development. The dozen top factors they found for bank employees to stay in their jobs include:

Career development;

Exciting, challenging work;

Work that really makes a difference;

Great co-workers;

Being part of a team, not a collection of isolated individuals;

Great boss;

Having one’s contributions recognized;

Having fun at work;

Feeling autonomous and in control;

Flexible working hours and other policies (e.g., dress code);

Compensation package that is fair and competitive; and

Inspiring leadership.

Failures from the management’s side to provide effective retention strategies lead the employees to lose their focus soon and become de-motivated, due to which they are influenced to leave their existing jobs and start looking for the better ones. Some of the major employee retention strategies are explained below.

2.4.1 COMPENSATION & BENEFITS

Werst (2006) believes that employee retention starts with competitive compensation and benefits. Competitive compensation and benefits play a critical part in enabling employers to attract and hire the level of employees that they want to retain. Although salary and benefits are factors that attract people to organizations, sometimes they also become reasons to why employees leave (Herman, 1999). Mathis & Jackson (2008) also support pay and benefits by stating that it is well-established that pay and benefits influence employees’ decisions about which particular employer to work for and whether to stay or leave an employer.

The compensation and benefits package an organization offers to its employees is definitely an important factor in retaining good workers, especially those with ‘hot skills’ in the labor market. When managers or supervisors are asked how they keep good people, many respond, “With money.” Research suggests that 89% of managers still believe it’s largely about money (Kaye and Jordan-Evans, l999; Kreisman, 2002; Herman, 1999).

Effective compensation practices provide organizations with a competitive advantage by increasing their ability to attract and retain employees. This is supported by many previous studies which show that employees’ perceptions about their benefits are closely tied to job satisfaction and organizational commitment (Barber, Dunham, & Formisano, 1992; Sinclair, Hannigan, & Tetrick, 1995; Ward & Davis, 1995). Besides this, Woodbury (1983) discovered that employees also look up to benefits and salaries as substitutes, hence, ready to give up salaries in return for added benefits. Hence, Artz, B. (2010) concluded that those fringe benefits that are less taxed may be substituted for salaries, thus increasing the level of job satisfaction by saving the employee from high tax burden, provided that the employee’s marginal income tax fee falls after giving up salaries for benefits. High wages will attract people but will not keep them for long if other factors in the work environment are not favourable. The key is to pay fairly and equitably both from an internal and external perspective (Phillips & Connell 2003), while keeping other factors leading to employee retention constant. Also, Hansen (2010) states that generous benefit packages, especially those with an emphasis on health insurance and retirement savings tend to attract and retain employees, allowing them to work with relaxed mind and their performance level shoot up, increasing the overall productivity of the company.

2.4.2 CORPORATE CULTURE

Corporate culture is a fundamental component in any business’s eventual success or failure. As per the words of John O’Malley, quoted in Birmingham Business Journal, it is an unwritten set of values that management communicates directly or indirectly and all employees are familiar with and work under. Moreover, according to Zachary (2005), an endearing corporate culture is the environmental grounding for preserving the highest levels of company profitability due to high employee satisfaction as well as customer loyalty. Furthermore, in an article for the magazine Entrepreneur, Robert McGarvey outlined that the problem with a company’s corporate culture is shown through warning signs that include late arrivals of employees at work and going home as soon as working hours end; higher employee turnover; complexity in hiring talented individuals; low presence at events organized by company; lacking of truthful communication; an “us-v/s-them” mentality between workers and management; and a decline in product or service quality as well as customer satisfaction (Zachary, 2005).

Another independent U.S. research study carried out by LRN, a provider of governance, ethics, and compliance management, displayed additional verification that a company’s ability to sustain an ethical corporate culture is essential for the attraction, retention, and productivity of workers (Verschoor, 2006). This is mainly because of the changing generation needs and volatility. Nowadays, majority of the workforce are dominated by the latter generation people, and therefore the best way to retain them is through building a culture that suits them well.  According to HR professionals, these workers demand more flexibility, meaningful tasks, freedom in their job, significant rewards, as well as a better work-life balance than older employees (Guthridge, M, Komm, B. A, and Lawson, E., 2008 ).

Managers must also realize if there is a fit mismatch, as it was quoted in the Wall Street Journal that “the primary reason that causes employees to quit their job in an organization is due to their uneasiness with its culture. This usually happens when their inclination towards a leadership style, workplace conflict resolving, individual performance standards and accountability, attire and job hours do not fit with the policies and rules of the firm. (Weddle, 2001). Kerr and Slocum (1987) further reported that some organizations have cultures that emphasize values of teamwork, security, and respect for individual members. These values foster loyalty and long-term commitment to the organizations among all employees, regardless of their job performance. Hence, as per the opinion of Stanley, T.L (2007), it is clear that having a renowned or at least trustworthy corporate culture is extremely advantageous to any organization, and to make corporate cultures work exceptionally well in an organization, positive values are required to drive positive attitudes, which in turn will drive positive employee behaviours.

