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Effectiveness of Employee Retention Strategies in Industry

Article  in  SSRN Electronic Journal · October 2012

DOI: 10.2139/ssrn.2167719

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EFFECTIVENESS OF EMPLOYEE RETENTION STRATEGIES IN INDUSTRY Andrea V Lewis

II MBA Student -NITK, SURATHKAL

Dr. A. H. Sequeira

National Institute of Technology Karnataka, Surathkal

Abstract

Retention of employees is an important function of the HRM. Unless there is a deliberate and

serious effort from the management towards this direction, the competitors in the industry are

likely to attract and snatch the talent already nurtured in the company over a period of time.

Careful strategies for crafting and implementing employee retention strategies are a skill and

should be given top priority by the management. This paper discusses the issues and solutions

to address this problem with a case study. . The results of the study indicate that retention

strategies should be carefully worked out for different groups and levels.

1.0 INTRODUCTION

One of the greatest challenges in today’s business world is to stay up to speed in a time of

technological growth. Fundamental changes are taking place in the work force and the work

place that promise to radically alter the way companies relate to their employees. As we hurl

ahead at an increasing pace every field, employee retention becomes a concern for all

companies at the present strong job market. There are a great number of employment

Electronic copy available at: http://ssrn.com/abstract=2167719

opportunities for talented professionals. It has been found out that, higher the skills of the

employees, the greater the demand for their services. Hiring and retaining good employees

have become the chief concerns of nearly every company in every industry. Companies that

understand what their employees want and need in the workplace and make strategic

decisions to proactively fulfil those needs will become the dominant players in their

respective markets. Hence employee retention is a very important issue that organisations

must tackle.

Employee retention is a process in which the employees are encouraged to remain with the

organization for the maximum period of time or until the completion of the project.

Employee retention can also be considered as a business management term referring to

efforts by employers to retain current employees in their workforce.

2.0 LITERATURE REVIEW

The term “employee retention” first began to appear with regularity on the business scene in

the 1970s and early ‘80s. Until then, during the early and mid-1900s, the essence of the

relationship between employer and employee had been (by and large) a statement of the

status quo: you come work for me, do a good job, and, so long as economic conditions allow,

I will continue to employ you. It was not unusual for people who entered the job market as

late as the 1950s and ‘60s to remain with one employer for a very long time, sometimes for

the duration of their entire work life. In the 1970s and later, as job mobility and voluntary job

changes began to increase dramatically, the status-quo model began to fray substantially at

the edges. Employees found themselves with a new phenomenon to consider: employee

turnover. As organisations began to feel the impact of employee turnover, so a matching

management tool began to be developed- employee retention. (McKeown 2002)

Parrott (2000) believes that today’s employees pose a complete new set of challenges,

especially when businesses are forced to confront one of the tightest labour markets in

decades. Therefore, it is getting more difficult to retain employees, as the pool of talent is

becoming more-and more tapped-out.

During the last decade, employee retention has become a serious and perplexing problem for

all types of organisations. Managing retention and keeping the turnover rate below target and

industry norms is one of the most challenging issues facing businesses. Employee turnover

continues to be one of the most unappreciated and undervalued issues facing business leaders.

This stems from several important assumptions and conclusions about turnover:

 All stakeholders involved in the issue, including Human Resource managers,

underestimate the true cost of employee turnover.

 The causes of turnover are not adequately identified in most organisations.

 The solutions to reduce turnover are sometimes mismatched with the causes of

turnover and do not generate the desired results.

 Many of the preventive measures for turnover are either overkill or they often

miss the mark altogether.

 A process to measure the success of retention solutions and place a monetary

value on managing retention does not exist in most of the organisations. (Phillips

and Connell 2003)

2.1 EXTERNAL DRIVERS OF THE RETENTION CRISIS:

Major changes have occurred in organisations, both internally and externally, making this

issue more critical today than in previous years. Unfortunately these changes will only

worsen the crisis in the future.

a. Economic growth

b. Slower growth of job seekers.

INTERNAL DRIVERS OF THE RETENTION CRISIS:

Internal changes in organisations operate in concert with the external influences to drive

excessive turnover. Internal issues include structural changes within the organisation and

changes in employees’ attitude about work and their employers.

a. Lack of company loyalty

b. Desire for challenging and useful work

c. Need for autonomy, flexibility and independence

d. Need for performance based rewards.

e. Need for recognition for participation, accomplishments, and contributions

f. Desire for different kind of benefits

g. Need to learn new skills

h. Career growth in all directions

i. Desire to be on the leading edge

j. Desire for competitive compensation

k. Need for a caring, supportive environment

l. Need for work/life balance

Employees are an organisation’s business. And those who manage businesses both large and

small face stiffer competition domestically and abroad. In fact, retaining good workers is the

tipping point between success and failure for many organizations. According to Gregory P.

