Employee Turnover and Its Long-Term Impact

Executive Summary

This report evaluates the relationship between employee turnover and the long term survival of organisations. The report recognises the various forms of employee turnover which include voluntary and involuntary turnover. However, the report mainly focuses on the dysfunction component of employee turnover. The various categories of factors that contribute to employee turnover are evaluated. These categories include push, personal and pull factors. The various components in each category are evaluated in order to illustrate how they impact the performance of organisations. In an effort to illustrate the impact of employee turnover on the long term survival of the organisation, the report analyzes the findings of previous studies conducted. From the study, it is evident that employee turnover has negative impacts on organisational. This is due to the fact that the productivity of the remaining employees is reduced. To deal with the negative effects of employee turnover, the report highlights a number of strategies that HR managers can integrate in order to improve employee retention.

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Introduction

Background to the study

Organisations are facing numerous challenges as a result of the various revolutionary trends that are currently being experienced. Some of these trends relate to demographic changes, technological innovation and global competition (Chew 2004). Despite this, firms are under intense pressure to be more productive. To achieve the desired level of productivity, an effective workforce is necessary. Negi (2013) asserts that “employees are the most valuable organisational asset” (p.1). However, employee turnover has become one of the major challenges that firms’ are facing.

Ongori (2007) defines employee turnover as “the ratio of the number of organisational members who have left during the period being considered divided by the average number of people in that organisation during the period” (p. 49). Consequently, organisations are increasingly considering employee turnover as one of the most important metrics in their workforce planning processes. There are three main reasons that explain why employee turnover has become very important to the organisation. First, employee turnover is very costly. Some of the costs associated with employee turnover include replacement cost, financial cost, operational cost and training cost. Secondly, employee turnover affects organisational performance. Thirdly, a high rate of employee turnover makes it difficult to manage a firm (Allen 2008).

The rate of employee turnover varies across sectors. Burkus (2011) asserts that the global rate of employee turnover in the hospitality industry ranges between 60% and 300% which is relatively high compared to the manufacturing industry. Burkus (2011) asserts that organisations that are not effective in managing their workforce are likely to lose their marketable employees hence impacting their competitiveness negatively. For example, it may be difficult to replace the employee due to lack of the necessary competence in the labour market.

The business environment has become very challenging over the past few decades. Firms in the UK are likely to experience an increment in the rate of employee turnover over the next 5 years. Amofah (2013) asserts that the rate of employee turnover will increase from 14.6% in 2013 to 18% in 2018. Amofah (2013) further asserts that 765,000 employees will quit their jobs in the UK by 2015.

Conceptual framework

There are various reasons that have been advanced in an effort to explain why employees quit their job. These reasons are categorised into two main groups which include voluntary and involuntary reasons. Voluntary turnover is further categorised into dysfunctional and functional reasons. Dysfunctional turnover entails performing employees quitting their job while functional turnover refers to quitting by poor or ineffective employees. According to Allen (2008), dysfunctional turnover is dangerous to an organisation’s long term success.

Conceptual framework.
Figure 1; Conceptual framework.

Despite the differences, it is vital for organisational managers to develop a comprehensive understanding of the impact of turnover on organisational survival. This will give management teams insight on how to improve the rate of employee retention.

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Research objective

Considering the role of employees in the success of organisations, it is vital for firms’ management teams to develop and maintain a strong workforce. However, this has become a major challenge for many organisations due to the high rate of employee turnover. This report explores the impact of employee turnover on the long term survival of the organisation.

Scope

The report evaluates a number of issues which include the reasons that stimulate the high rate of employee turnover and the impact of employee turnover on organisations’ productivity. Moreover, the report analyses the various strategies that organisations can integrate in order to improve the rate of employee retention.

Literature review

Human resource management plays an essential role in the long-term success of organisations. This arises from the fact that it enables firms’ to formulate effective strategies that contribute towards improvement in their competitive advantage (Abdullah, Ahsan & Allam 2009). Most studies suggest that strategic HRM systems and practices enable organisations to survive in the long term (Abdullah, Ahsan & Allam 2009). For example, a study conducted by Gerhart and Becker in 1998 suggests that firms that have integrated HRM in their business and corporate-level strategies are likely to achieve impressive performance compared to those which have not.

Employee retention has become one of the critical aspects that organisations’ management teams are increasingly considering in their strategic HRM practices (Negi 2013). Findings of recent surveys reveal that attracting and retaining high-quality human capital is fundamental in achieving the desired level of organisational success. In an effort to attain their desired level of productivity, firms invest a substantial amount of resources in developing a strong human resource base. Despite the efforts made, employee turnover continues to be a major challenge. Allen (2008) further asserts that “employee turnover is a global phenomenon that affects all firms” (p.1). The external business environment has become very dynamic. This is evidenced by the changing economic, cultural and social factors. According to Burkus (2011), no organisation can survive in the long term without taking into account the element of employee turnover. A report prepared by CIPD, a UK based research firm, in 2005, reveals that retaining employees has become very difficult over the years.

