Impact of Employee turnover and Controlling it.

 Human capital is the key to a successful business. It has the necessary skill and the talent to drive businesses to higher levels. (Allen, 2008). Therefore, it is important for organizations to maintain a workforce with talent and skill to survive the competition and to achieve its goals. But human nature is so complex and diverse from one to another. Keeping such diverse individuals in the long run and directing them to achieve a common goal (organizational goals) is a key challenge that the managers face today. (Allen 2008). With the advancement of trade, continuous new opportunities open for the talented and skill labor. Which means that there is plenty of opportunities for the workforce to turnover form one organization to another. March and Simon (1958) who studied about employee turnover intention in early stages stated that for an employee to move from one job to another, there should be a “perceived desire and a perceived possibility of such ease of movement”. In today’s context we can argue that “perceived possibility of such ease of movement” is plenty as there are so much of new openings due to the economic advancement and globalization. Due to this reason, “a desire” to change the job to a better organization which gives more benefits constantly kindles in present day employee’s mind.

Therefore, employee turnover has become a key challenge for HR managers at present and a number of studies have been conducted and a number of solutions proposed by these studies, but still employee turnover has not decreased. (Veloulsou, 2004, sited in Wjebandara 2019).

Calculating the employee turnover rate and understanding it,

The employee turnover rate is calculated by dividing the number of employees who left the company by the average number of employees in a certain period in time. This number is then multiplied by 100 to get a percentage.

Source – https://www.slideteam.net/

To calculate the employee turnover rate 3 variables are required.

1. The number of employees who left (voluntary and involuntary) the company in a certain period of time. (Quarterly/ half yearly or annual)

2. The number of employees the company was employing at the beginning of a certain period.

3. The number of employees the company was employing at the end of certain period

We cannot generalize the employee turnover rate of an organization and say that it is acceptable or not as it varies depending on many factors. But usually it is compared with the industry standard in a geography during a specific time period and then benched marked with the national turnover ratio. There are industries where the turnover is higher than the national turnover ratio. In Sri Lanka Apparel industry is such an industry.

If the turnover ratio of an organization is higher than the industry standard of that geography during that period, it is an indication of a problem in the organization which requires immediate attention (Allen,2008).  High turnover incurs high costs and low productivity to the organization. But if the high turnover is due to poor performers leaving the organization it can be beneficial for the organization (Udechukwu ,2007).

Why turnover matters to an organization 

Organizations must take a note of the turnover of employees due to three factors.

1.      It is costly.

Employee departures cost a company time, money, and other resources. Research suggests that direct replacement costs can reach as high as 50%-60% of an employee’s annual salary, with total costs associated with turnover ranging from 90% to 200% of annual salary (Cascio,2006 sited in Allen 2008).

 

2.      It affects performance.

New joiners take time to catch up the work and initially are slow and makes mistakes. Due to this the flow of the work in an organization is affected and the production may become slow and wastage also may increase due to defects. If it is a service organization customer service may get affected and the organization may lose some customers as well. (Cascio,2006 sited in Allen 2008).

 

 

3.      It would be difficult to find talent and thus would be difficult to manage the organization without required talent.

Due to brain drain lot of developing countries are losing skilled labor. Therefore, it would be difficult to replace specialized talent if an employee with such skill resigns. Sometimes organizations may even have to continue without filling these vacancies for some time. As an example we can mention the shortage of Fintech professionals in IT sector and surgeons dealing with kidney transplants in Sri Lanka.

How employee turnover could be controlled.

As discussed earlier, unhealthy turnover is a concern for organizations and it needs to be controlled. But finding ways and means of controlling turnover is no easy task as there is no fixed recipe for it. Each organization will have to find its own treatment by finding out the cases for the turnover.

However, Various researchers have suggested different HR practices as the most appropriate in controlling turnover according to their findings. According to Allen (2008) Correct recruitment, Correct selection, socialization, training and development, compensation and rewards, supervision and employee engagement are the most effective factors in controlling employee turnover. According to Zang (2016), employee engagement and job design, understanding the real needs of employees, effective dealing with employee complaints, a fair and a competitive compensation package, training and career development, improving living conditions of employees are the effective factors in controlling employee turnover. Therefor it is not practical to list or name any practice or practices as ideal, as it would depend and very from organization to organization.