Smith, author of “Here today, Here tomorrow: Transforming your workforce from High

Turnover to High Retention”, the following attributes are essential to a high-retention

organisation:

 Clearly defined organisational direction and purpose

 Caring management

 Flexibility in benefits

 Open, straight forward communication

 Energetic and enthusiastic work environment

 Effective performance appraisals

 Rewards and recognition

 Training and development

 Paying competitive wages

 Respecting employees

 Retention bonuses

Every organisation needs to work on the retention strategies by focusing mainly on the

employee and his contribution to the organisation.

2.2 IDENTIFYING EMPLOYEES TO BE RETAINED:

According to Suzanne Dibble employees who have “talent” and are “contributors” are to

be retained. They are the employees who make a difference to the organisations:

 Customers

 Other employees

 Shareholders/boards/constituents

These employees demonstrate:

 Breadth as well as depth of technical/functional knowledge.

 Customer service

 Creativity

 Continuous learning

 Flexibility

 Self direction

 Commitment to the organization’s success

2.3 RECRUITEMENT AS A RETENTION STRATEGY:

Retention begins long before an employee’s first day on the job. In the twenty-first

century employment world, organisations must look at the foundations of retention

through the eyes of potential employees. They are the customers for their jobs. Job

descriptions, recruitment, selection, and orientation are the foundations of retention. If a

good foundation is not prepared for the employees, organisations cannot expect them to

stay. Employees will no longer endure what they do not like in their employment

situation. They have the power in the knowledge of their abilities and confidence in their

value in the marketplace. With greater loyalty to their career and their skills than to their

employer, they move on. (Dibble 1999)

2.4 RETHINKING RETENTION MODEL

In most organizations, operations management drives sales, service, quality, and safety,

with various staff departments providing tracking, training, and other services. And the

responsibility of handling Employee retention is usually taken up only by the HR. With

this setup, organizations fail to tackle the problem of employee turnover. Keeping this in

mind, Richard P. Finnegan came up with the ‘Rethinking Retention Model’.

The core ingredient of the Rethinking Retention model is the shared responsibility of

operations management and staff support for increasing employee retention.

2.5 Principles of the Rethinking Retention Model :

a) Employees quit jobs because they can.

Workplace demographics leave employees with too many job choices, even in down

economies. Exit surveys and various studies indicate employees quit because of

supervisors, pay, career development, and for “better opportunities,” While each of

these exit reasons are true at one time or another, the main reason employees quit is

because our economy and society make it easy for them to do so.

b) Employees stay for things they get uniquely from you.

These things might be tangible, like being able to walk to work, a four- day/ten-hour

schedule, or reduced prices for company products. Or they might be intangible things

like learning new skills, working with a trusted supervisor, or performing a service

that helps others. Some of these stay reasons may come via policies or programs,

whereas others occur during the course of doing work. Retention happens when

employees receive things they value that they believe they cannot get anywhere else

and these things create reasons for them to stay.

c) Supervisors build unique relationships that drive retention...or turnover.

Researchers Marcus Buckingham and Curt Coffman in their book, “First, Break all

the rules” say: “the talented employee may join a company because of its charismatic

leaders, its generous benefits, and its world-class training programs, but how long that

employee stays and how productive he is while he is there is determined by his

relationship with his immediate supervisor.”

Supervisory relationships are unique levers that deeply impact employees' stay/leave

decisions. Some employees stay for supervisors, some leave because of them, and

some just avoid them.

2.6 CASE STUDY: PROFILE OF PETROLEUM INDUSTRY

The origin of oil & gas industry in India can be traced back to 1867 when oil was struck

at Makum near Margherita in Assam. At the time of Independence in 1947, the Oil & Gas

industry was controlled by international companies. India's domestic oil production was

just 250,000 tonnes per annum and the entire production was from one state - Assam.

The foundation of the Oil & Gas Industry in India was laid by the Industrial Policy

Resolution, 1954, when the government announced that petroleum would be the core

sector industry. In pursuance of the Industrial Policy Resolution, 1954, Government-

owned National Oil Companies ONGC (Oil & Natural Gas Commission), IOC (Indian

Oil Corporation), and OIL (Oil India Ltd.) were formed. In 1959, for marketing of

petroleum products, the government set up another company called Indian Refineries Ltd.