Previous studies conducted by scholars and practitioners show that there are different issues that motivate employees to quit their job. For example, a study conducted by Mobley in 1977 reveals that there is a strong positive degree of correlation between employee turnover and job satisfaction (Shah et al 2010). There are three main categories of factors that motivate employees to leave their job. They include;

  1. Personal factors
  2. Push factors
  3. Pull factors

Pull factors: These factors are also referred to as controllable factors. This is due to the fact that they originate from within an organisation and hence they can be controlled by firms’ management teams. Taylor (2002) opines that push factors account for the largest percentage of employees that quit their jobs. This arises from the fact that the employees may not be satisfied with the organisation and hence they might prefer quitting. Push factors can be divided into various categories which include organisational factors, attitude factors and organisational commitment factors.

Organisational factors

Organisational instability and inefficiency

According to Cornelissen (2011), organisational instability is one of the major factors that stimulate employee turnover. Organisational stability determines the level of job satisfaction among employees. Findings of previous surveys conducted reveal that employees are likely to stay within a particular organisation if it is characterised by a predictable working environment. Working in such an environment enables employees to predict the likelihood of attaining their career development goals. Wasbeek (2004) asserts that working in a stable organisation increases the level of employee productivity.

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Operational inefficiency is another factor that increases the rate of employee turnover. One of the ways through which organisations can ensure operational efficiency is by integrating a well-built information system. Consequently, communication is one of the key components that firms’ management teams should take into account in their strategic HR management practices. However, most organisations do not consider communication as a key element in their operation.

Poor communication

Griffeth et al (2000) assert that employees feel satisfied and tend to stay longer in an organisation that integrates them in the decision making process. This contributes towards the development of a strong bond between the top management and the subordinate staff. Thus, it is fundamental for organisations to focus on developing an effective communication culture. This will play a significant role in developing and sustaining effective internal communication.

Findings of a survey conducted by Mohamad (2008) revealed that the communication load increases turnover intention. The study showed that employees who suffer from communication load are unable to complete the tasks assigned successfully. This is due to the fact that they tend to do their work in a hurry in order to complete the next task. On the other hand, little information may lead to a lack of the necessary guidance that employee may require in order to execute their tasks. Thus, it is imperative for firms’ management teams to ensure that they balance the volume of information communicated to employees (Mohamad 2008).

Gopal (2009) asserts that “ if the communication channels in the organisation are open, employees feel free to discuss all issues that are pleasant and others that disturb them” (p. 6). Consequently, they are less inclined to quit their jobs. Moreover, employees should also be integrated into the decision-making process. Employee involvement contributes to the development of a high degree of organisational identification.

Co-worker relationship and employee attitude

Employee turnover is also influenced by co-worker relationships (Jong & Gutteling, 2006). Lee and Ok (2007) hypothesize that workplace friendship is an important element that organisations should cultivate. Workplace friendship increases the level of cooperation amongst employees. This culminates in a high level of information sharing which stimulates organisational performance. Moreover, workplace friendship leads to a decline in work-related problems such as employee conflict (Lee & Ok 2007). Chandrasekar (2011) are of the opinion that “people are more productive within a harmonious workplace environment” (p. 4).

Attitude is another category of push factor that motivates employees to quit their job. According to Smidts, Pruyn and Riel (2001), employees may develop a negative attitude towards their job depending on the prevailing working environment. Qureshi et al (2013) assert that the competitive nature of the business environment is pressurising organisations to develop a strong human capital in order to attain the desired competitive advantage. One of the HR development strategies that organisations are considering entails assigning challenging tasks to employees. Some organisations are incorporating the concept of downsizing in an effort to lower the cost of their operation. According to The People Report Workforce Index, employers within the restaurant industry are experiencing a challenge in retaining employees. This may result in a high level of employee frustrations hence stimulating turnover intentions. Moreover, the adoption of such strategies increases the employees’ workload which culminates in work-related stress (Ruggless 2012). Qureshi et al (2013) assert that a direct relationship exists between job stressors and the employees’ turnover intentions. The chart below illustrates the trend in human resource pressures within the restaurant industry.

Overall: All industry segments
Figure 2: (Ruggless 2012).

Employees may develop a perception that the organisation’s management team does not address their intrinsic needs adequately. Some of the intrinsic rewards that are mainly incorporated in organisations’ reward management systems include employee recognition, provision of learning opportunities and promotion. Casserly (2013) asserts that employees are increasingly demanding a comfortable working environment. Recognition and respect are some of the issues that employees are demanding from their employers.