The below video also explains the measures which can be adopted to control employee turnover in an organization.

Source - https://www.youtube.com/watch?v=JAjR6cac6O4

References.

1.      Allen, D.G (2008). Retaining Talent, SHRM Foundation, U.S.A.

2.      March, J. & Simon, H. (1958). Organizations, Wiley & Son, New York.

3.      Udechukwu, I.K. & Mujtaba, B.G. (2007), Determining the probability that an employee will stay or leave the organization: A mathematical and theoretical model for organizations, Human Resource Development Review. Vol 6, No 2, pp 164-84.

4.      Wijebandara,H.M.M.A. ,  Malalage,G.S., and  Fernando,W.R.P.K.A (2019). Factors Affecting Employee Turnover Intention among Non-Managerial Employees in Selected Financial Companies in Colombo District. Kelaniya Journal of Human Resource Management, VoL 14 ,Issue 01, Page 33-4.

5.      Zhang, Y, (2016). A review of employee turnover influence factor and countermeasures. Journal of human resource and sustainability studies. Vol 4, no 2, June 2016.

Herzberg’s and McGregor’s theory Vs Employee turnover.

 

Herzberg’s Two Factor Theory. (Theory of motivation factors)                  

American psychologist Frederic Herzberg in 1959 introduced a powerful motivational theory which is known as Herzberg’s two factor theory. It is also known as motivation hygiene theory or dual factor motivational theory as well. In developing this theory, he was influenced by the Maslow’s hierarchy of needs. (Jones 2011). According to this theory Herzberg divides the factors that affect job satisfaction into two categories as motivation factors and hygiene factors or intrinsic and extrinsic factors. 

According to this theory, presence of motivation or the intrinsic factors increases the motivation of an employee and presence of hygiene or extrinsic factors reduce job dissatisfaction (Herzberg et al 1959 sited in Alshememri 2017).

Hygiene or extrinsic factors refers to the basic needs an employee may look in a job such as salary, good working environment, job security, organization policy, supervision etc. These are the lower levels of Maslow’s hierarchy of needs. It’s important for managers to realize that not providing the appropriate and expected extrinsic motivators will increase dissatisfaction and decrease motivation among employees The absence of hygiene factors can create job dissatisfaction, but their presence does not motivate or create satisfaction (Herzberg et al 1959 sited in Alshememri 2017).

Motivators or intrinsic factors refers to the higher-level needs in the Maslow’s hierarchy of needs such as esteem and self-actualization needs. These will include the potential for career growth, learning and development opportunities, recognition, responsibility. The presence of these factors in a work place will definitely increase the job satisfaction and motivation among employees in an organization (Herzberg et al 1959 sited in Alshememri 2017).

According to Herzberg (1966 sited in Alshemeri 2017), intrinsic motivators and extrinsic motivators have an inverse relationship. That is, intrinsic motivators tend to increase motivation when they are present, while extrinsic motivators tend to reduce motivation when they are absent. This is due to employees’ expectations. Extrinsic motivators (e.g., salary, benefits) are expected, so they won’t increase motivation when they are in place, but they will cause dissatisfaction when they are missing. Intrinsic motivators (e.g., challenging work, growth potential), on the other hand, can be a source of additional motivation when they are available (Herzberg et al 1959 sited in Alshememri 2017).

The below illustration explains the Herzberg’s theory in a simple way for easy understanding.

Figure 1. – Herzberg’s two factor theory.

 

Source - Ivey Business Journal.

 

If the management is interested in increasing the motivation of its employees, it should focus on the motivators or the intrinsic factors rather than the hygiene factors in the organization. (Allen,2008).

Even though the two-factor theory of Herzberg is widely accepted in general all over the world across organizations it may not hold correct to some jobs or the effect of factors may vary according to the job. As an example, according to a study carried out by Bellot and Tutor in 1990, it was found that salary acted as a strong motivator for Tennessee Career Ladder program which has 30,000 members. According to Herzberg, salary is a hygiene factor and is not a motivator. (Gawel 1996).

From a number of studies conducted it has been established that there exists a negative relationship between motivation and employee turnover intention(Varma,2017). Therefore, the managers who are looking to curb turnover in organizations must strive to improve the job satisfaction of employees by providing motivator factors in the employee’s reward system (Varma 2017).

