Abstract
Employee turnover is an issue that almost all HR managers have to deal with, and it is an area of serious concern. Attrition is something that HR managers address right from the recruitment stage till the time an employee exits an organization. It is ironical that exit, avoidance and retention is addressed even before the first step of recruitment happens. Many HR managers intuitively factor aspects like how long could an individual stay and be committed to an organization while interviewing them. Surprising as it sounds, however, it is a matter of truth and reality in the world of talent acquisition and people development. This paper endeavours to present an understanding and methods to control Employee Retention and Turnover.
Introduction 1
Turnover Examined 3
Significance of Compensation 5
Rewards 7
Motivation and its significance 8
Role played by the HR Manager in Managing Turnover 9
Strategic Partner 9
Administrative Expert 10
HR Manager as an Employee Champion and change agent 10
Conclusion 12
References 14
Introduction
An organization is its people. Probably, all management students, entrepreneurs, and business leaders at some point of time or the other in their career speak about importance of people and having them in an organization. Any organization is as good as its people, its culture and the way it takes care of its people. In the earlier days of post-industrial era, unemployment was low and so was the employee turnover as well. Today, we have an intense competition for very single job that exists in the job market and there are definitely a lot of people running for the same job. At the same time, ironically, there is also a factor of employee turnover in the overall economy as well as specific industries and vertical. This sounds a little surprising and even paradoxical to some extent. With the advent of globalization, there is intense competition for the same job, especially when talent sourcing happens globally.
The so called newer economy companies have brought in a variety of challenges along with the newer technologies, facilities, and benefits that they have brought into workplace. Work cultures have changed and so has the shape of the modern and contemporary workplace. Factories and physical labour has been replaced with knowledge work and large scale automation. Today, even factories that build automobiles are very easy to work with, due to the use of modern technology and there is hardly any physical labour involved. Besides, most forms of physical labour are not literally relegated through the not so highly qualified labour pool. In spite of all this, today, there is an intense focus on knowledge as well as skills in almost all aspects of work in all forms of work across various industry verticals.
Employee turnover is a key metric in the HR performance and refers to the total number of employees who leave the organization in a given span of time, usually over a period of a year, and the same is expressed as a percentage of total employees in the organization. The employee attrition clubs all forms of attrition, both voluntary and involuntary, including resignations, retirements, and redundancies. Retention is the effort put in by an employer to retain employees and is measured as that proportion of employees who have been with the organization for a specified length of time, usually expressed as again a percentage of overall workforce. Retention can be measured at different intervals like one year, three years, five years, etc.
Unfortunately, attrition affects all kinds of employees and it is pretty much a reality that even some of the employees that organizations would like to retain also leave. In the year 2006, about 25% of all US workers left their jobs with far more higher turnover in other industries. Employee turnover is usually associated with severe costs – cost of hiring, training, and more importantly cost of retention of strategic knowledge.
Turnover Examined
Employees leave organizations for a variety of reasons and can be classified as voluntary or involuntary. There is no single reason why employees leave an organization. There are a full range of myriad reasons that employees leave organizations. Some leave to follow a spouse on a transfer, some leave to pursue higher education, some may decide they have earned enough in life and leave, or some may hit upon a financial windfall like a lottery and decide to leave an organization. Some employees may leave an organization in a fit of anger, others may leave because their jobs have become redundant. The following figure explains the turnover classification.
Clearly turnover can be clearly classified as voluntary and involuntary. Voluntary turnover is triggered by the employee (like an employee leaving to take up another job or wanting to pursue higher education etc), while the involuntary turnover is triggered by the employer (like redundancy, retirement etc.). Both the turnovers need to be managed and need different approaches and strategies to manage them. Normally standard HR processes and practices manage the involuntary turnover. Creative approaches and strategies are necessary for managing voluntary turnover. There is a need for understanding why employees leave an organization.
On the other hand there are organization designs that deliberately induce employee turnover. This is done to factor a number of dimensions like managing HR costs, creating room for absorbing newer talent, to maintain higher levels of energy in the organization by having younger employees at the bottom layer among many other surprising but true reasons. This can be seen in healthcare providers that have their own educational institutes and have a contract to employ them at the end of their studies or in sales organizations that need to have highly energetic people chase sales targets.
Whatever the reasons for employee turnover they can be directly related to the cause of motivation, compensation, managerial and leadership styles, business decisions among others.