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Intrinsic rewards contribute to a high level of inherent satisfaction amongst employees. According to Kluvers & Tippet (2004), most organisations are more concerned with extrinsic rewards such as salaries and wages increments. Kluvers & Tippet (2004) emphasise that over-relying on extrinsic rewards system leads to the occurrence of a crowding-out effect. This means that employees become less and less satisfied by monetary rewards provided. As a result, they begin to seek the meaning of their job. This underscores the importance of integrating an effective employee reward system. Failure to incorporate an effective intrinsic reward system may motivate employees to develop turnover intentions.

Wage and salaries account for a significant proportion of the total operation cost incurred by organisations. Consequently, firms’ management teams are increasingly devising strategies aimed at lowering the cost of operation. One of the components that managers are increasingly focusing on includes salaries and wages (Blum & Tremarco 2008). Most firms in the UK have implemented pay-cut over the past five years in an effort to streamline their operational budgets. The 2008 global economic recession has motivated most firms to consider lowering their wage budget. According to Allen (2013), “workers have suffered unprecedented pay cuts of 6% in real terms over the last five years” (para. 2). The chart below illustrates the percentage decline in wages and salaries in the UK from 2007 to 2012.

Region Percentage decline
Scotland 9.7
North Ireland 4.8
North East 5
North West 10.6
Yorks & Humber 8.5
East Midlands 7.7
West Midlands 9.7
Wales 8.1
Southwest 10.1
South East 7.3
London 3.9
East 4.9

Figure 3. Source: (Allen 2013).

The above table shows that companies in most regions in the UK have implemented a wage cut in an effort to lower their cost of operation. Such a trend is likely to increase the level of dissatisfaction among employees. A survey conducted by Griffeth et al (2000) showed that high performers tend to quit their job if they are insufficiently remunerated. Consequently, it is fundamental for firms’ management team to ensure that they integrate effective employee remuneration strategies.

Management practices

The management practices adopted by an organisation impacts the extent to which employees identify with the firm and hence the turnover intention (Negi 2013). For example, adoption of a quantitative approach in managing workforce stimulates employees to quit. This approach entails the process of managing the workforce by integrating scientific methods in the decision-making process. Some of the quantitative methods commonly used include linear programming, computer simulation, statistics, decision trees and network analysis amongst others (DuBrin 2012). Ongori (2007) opines that the quantitative approach should not be used in making employees decisions. However, they are very appropriate in making decisions related to quality control, inventory control and plant-site location amongst others.

A study conducted by the Saratoga Institute suggests that approximately 9% to 32% of the total cost incurred as a result of employee turnover is directly associated with poor management practices. Leadership is one of the most important human resource management practices that organisations should develop. There are various leadership strategies that organisations can integrate. Some of these strategies include autocratic, democratic and transformational leadership. The leadership style adopted by an organisation impacts the level of employee satisfaction. For example, autocratic leadership denies employees an opportunity to contribute to the decision-making process. This increases the level of dissatisfaction among employees. Most organisations do not pay attention to how to improve leadership skills. This emanates from the existence of a general belief that the leadership skills possessed managers is sufficient in enhancing the firm’s competitive advantage. Findings of a survey conducted by The Ken Blanchard Companies (2009) reveal that“the average organisation is losing over $ 1 million annually in untapped potential because of less-than-optimal leadership practices” (p.1).

The study’s findings are also emphasized by another survey on the impact of organisational managers on the performance of nurses in the US. The study shows that there is a direct correlation between the managers’ behaviour and the nurses’ perception of their job. According to the study, the managers’ behaviour influences the employees’ level of commitment with a margin of 22%. Other variables that are influenced by the managers’ behaviour include the level of satisfaction and employee productivity (Loke 2001).

The nursing profession is one of the fields that continue to adopt an authoritarian leadership style despite the numerous leadership theories that have been developed (Rosman, Shah & Hussain 2013). Poor leadership is one of the major reasons that explain the high rate of employee turnover being experienced today.

Organisational commitment

The decision to leave a particular organisation is also influenced by the degree of organisational commitment amongst the employees. According to Griffeth et al (), the degree of organisational commitment is a strong indicator of the level of job satisfaction amongst employees and hence the turnover intentions. Researchers have classified organisational commitment into three main categories which include affective, continuance and normative commitment (Salleh, Nair & Harun 2012).

Affective commitment is defined as the degree of the emotional attachment of a worker to his or her workplace. Alternatively, affective commitment is also defined as the degree of organisational identification. Meyer et al (2001) define normative commitment as “the employees’ feeling of obligation to remain with a particular organisation” (Meyer et al 2001). On the other hand, continuance commitment is defined as the employees’ decision to continue working in a particular organisation due to the costs associated with quitting their job. Previous studies conducted by Meyer and Allen assert that the three categories of organisational commitment are a negative indicator of employee turnover (Meyer et al 2001). Consequently, it is imperative for firms’ management team to understand the nature of organisational commitment amongst the employees.