2.4.3 STYLE OF LEADERSHIP & MANAGEMENT

Purohit (2009) defines ‘leadership style’ as the manner and approach of providing direction, implementing plans, and motivating people to get a task done, by having the ability to inspire others to accomplish things, where as Friedman & Langbert (2000) define ‘management style’ as the leadership method a manager uses in administering an organization. Hence, style of leadership and management in a business organization can usually be considered as same.

A much skilled employee may join an organization because of its enigmatic leaders, generous system of benefits, and its world class training programs, but how long that person stays and how productive he turns out to be is assessed by his connection with his immediate supervisor (Buckingham and Coffman, 1999). This is also supported by Benjamin (2003) and Frank and Taylor (2004) that recognized poor management as the number one reason for why employees leave. People will leave if they do not like their manager even when they are well paid, receive recognition and have a chance to learn and grow. In fact, disliking or not respecting the “boss” is the primary reason for talent loss.

Moreover, various factors that enhance employee commitment and satisfaction include a fair compensation with respect to the employee’s value contributions to the organization, providing of feedback, an opportunity to learn and grow, a positive work environment, and most importantly, recognition for the uniqueness of each individual’s competencies. These are believed to lie within the direct supervisor’s control and recent studies reveal that unwanted turnover can be reduced more by a manager, than anyone else (Buckingham and Coffman, 1999; Kaye and Jordan-Evans, 1999).

Putman (2002) believed that the relationship existing between employees and their immediate supervisors is a crucial factor that determines employee satisfaction. It is essential for a manager to deal with employees one at a time, by asking them questions, listening actively to what they have to say, and working collectively on one-to-one basis so as to motivate and retain them effectively. The “good manager” is therefore one who helps his talented subordinates find satisfaction in their work, as an employee’s choice of staying or leaving a particular organization depends upon how satisfied he is working there (Buckingham and Coffman, 1999; Kreisman, 2002; Kaye and Jordan-Evans, 1999). Therefore, today it is highly anticipated that the quality of the supervision, in the form of leadership and management, an employee receives is critical to employee retention as employees tend to abandon managers and supervisors rather than leaving companies or jobs.

2.4.4 EMPLOYEE DEVELOPMENT OPPORTUNITIES

‘Development’ is considered as gaining new skills and taking advantage of many different methods of learning that benefit employees and organization alike. Employees benefit by experiencing greater satisfaction about their ability to achieve results on the job and by taking responsibility for their career; the organization benefits by having employees with more skills who are more productive. Employees say that the availability of skill development opportunities and career movement are “key attractors” to organizations. If an organization does not recognize the individual’s need and desire to grow, then “development” becomes a primary reason for resignation (Kreisman, 2002 and Dibble, 1999).

Employee development should be a manager’s top priority so as to boost their employees’ morale and retention because people want to learn and grow and if employees are not mentally challenged, employers will eventually lose them. People will check out mentally long before they check out physically. (Legge, 2003) Job experience and internal job rotation was generally seen as the best development methods although training and leadership courses were considered complementary, in line with the “internal system of HRM” proposed by Ordóñez de Pablos (2004). Most companies acknowledge the fact that for retention, it is important that the ability for people to move up the career ladder is created through an opportunity within your own organization (Thibodeau, 2001).

Research further indicates that approximately 45% of all “executive derailments” occur because the manager has failed to create and sustain a system of professional relationships both on the internal and external side of the organization (Dalton and Thompson, 1993). As per these researches, the retention of employees in the organizations is closely linked to development. Training, notably, has been demonstrated to increase employee commitment and is often treated as an important component in an offer of employment.

2.4.5 REWARDS & RECOGNITION

In order to keep employees well motivated and productive, managers must offer employees some tangible intrinsic rewards so as to let them know they are valued and also to give meaning to their work experience. Consistent employee recognition has been identified as a key factor in the retention of top-performers in an ASTD research report on retention (Jimenez, 1999).

Furthermore, from past researches, it has been found that rewards as provided by organizations have relationship with job satisfaction and hence lead to employee retention (Taplin et al., 2003). This was further acknowledged by Okoh, 1998; Bamigboye and Aderibigbe, 2004; Jerez-Gomez et al.,2005, as they stated in their respective studies that rewards help to motivate and retain competent staff for performance. Also, Heneman and Judge (2003) argue that for an organization to retain its employees, it must match its rewards to employees’ preference as this leads to job satisfaction which in turn guarantees employee retention.