Significance of Compensation
Compensation is possibly one of the super specialization areas in human resources. If compensation is not suitably designed to ensure fairness, transparency, and equality in the way it is administered and compensation being objectively linked to performance, such compensation packages might actually hinder collaboration in workplace. This is so because, employees will start believing that they are not being compensated commensurate with their performance. This will encourage them to take extremely individualistic approach to work since they do not have any stake in organizational performance. So wrongly designed compensation systems will actually hamper performance and not encourage it.
Employee compensation is perhaps the most important aspect that determines and reflects the satisfaction levels of employees. Employees normally perceive the compensation and benefits plan as the indicators of the attitude and concern of the management towards the workforce. This makes compensation and benefits very crucial aspects in the entire process of Human Resources. Typically, pay scales in organizations reflect the importance of the job and also the level of responsibility that an individual holds in the organization. In the modern day business scenario, organizations seem to be trying more to assess the worth of an individual in terms of the individual’s performance and role played in the company. With the constantly increasing demands of the modern day employees and the continuous challenges in the business environment, organizations have to develop a perfect system for evaluating jobs and assessing their worth.
Job evaluation helps to establish the relative value of a job in an organization in an organized, consistent, and precise manner. It also aides in approximately calculating the basic pay for each job in agreement with the significance of the job in the organizational hierarchy. Once the basic pay is decided, the rewards, incentives, and benefits attached with the pay, position, and performance are also established. “The basic wage, incentives and rewards and benefits, together form the compensation package of an employee.”
A great way to demonstrate the value of HR is to count its contributions. Organizations normally are used to measuring the output or, more distinctively, value of the various departments by considering just their numbers. Employees tend to be more convinced with fact-based and quantitative approaches. A good compensation system should be able to attract and retain the workforce by offering them a fair deal and eventually keep the organization competitive. In addition, such a compensation system would also motivate employees to perform their best. Moreover, best performances of employees are certainly the testimony of a successful HR function of the organization.
Benefits are defined as the fringe advantages that increase over and above the employee’s salary, as a result of his association/employment with the organization and the position that the individual holds in the organization. They are generally not linked to performance
As the conventional thought process about Human resources being a cost function is changing gradually to being a strategic partner for business, a HR manager’s compensation must invariably be linked to the organizational performance and profitability. A typical HR manager’s salary must be linked to performance. The measurable parameters would be achievement of recruitment/ talent acquisition, management of attrition, and productivity levels of employees. Other parameters that the compensation could be based on could be legal compliance levels, achievement of training targets and employee engagement targets. Special incentives could also be put into place for achieving extraordinary performance levels like being listed on lists like Great Places to Work etc. Linking a HR manager’s compensation to various factors that were listed above would ensure acute aggressiveness in meeting organization’s strategic objectives and the HR function taking a proactive role in the growth rather than being reactive to external and internal stimulus. This compensation structure aims to reward the HR manager for acquisition, and development of new skills and competencies on a skill-based pay method while also rewarding the manager in maintaining the strength of the core business model of the organization. This form of compensation can also be viewed as a form of strategic remuneration.
Rewards
Organization rewards are something which every employee working with a specific organization earns as a result of his association with the organization. Most of the global organizations today are linking their reward system to the performance and commitment displayed by the employees towards their job and the organization. Rewards are basically two types. They are extrinsic rewards and intrinsic rewards. “Extrinsic rewards are tangible in nature and are normally under the control of the organization. Examples of extrinsic rewards are a promotion or a bonus. Intrinsic rewards are intangible in nature and are internal to the individual. Examples of intrinsic rewards are a challenging assignment or informal recognition.” The fundamental purpose of a reward system in any organization would be to boost employee morale and job satisfaction. This consequently would result in enhanced performance and employees being loyal to the organization. A good reward system would assist in identifying the best performers and reward them in order to boost their job satisfaction.
Motivation and its significance
Motivation is a psychological state. Understanding the same can help in understanding behavior of individuals. In a general sense, the causes of behavior are considered as motivation. “In addition to the perception personality, attitudes, and learning that characterize an individual, motivation is a phenomenon which helps in understanding human behavior. People also tend to consider motivation as a personality trait, although this not actually true.” It is believed that some people have this trait, while few others lack it. Hence, some managers assume that certain individuals are always lazy or lack motivation. However, this assumption is not right. Motivation depends on the individual as well as on the situation. “Motivation consists of three interacting and interdependent elements. They are the need, drive, and incentives. Needs actually form the basic premise for drives, which eventually seek the attainment of certain incentives (ICMR - ICFAI Center for Management Research, 2003).”