Personal and demographic factors

According to Jang (2008), there are various personal and demographic factors that motivate employees to quit their job. Age is one of the demographic factors that kindle turnover intention amongst employees. Previous studies show that the likelihood of young employees quitting their job is relatively high compared to mature employees (McGovern & Shelly 2008). According to Careers in Transition, LLC, employee turnover is a major concern to managers. It is estimated that an average employee in the US experience approximately 12 job offers and 3 to 5 different careers. This highlights why the rate of turnover is very high (McGovern & Shelly 2008). Jang (2008) further opines that “employees with long work experience have been found to have low turnover tendencies” (p. 13).

Trivial reasons have also been cited to stimulate turnover. Examples of reasons include dislike for the supervisors, managers or fellow colleagues. An employee may decide to quit if the colleague he or she dislikes continues working in the organisation (Carmeli, Atwater & Levi 2010) Moreover, the decision to quit may also be triggered by friends and relatives. Employees may also have unrealistic expectations from their organisation (Boros 2008). Organisations in different economic sectors are appreciating the importance of developing strong human capital. Head-hunting is one of the recruitment strategies that organisations are incorporating. Opportunity for a high paying job may pull employees to quit their job (Schmitt 2012).

Currently, employees are faced with numerous personal and family expectations. One of the personal expectations relates to the need to achieve the desired career development goal. Employees evaluate the likelihood of achieving their personal values and goals upon joining a particular organisation. If they develop a perception that they will not attain their desired career goals, they might decide to quit. If their calculation is favourable, they are motivated to stay (Schmitt 2012).

Family commitments may motivate employees to leave their job. For example, parents working for long hours or across varying time zones may decide to quit in order to be close to their children and families (Khan 2012). Other employees may quit because they do not like following the company policies, rules and regulations. Health problems also constitute another category of personal factors that motivate employees to quit. Some employees may be suffering from various health problems that might not allow them to continue with their employment (Khan 2012).

Pull factors

These factors are also referred to as uncontrollable factors and tend to motivate employees to join new jobs. Some of the pull variables include higher salaries, career development opportunities and more freedom. According to Schmitt (2012), organisations are characterised by discernable differences that emanate from the industry norms. Consequently, employees may be attracted to a particular organisation by its corporate culture. Kawatra and Krishnan (2004) assert that the issue of corporate culture has been downplayed by scholars and management experts for a long duration. Therefore, it is important for organisations’ management teams to acknowledge the importance of developing a strong corporate culture.

There are various forms of corporate culture that organisations can develop. Some of these cultures include innovative, aggressive, detail-oriented, people-oriented, stable and team-oriented cultures (Al-adaileh 2011). Employees may be attracted to a particular organisation depending on the prevailing organisational culture.

Organisations are increasingly restructuring their operations in an effort to lower the cost of operation. One of the strategies that firms are integrating is downsizing. For example, an organisation may decide to eliminate a particular departmental unit and outsource the services externally (Smit 2007). Mittal Steel and Iscor are some of the companies that have integrated the downsizing strategy in order to develop a competitive advantage within the global steel industry.

Despite the existence of numerous works of literature on how to lower the cost of operation, few researchers have investigated the impact of such strategies on the long term performance of an organisation. It is important for these gaps to be evaluated in order to provide HR managers with sufficient knowledge on the impact of the strategies implemented on their organisations’ long term success. According to Smit (2007), downsizing may trigger turnover intention amongst employees. Employees may feel that they do not have adequate job security thus increasing the degree of uncertainty with regard to their continued stay in the organisation.

Relationship between employee turnover and productivity

Shamsouzzoha and Shumon (2011) assert that employee turnover is an intractable aspect that is affecting organisations globally. One of the aspects that turnover is affecting is productivity. According to Ranganayakulu (2005), productivity is one of the most important aspects of the success of the organisation. Ranganayakulu (2005) defines productivity as “a measure of how efficiently an organisation manipulates its resources or factors of production within the production of goods and services” (p.169). Shamsouzzoha and Shumon (2011) are of the opinion that organisational productivity is affected by various factors. One of these factors is employee turnover. Employee turnover is ranked as the most challenging factor facing organisations today. Consequently, the issue of employee turnover has become of great interest to industrial psychologists, senior managers and HR professionals.

Numerous researches link high rates of employee turnover with a decline in organisational productivity. The various costs associated with employee turnover tend to lower organisational productivity. Burkus (2011) asserts that the likelihood of separation costs being overlooked when evaluating the cost of employee turnover is relatively high compared to other costs. Thus, it is essential for organisations’ management teams to develop a comprehensive understanding f the costs of employee turnover.