Other than a competitive salary, recognition for a well performed job and rewards for accomplishing such work is also a key to effective retention. Human resources act as a firm’s long term competitive advantage, and are one of the most important assets as it is the employees’ knowledge which puts the company in a competitive spot. Therefore, a system for reward and recognition is worked out in order to ensure employees apply their knowledge in unique and progressive ways for the company (Keay, 2010). Moreover, to achieve desired goals, firms should closely align to organizational strategies their reward and recognition systems (Allen and Helms 2002). Effective Rewards and Recognition programs honour both individuals and teams who go the extra mile to service their employer. Hence, this can work out to be effective for employee motivation and consequently lead to performance improvement as well as increased employee morale as positive recognition from managers as well as peers, motivate most individuals to higher levels of work performance (Keller, 1999). Also, through his study of examining the relationship between pay, a person’s performance and turnover, Griffeth et al.(2000) identified that when high performers are insufficiently rewarded, they are most likely to leave the organization to seek employment elsewhere.

2.4.6 OVERALL IMPORTANCE OF EMPLOYEE MORALE & RETENTION

The issue of employee morale and retention is highly important as good employees are difficult to come across these days. Organizations have to move through a hectic process of analysing hundreds of job resumes, conducting large scale employment experience screening, and interviewing an assortment of candidates. However, the management also has to be familiar with the fact that retaining the employees it has found, can sometimes be even more difficult due to the difference in levels of employee morale. This is the reason why once an organization finds that perfect employee; it must do everything to ensure that it will be able to retain that individual in the company.

It is to be noted that the importance of this issue is highlighted by the finding that 86% of employers experience difficulty attracting new employees and 58% experience difficulty retaining their employees (Hale,1998). Also, for many organizations, sudden or “surprise” employee resignations can cast a much prominent effect on the execution of strategic plans and may in turn cause a corresponding decline in the overall productivity. This trend is especially true in the context of current economic uncertainties and the resulting corporate downsizings, where the impact of losing essential employees increases significantly (Caplan and Teese, 1997; Ambrose, 1996; Noer, 1993). Therefore, most managers understand the importance of employee retention and its impact on the overall health and vitality of an organization. Furthermore, Fitz-enz (1997) stated there is significant economic impact when an organization loses any of its critical employees, especially given the knowledge that is lost with the employee’s departure.

Thus, the fact cannot be disagreed to, that when a business loses its employees, it loses skills. Apart from this, the particular workplace-acquired expertise and knowledge individuals walk away with usually tend to take years to reinstate. Hence this is mainly why employee retention holds such great importance in the highly competitive world of today and this can only be achieved if employees’ morale is kept high at workplace.

CHAPTER 3: RESEARCH METHODS

The research methods basically reveal what procedures were undergone in order to accumulate relevant information required for the study. The sampling and data gathering procedures, statistical tests utilized and research model can be categorized as per below:

3.1 Method of Data Collection

As the topic selected was based on a Descriptive & Causal research, emphasis was laid upon both primary and secondary sources of data so as to gather detailed information. Hence, for secondary data collection, the researcher availed the opportunity of going through many articles, essays, write-ups and reports by different authors, using the internet kept this research updated with the newest of articles and editorials published online related to the research title. Whereas, for primary data, employees of different banks were turned to in order to obtain first hand information from them regarding employee morale.

3.2 Sampling Technique

As the research revolves around studying the effects of retention strategies on employees’ morale, convenience sampling, a common non-probability sampling method was applied to reach the intended source of primary data. This was because as the list of respondents is not specified, information could be collected from the members of the sample population who are conveniently available to provide it.

3.3 Sample Size

The sample size was selected on the basis of limitations and scope of the research. As accessing the whole target population appeared next to impossible due to certain limitations, a sample size of 100 individuals was surveyed as they were bound to provide satisfactory results. Moreover, the survey population consisted of people who fulfilled the following two criteria: Individuals working in one of the private commercial banks of Pakistan, Karachi to be more precise due to certain research constraints; either at top-level or middle-level. This was to ensure that all respondents belonged to the social class where all their basic needs are easily met and they needed something over and above the fulfilment of basic needs as a reason to be retained with the banks they worked for.

3.4 Instrument of Data Collection

To facilitate the primary data collection, a structured questionnaire was developed so as to endow substantiality for the study. This was segregated into 2 sections, 5 subsections and 36 questions, as per following details:

Section ‘A’ aimed to establish a general profile of the respondents, by acquiring information on basic demographic variables, i.e. gender, age, educational level, designation and marital status.

Section ‘B’ aimed to first find out abou