Role played by the HR Manager in Managing Turnover
As businesses become more sharply focused on what value is being delivered to the customer and what value is being accrued to the stake holders, there is a great challenge a Human Resources Manager faces in the organization. A typical Human Resource Manager has to don multiple caps and essentially has to play the roles of:
Strategic Partner
HR manager is the right person in the organization to be keenly aware of what is happening in the external business environment and identify future trends of business. Being the person driving people and their productivity at workplace the HR manager becomes a strategic partner for the business advising the kind of directions that are emerging in the market and also the kind of skills and competencies that need to be brought in to the organization for it to remain effective in the competitive market.
In playing the role of a Strategic Partner, the HR manager who has a role in the various operations of the organization, is expected to ensure the financial success of the organization. The business objectives pertaining to the HR of the organization are aimed at supporting the accomplishment of the overall strategic business objectives and they are designed in such a way. The strategic HR representative is intensely knowledgeable about the proposed work systems in which people thrive and put in the best of their efforts. This strategic enterprise has a profound impact on the HR services with respect to the design of job positions, recruitment, fringe benefits, recognition and strategic remuneration, performance improvement and performance appraisal systems, career planning and succession planning; and also HR development.
Administrative Expert
A HR manager also needs to be an administrative expert to ensure various statutory needs – internal and external are constantly complied with. Each country and state has their own individual set of laws that need to be complied with. Every employee of the organization has individual and general requirements that the HR function is looked up to be satisfied. This makes the role of an HR manager to that of an administrative expert balancing various needs of all the stake holders.
The role of the HR administrative expert does not limit its role to just perfect paper work and other administrative responsibilities but also entails total reengineering of the processes of the HR department and also restructuring the HR of the organization. When playing the role of HR administrative expert in restructuring and outsourcing the various processes of the HR, can easily tackle the revamp of the HR processes and this expertise can be used for the organization as a whole and need not be limited to just one department. The ability and proficiency of the HR Administrative expert is about bringing the suppleness to HR and it also facilitates in building flexible HR Function that meets the standard of the designed business strategy completely.
HR Manager as an Employee Champion and change agent
The HR department acts like a bridge between the management and the employees. It is the duty of the HR manager and the HR department on a whole to give suitable suggestions to the management, including the executive team on various issues related to the human resources of the organization. It is also the duty of the HR manager to convey the various decisions taken by the management to the employees. In addition, they also need to design and execute a plethora of initiatives for the betterment of the work force. The HR manager and the HR department play a supplementary role of communicating the expectations and the demands of the work force to the executive team of the organization.
One of the important things that a HR manager does is employee championing. This could be multifarious – it could be raising costs, newer learning methods, and newer processes, improving work place or anything that could be employee friendly when compared to present practices. At the same time the HR manager also keeps the organizational interests paramount and creates several win-win situations for both employees and the management of the organizations. One important factor that the HR manager who plays the role of a change agent needs to be aware of while executing the process of change is the fact that irrespective of how well the process is designed, there is always a possibility of abrupt and unpredicted events to crop up. It is now up to the individual maturity of the person at the position to take action or react. In all such circumstances it is best not to retort but to efficiently act in response to such situations. In case these are unplanned situations, it is best to make sure that people generate a buffer time state and use that buffer to have a well-studied response. The HR manager has to take the inventiveness in preparing the organization and its employees to tackle the various new challenges in a successful manner.
In being a change agent, HR manager needs to be extremely proficient. It is necessary that he has sufficient knowledge of a variety of subjects like technology, psychology, management, and organizational behavior. It is also necessary that the HR manager as a change agent possesses a clear understanding of the business and its operations, the market scenario, the existing competition, and also the overall economy. Therefore, it is the duty of the HR department to set off the required organizational development interventions and play the role of an effective change agent in the organization. Constantly innovating work place and creating newer things for the organization that could benefit both the organization and the employee adds yet another crucial role to the HR manager – Change Agent – ensuring that change is brought in and bought in!
Conclusion
Employee turnover is known to be costing very high to the employers of all kinds. When an employee leaves an organization they take away valuable knowledge elements with them and also intimate customer knowledge which is key for many organizations today in light of the intense competitive landscape. The costs of managing employee turnover include cost of recruitment and training. Employee turnover can be classified as voluntary or involuntary. Normally HR processes and organization design can manage involuntary turnover very well. However it is voluntary turnover that needs creative and research based approach. Organizations like Google, Microsoft, and Real Page etc. are known to employ a range of employee engagement methods as a means to manage turnover. This paper has also has examined the impact of motivation, training, leadership styles among a variety of other factors on turnover. Whatever the cause of employee turnover, it is a reality that every HR manager needs to face and also manage effectively to keep the HR costs in an organization low and at an even keel.
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