In their pursuit of competitive advantage, organisations are investing a substantial amount of resources in hiring employees (Marimuthu et al 2009). Some of the costs associated with hiring new employees include the cost of interviewing, hiring and handling the necessary paperwork. This lowers the amount of time available to the recruitment panel to engage in productive activities. Organisations characterised by a high rate of employee turnover require massive investment in order to successfully hire new employees. This may result in a deviation of financial capital from other organisational development aspects such as research and development. The resultant effect is that the firm’s productivity is adversely affected (Leblibici 2012).

According to Burkus (2011), it is fundamental for organisations to undertake a comprehensive training on the selected candidates. This will equip them with the necessary skills and knowledge to execute the duties and tasks assigned. Marchington and Wilikinson, (2006) emphasise that training cost has a significant impact on an organisation’s profitability and productivity. During the employee training phase, supervisors and managers are involved in tasks that are not directly associated with the organisation’s normal operation. Consequently, organisations are subjected to pay managers for activities that are not beneficial to the firm until the selected employees are fully trained and integrated into the organisation. Some organisations prefer outsourcing mentors in an effort to ensure effective employee training.

In the event of the new employee quitting after a short stay, the organisation’s productivity is adversely affected due to the lost time and money. Kennedy-Luczak and Thompson (2004) assert that the remaining employees are charged the responsibility of picking up the slack. This may adversely affect the employees’ productivity due to an increase in workload. It might also take a long duration before the employee is replaced. Moreover, the existence of a cultural difference between the new employee and organisation may reduce his or her job performance hence the productivity (Kennedy-Luczak & Thompson 2004).

Human capital is widely recognised as the most valuable organisational asset in the 21st century(O’Reilly & Pfeffer 2000). Employees who have stayed longer within a particular organisation are likely to be more productive. This is due to the fact that they are likely to have gained substantial institutional knowledge. Thus, they are conversant with how things are done within the workplace (Marimuthu et al 2009). For example, such employees appreciate the importance of updating data in order to improve their organisations” business processes. A new employee may not possess such institutional knowledge which might limit the organisations’ productivity. On the other hand, losing an employee who possesses immense institutional knowledge affects the firm’s productivity negatively.

Methodology

This report investigates the impact of employee turnover on the performance of organisations and hence their long-term survival. Consequently, the research is descriptive in nature. An effective research design is used in order to improve the findings of the study. According to Maxwell (2005), research design makes the findings of a particular study to be logical. For example, by integrating qualitative research design, the researcher is able to gather a wide volume of data. Moreover, the qualitative design enables researchers to conduct an in-depth analysis of the issue under investigation. On the other hand, quantitative research design enables the researcher to integrate quantitative measures in analysing the data collected.

Data collection, presentation and analysis

In the process of conducting the study, the researcher has specifically relied on secondary sources of data. This has played a significant role in minimising the cost associated with collecting data using primary methods. The data used was collected from published reports and studies. The researcher made sure that the data is only collected from credible sources. This is crucial in improving the credibility of the study’s findings.

The data collected is presented using tables and graphs. Considering the quantitative nature of the study, the researcher has integrated meta-analysis technique. This has played a significant role in summarising findings of previous studies. Moreover, meta-analysis has provided the researcher with a perfect opportunity to determine how employee turnover impacts organisational performance and survival.

Results

A survey conducted by the Chartered Institute of Personnel Development shows that most organisations in the UK are experiencing a challenge in their effort to develop a strong human capital. Five hundred and twenty-two (522) human resource practitioners in UK firms were considered in the study. The chart below illustrates a number of human capital benchmarks according to the survey.

Year
2011 2012
Labour turnover 16% 13%
Firms experiencing recruitment challenges 68% 82%
Firms experiencing retention challenges 55% 34%

Table 1.

Graph showing trend in human capital in UK between 2011 and 2012.
Figure 4.

Firms in the UK have experienced a relative decline in the rate of employee turnover over the past two years. Between 2011 and 2012, the average rate of labour turnover declined from 16% to 13%. However, firms are experiencing a major challenge in their effort to recruit new employees. Eighty-two per cent (82%) of the firms surveyed revealed that they experienced a challenge in filling positions that fall vacant as a result of employee turnover. This is relatively high compared to 68% of firms surveyed in 2011. The firms reported that they experienced major difficulties in refilling technical, professional and managerial posts. Lack of the necessary skills and knowledge in the labour market was cited by 67% of the firms’ surveyed as the major reason why they experienced problems in refilling vacant positions. Consequently, the likelihood of such firms experiencing competitive challenges and hence long-term survival is high.