 

            McGregor’s theory ‘x’ and theory ‘y’  

 

 

 

Source – https://www.simplypsychology.org/

Douglas McGregor articulated a new management theory in 1957 in an article titled “The human side of Enterprise” and the same was affirmed and expanded in 1960 with the publication of his book under the same title. In this book he put forward three views of management out of which the theory of X and Y was built. (Lawter, 2015).

The first view - managerial work behaviors (or practices) ultimately reflect a manager’s fundamental assumptions about people—which McGregor (1960) referred to as a cosmology. (Lawter 2015).

Second view -  That there were two diametrically different views about the nature of people at work, which he called Theory X and Theory Y. (McGregor 1960, cited in Lawter, 2015)

Theory X—which he claimed was the predominant perspective in the 1950s, was based on three assumptions:

 (a) people are naturally lazy and try to avoid work whenever possible;

(b) people are inherently irresponsible and, thus, it is necessary to closely monitor work behavior; and

(c) most workers have little to contribute intellectually to the operation of an enterprise.

This latter incapacity necessitates providing detailed instructions and reducing the scope of work to match the limited abilities of “hired hands.”

 Theory Y- that a more positive view of human nature was generally more accurate:

(a) people can find work enjoyable, and under suitable conditions, experience motivation and fulfillment;

 (b) people are not inherently irresponsible; rather they are capable of self-direction and self-control; and

(c) people have the potential to make important intellectual contributions to the work they perform.

Theory Y, employees are seen as individuals who actually want to work, who like their work and who are creative and innovative. (Lawter, 2015).

Third View - he (Mc Gregor) argued that a manager’s cosmology (i.e., assumptions about people at work) was potentially a self-fulfilling prophecy and thus would work according to this assumption. (Lawter,2015).

In a summery we can state that McGregor believed that managers' basic beliefs have a dominant influence on the way that organizations are run. Managers' assumptions about the behavior of people are central to this. McGregor argued that these assumptions fall into two broad categories - Theory X and Theory Y. (Cunningham 2011).

This theory consists of two extremes as X and Y. In today’s corporate world we cannot find any organization which is run either using theory X or Y alone. It is because that individuals with divers’ personalities are employed and both X and Y theories exists in the workforce. If any organization adopts only theory X in managing employees, it will de-motivate creative, self-committed and Loyal employees and chase them away from the organization, In the other hand if an organization adopts only theory Y in managing employees, it will not be able to achieve its target and goals as the employees with theory X factors will not work as they are lazy. Therefore, the ideal would be a mix of both these management styles.

We can conclude that, Mc Gregor recognizes that it cannot actually motivate people, but have to acknowledge that opposing forces at play. Therefore, what the managers can do is attempt to create the right climate, environment or working conditions for motivation to be enabled. (Cunningham 2011)

 

 

 

References

 

 

1.      Allen, D.G (2008). Retaining Talent, SHRM Foundation, U.S.A.

2.      Alshmemri, M, Shahwan-Akl. L and Maude. P (2017). Hersberg’s Two Factor Theory. Life Science Journal 2017;14 (5).

3.   Cunningham, R.A (2011)., Douglas McGregor-a lasting impression. Ivey Business Journal. Sep/Oct, vol 75 issue 5, 2011, pp5-7.

4.      Gawel, J.E (1996). Herzberg's Theory of Motivation and Maslow's Hierarchy of Needs. Practical Assessment, Research, and Evaluation: Vol. 5, Article 11. Available at: https://scholarworks.umass.edu/pare/vol5/iss1/11 (accessed on 14th April 2022).

5.      Jones, T. L. (2011). Effects of motivating and hygiene factors on job satisfaction among school nurses. PhD thesis, Walden University, Minneapolis, MN. Available at https://www.semanticscholar.org/. (Accessed on 20^th April 2022).

6.    Lawter, L., Kopelman, R. E., and Prottas, D. J. (2015). McGregor's theory X/Y and job performance: A multilevel, multi-source analysis. Journal of Managerial Issues, Vol: XXVII, Nov 2015.pp 84-101.

7.  Verma, C. (2017) Importance of employee motivation & job satisfaction for organizational performance. International Journal of Social Science & Interdisciplinary Research. Vol. 6 (2), February (2017), pp. 10-20.