Despite this, the rate of employee retention amongst most firms in the UK has increased significantly. This is evidenced by the decline in the number of firms experiencing problems in retaining their workforce from 55% in 2011 to 34% in 2012. One of the reasons that explain this change is the integration of effective employee retention strategies (Singh & Dixit 2011).

In an effort to understand the impact of employee retention on organisational performance, Tower Perrin conducted a survey of 85,000 employees. The employees were selected from large and medium-sized companies across 16 countries. The survey showed that organisations characterised by a high level of employee retention were more productive compared to firms with a high rate of employee turnover. The firm’s net profit margin and earnings per share increased with a margin of 19% and 28% respectively. Consequently, one can conclude employee retention is one of the factors that influence organisational performance. Employee turnover leads to a decline in the level of employee engagement. This arises from the fact that their morale is adversely affected (Holbeche 2009).

A study conducted in the US shows that the rate of employee turnover varies across industries. Some industries are characterised by the high rate of employee turnover compared to others (Jacobs 2011). Firms within the hospitality, art and retail industries were ranked amongst firms with the highest rate of employee turnover. Jobs within these sectors are mainly temporary. Moreover, there is minimal room for employees progressing upwards. Another reason that explains the high rate of employee turnover in these sectors is that the level of employee compensation is relatively low. Consequently, the likelihood of employees leaving when enticed by other employers through better pay packages is high (Jacobs 2011). The chart below illustrates the findings of the relationship between the average annual rate of turnover across various industries and the revenue per full-time-equivalent (FTE). FTE is a metric that is used to determine employees’ productivity.

Average Annual Revenue per Cost per hire ($)
Industry Turnover (%) FTE ($)
Hospitality 35 183,173 1,062
Art 27 188,817 1,394
Retail 22 523,529 2,549
All industries 15 339,785 3,196
High-tech industries 11 207,763 3,357
Public/government sector 9 204,594 2,293
Professional associations 8 294,582 5,582
Utilities 8 413,086 3,936

Table 2. Source: (Jacobs 2011).

The table above shows that high-tech, professional associations, utilities and public sector companies experienced a relatively low rate of employee turnover compared to firms in the art, hospitality and retail sectors. According to Jacobs (2011), the difference emanates from the fact that firms in these sectors require more specific skills. Moreover, these firms invest a substantial amount of resources in recruiting and training employees compared to hospitality, art and retail firms. Consequently, they are committed to enhancing the rate of employee retention. For example, in 2010, professional associations in the US spent approximately $ 7,791 in health care benefits per employee. Such benefits are aimed at motivating employees to stay within the organisation.

A survey conducted in 2012 on a number of manufacturing companies in Australia reveals that most firms experience extreme skill shortage as a result of employee turnover. Managerial and other professional positions were identified as the most difficult posts to refill. Additionally, seventy-five per cent (75%) of the companies surveyed revealed that they have tried to replace the vacant positions for the past 6 months without success. This underscores the fact that employee turnover can destabilise an organisation’s human capital base hence affecting its performance. The chart below illustrates occupations that were most difficult to fill.

Profession Percentage difficulty
Metal fitters and operators 59.6
Metal casting 36.7
Engineering profession 51.7
Welding 32.9
Business administration 36.7
managers

Table 3.

Graph showing difficulty in filling vacant positions in the manufacturing sector in Australia
Figure 5. Source: (Fisher, Agarwal & Green 2011).

The graph above shows that some professions such as engineering, metal fitters and operators are more difficult to replace. This underscores the negative impact that employee turnover can have on the operation of firms’ within the manufacturing sector. The firms cited a number of reasons why it is difficult to fill the vacant position. One of the reasons is that the labour market is characterised by a shortage of specialised skills.

Discussion

The findings above show that there is a strong correlation between employee turnover and the long term survival of organisations. This arises from the fact that the organisation’s performance is adversely affected. For example, employee turnover leads to a decline in organisations’ productivity due to increment in the volume of workload amongst the remaining employees. Moreover, the morale of the remaining employees is adversely affected. Consequently, it is paramount for a firm’s management teams to integrate effective employee retention strategies.

The working environment

According to Chiang (2011), the working environment influences the employees’ decision to leave or stay within a particular organisation. Consequently, it is essential for firms’ management teams to focus on the development of an environment conducive for working. Some of the ways through which firms can achieve this are by developing and adhering to the strong corporate mission, organisational culture and incorporating consistent and logical operating procedures and policies (Khastar et al 2011).

Incorporating an effective internal communication system is very important in firms’ effort to retain employees (Al-adaileh 2008). Employees should be well informed of their duties and responsibilities. Deb (2006) suggests that sufficient job information increases the degree of job and organisation fit amongst employees. Employees should also be informed about the organisation’s culture and other values.

Over the past few years, the business environment has become very dynamic as a result of macro-environmental changes. In an effort to cope with these changes, firms are increasingly implementing various changes in their operation. Effective communication is vital during the change process. This is due to the fact that it minimises possible employee resistance which might trigger turnover intentions.

On the other hand, giving employees an opportunity to contribute to the decision-making process is vital in nurturing a high level of organisational identification. According to Pless and Maak (2011), the degree of organisational identification influences the employees’ level of organisational commitment. Managers should ensure that the internal communication system developed is not only vertical but also horizontal. Horizontal communication plays an essential role in developing the level of interaction amongst employees in various departments. This culminates in improvement in the degree of information sharing amongst employees. Such a communication system will go a long way in improving job satisfaction amongst employees (Ryan et al 2010).

Employees prefer working in a safe environment. Lack of safety can trigger turnover intention amongst employees. Milam-Perez (2003) opines that workplace safety influences the level of employee satisfaction. Milam-Perez (2003) further asserts that safety has become a major concern by managers in an effort to deal with high rates of employee turnover. Therefore, HR managers should ensure that employees work in a safe environment. One of the ways through which managers can achieve this is by eliminating all safety hazards in the organisation. Additionally, a comprehensive safety program should be integrated. Managers should ensure that all employees are conversant with the safety document in order to avoid accidents. Safety training is another strategy that HR managers should consider. The training should focus on general safety principles and can be undertaken internally or through consultants.

Supervisor support is also essential in developing organisational identification. Supervisors are considered as the ‘human face’ of a particular organisation (Milam-Perez 2003). Consequently, the poor relationship between the employee and the supervisor can demoralise employees and trigger turnover intentions. To deal with this challenge, HR managers should ensure that supervisors are supportive. Supervisors can achieve this by assisting employees to harmonise between work and other personal priorities.

Job security

This study has cited organisational instability as one of the major factors that increase the rate of employee turnover. For example, firms in the hospitality, art and retail industries are amongst the organisations experiencing the highest rates of employee turnover. This arises from the fact that their operation is adversely affected by economic changes. Employees working in these sectors feel insecure and can quit their job easily. Employees prefer working in organisations that are stable. This is due to the fact that such organisations enable employees to be confident about their career and are thus able to make future plans (Milam-Perez 2003). Consequently, it is crucial for HR managers to ensure a high level of job security. Currently, organisations are integrating various corporate strategies such as downsizing and formation of mergers and acquisitions. Such strategies are likely to increase job insecurity among employees. McGovern and Shelly (2008) affirm that employees who remain feel insecure about their job. Thus, it is important for HR managers to assure employees of their job security despite such changes.

Compensation and reward system

One of the factors that stimulate employee turnover relates to demand higher salaries. According to Kandula (2007), the compensation policy adopted by an organisation determines its effectiveness in attracting and retaining a strong workforce. Therefore, organisations should incorporate effective employee compensation and reward management policies. Effective employee remuneration does not only lower turnover intention but also improves the employees’ productivity. As a result, the likelihood of such firms surviving in the long term is increased.

In the process of formulating compensation and reward policies, HR managers should focus on the elements of fairness, equity and consistency (Armstrong & Murlis 2006).

Monetary and non-monetary reward strategies should be incorporated into the compensation policy. To improve employees’ satisfaction, a comprehensive grade-and-pay structure policy should be adopted with regard to monetary-based compensation. However, firms should not over-rely on monetary compensation. Various forms of non-monetary compensation such as award schemes, career planning, holiday coupons, health care benefits employee recognition and commendation amongst others should be adopted. This will aid in satisfying the employees’ intrinsic needs.

Employee growth and engagement

In the course of their employment, employees have their personal goals. One of these goals entails achieving their career development objectives. Therefore, it is vital for firms to provide employees with an opportunity to learn new skills. When employees develop a perception that their organisation will enable them to be more successful in life, they are likely to stay longer. One of the ways through which organisations can enhance the attainment of career goals is by recruiting from within. For example, an organisation can decide to promote employees who depict exemplary performance over the years. The promotion process should be conducted in a fair manner so as to minimise the likelihood of some employees being dissatisfied. To achieve this, a comprehensive employee appraisal program should be integrated.

Incorporating a comprehensive employee training program is also essential in promoting employee growth. Other strategies that firms can integrate include giving employees an opportunity to attend seminars and workshops that are relevant in their career. Alternatively, organisations can outsource experts to train employees on various career development aspects. According to Allen (2008), integrating effective employee growth strategies improves their level of job satisfaction.

Employee engagement is another aspect that HR managers should consider. There are a number of aspects that HR managers can consider in their effort to enhance the level of employee engagement. First, HR managers should develop an effective job design. This can be achieved by incorporating the elements of job diversity, autonomy and ensuring that the job is more meaningful. Allen (2008) further asserts that “engaged employees are satisfied with their jobs, enjoy their work and the organisation, believe that their job is important, take pride in their company and believe that their employers value their contributions” (p.26). The likelihood of such employees quitting their job is 5 times less compared to workers who are not engaged. As a result, an organisation is able to retain talent.

Work-life balance

Employees are increasingly being faced by numerous personal and professional responsibilities. This is one of the reasons that explain the high rate of employee turnover. To minimise loss of talent in the workplace, organisations should integrate strategies that enable employees to balance between their work and other personal issues. There are various work-life balance strategies that organisations can integrate. Some of these include career leaves and parental leaves. Additionally, organisations should also consider incorporating flexible working schedules such as working from home, job sharing, career breaks and part-time jobs. According to Clutterbuck (2003), work-life balance plays an important role in reducing work-related stress hence minimising turnover intentions.

Conclusion

The report confirms the hypothesis that employee turnover has adverse effects on the long-term survival of organisations. Consequently, it affirms the importance of minimising employee turnover. From the study, it is evident that employee turnover adversely affects organisations’ performance. The two main variables cited by the report include an increase in the cost of operation and a decline in employee productivity. These variables directly impact the long term survival of organisations. The study shows that employee turnover varies across industries. Some industries are characterised by a high rate of employee turnover compared to others.

The UK has experienced a significant decline in the rate of employee turnover over the past two years. However, the study shows that most firms experience a challenge in an effort to refill positions that fall vacant. This may adversely affect the performance of an organisation in a number of ways. First, the employees who remain within the organisation may be allocated more responsibilities hence reducing their productivity. Secondly, the morale of the employees who remain in the organisation may be negatively impacted. This reduces their level of concentration and contribution towards the achievement of the set organisational goals.

The study shows that employee turnover increases the cost of operation and lowers productivity amongst managers and supervisors. Firms experiencing a high rate of employee turnover incur huge financial costs in advertising, recruiting, selecting and inducting new employees. Moreover, the productivity of employees charged with the responsibility of recruiting new employees is negatively affected during the recruitment phase. This arises from the fact that they are not engaged in productive activities.

The report also shows that organisations experience a number of challenges in an effort to fill the vacant positions. One of the reasons cited in the report is a lack of specialised skills that an organisation may require. In summary, the report shows that employee turnover is a major challenge facing organisations in different economic sectors. Therefore, it is paramount for HR managers to incorporate effective strategies aimed at improving employee retention.

Recommendations

To survive in the long term, it is imperative for organisations to consider the following issues.

  1. Firms should focus on the development of a high degree of organisational identification. One of the strategies that organisations should consider includes incorporating comprehensive employee compensation and reward policies.
  2. HR managers should also focus on providing employees with learning and talent development opportunities. This will play a significant role in improving their level of job satisfaction.
  3. Organisations should improve the working environment in order to lower turnover intentions amongst employees. Some of the issues that HR managers should consider include ensuring a high level of workplace safety and job security.
  4. HR managers should also incorporate the concept of work-life balance. To achieve this, managers should collaborate with employees in order to develop an effective work-life balance policy.

Learning statement

The course has been of great significance to my career development in a number of ways. First, I have developed sufficient understanding of the importance of a strong human capital base in the operation of firms in different economic sectors. Moreover, the course has provided great insight into the various challenges that organisations are facing in an effort to achieve the desired level of competitiveness. These challenges emanate from the internal and the external business environment. Irrespective of their source, the course has underscored the importance of developing optimal HR management strategies in order to survive in the long term. Some of the aspects that I have gained sufficient knowledge to relate to the relationship between employee turnover and organisational performance.

The learning process has resulted in a greater appreciation of the various factors that stimulate employee turnover. Some of the factors considered include the pull, push and personal factors. As a management student, I will be able to undertake effective human resource management. By appreciating personal factors, I will be able to listen to the employees’ concerns and take the necessary action. As a result, I will improve the likelihood of employees being satisfied with their job.

On the other hand, recognition of push factors will contribute towards a greater understanding of the various organisational issues that I should focus on in order to increase the level of organisational commitment. Some of the aspects that I will focus on include reward management, nurturing a safe working environment, employee recognition, employee growth and development and work-life balance.

The learning process has also resulted in greater appreciation on the importance of effective leadership in the success of the organisation. This has been achieved through the evaluation of the various leadership styles that organisations can integrate. As a manager, I will be able to select and implement the most effective leadership style. This will contribute towards improvement in the level of job satisfaction amongst employees. In summary, the learning process has contributed towards a better understanding of the importance of improving employee satisfaction, commitment and organisational identification. Through the incorporation of effective human resource management strategies, I will be able to stimulate optimal organisational performance hence increasing my competitiveness in the labour market.

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