In 1964, Indian Refineries Ltd was merged with Indian Oil Company Ltd. to form Indian

Oil Corporation Ltd.

in the 1960s, a number of oil and gas-bearing structures were discovered by ONGC in

Gujarat and Assam. Discovery of oil in significant quantities in Bombay High in

February, 1974 opened up new avenues of oil exploration in offshore areas. During 1970s

and till mid 1980s exploratory efforts by ONGC and OIL India yielded discoveries of oil

and gas in a number of structures in Bassein, Tapti, Krishna-Godavari-Cauvery basins,

Cachar (Assam), Nagaland, and Tripura. In 1984-85, India achieved a self-sufficiency

level of 70% in petroleum products. In 1984, Gas Authority of India Ltd. (GAIL) was set

up to look after transportation, processing and marketing of natural gas and natural gas

liquids.

After Independence, India also made significant additions to its refining capacity. In the

first decade after independence, three coastal refineries were established by multinational

oil companies operating in India at that time. These included refineries by Burma Shell,

and Esso Stanvac at Mumbai, and by Caltex at Visakhapatnam. Today, there are a total of

18 refineries in the country comprising 17 in the Public Sector, one in the private sector.

The 17 Public sector refineries are located at Guwahati, Barauni, Koyali, Haldia,

Mathura, Digboi, Panipat, Vishakapatnam, Chennai, Nagapatinam, Kochi, Bongaigaon,

Numaligarh, Mangalore, Tatipaka, and two refineries in Mumbai. The private sector

refinery built by Reliance Petroleum Ltd is in Jamnagar. It is the biggest oil refinery in

Asia.

By the end of 1980s, the petroleum sector was in the doldrums. Oil production had begun

to decline whereas there was a steady increase in consumption and domestic oil

production was able to meet only about 35% of the domestic requirement. The

government in order to increase exploration activity approved the New Exploration

Licensing Policy (NELP) in March 1997 to ensure level playing field in the upstream

sector between private and public sector companies in all fiscal, financial and contractual

matters. This ensured there was no mandatory state participation through ONGC/OIL nor

there was any carried interest of the government.

To meet its growing petroleum demand, India has investing heavily in oil fields abroad.

India's state-owned oil firms already have stakes in oil and gas fields in Russia, Sudan,

Iraq, Libya, Egypt, Qatar, Ivory Coast, Australia, Vietnam and Myanmar. Oil and Gas

Industry has a vital role to play in India's energy security and if India has to sustain its

high economic growth rate.

Future of the Petroleum Industry:

The future of Indian petroleum industry has good potential but it needs developmental

activities in this sector to strengthen itself. The world at present is experiencing a lot of

changes of mammoth proportions. The Petroleum Industry in India is one of the

harbingers of huge economic growth. The arena for business has now gone global since

trade boundaries are fast dissolving. These developments present India with tremendous

opportunities in the future to be one of the major players in the export of petrochemical

intermediaries.

India has to compete for conventional energy sources and for that there must be

developmental activities for energy efficient buildings and vehicles. The main problems

with the Petroleum Industry in India are related to infrastructural developments. The lack

of proper storage facilities, enhancements in refining capacities, and fluctuating import

prices plays important role in the development of the sector. The target of improvement

for the growth of the economy for India should be in the area of the petrochemical sector.

The need for intermediary products for the manufacturing of the end use products is an

important sector to tap in. With the per capita consumption for the petrochemical products

in India being low and the production of these products being high, India may become

one of the leading exporters of such intermediary products.

The future of Indian petroleum industry depends on:

• Demand for petroleum is growing in leaps and bounds.

• Shifting focus to more production of olefin - ethylene, propylene, butadiene.

• Price and availability of crude oil and gas as feedstock would still be critical factors.

• The demand of the end products would affect the demand of the intermediary

products.

2.7 Petrochemical Company Limited (PCL)

The Petrochemical Company Limited PCL (name disguised) was established to be a world

class refining and petro-chemicals company with a strong emphasis on productivity, customer

satisfaction, safety, health and environment management, corporate social responsibility and

care for employees.

QUALITY POLICY:

QMS is diligently followed throughout the Refinery (wherever applicable). Having definite

quality objectives, continual improvement projects, conducting regular corrective actions and

preventive action sessions have helped to achieve improvements in the system. Internal audits

for individual departments, management review meetings, awareness programmes for

employees, collection and review of customer feedback and customer meet programmes are

other steps to confirm to standards.

HR POLICIES AND PROCEDURES:

 Attracting competent personnel by providing an attractive compensation package

comparable to the industry practice.

 Building up and nurturing a work culture that would emphasis productivity, cost

consciousness & commercial orientation team work, work discipline dedication to and

pride in the company and common commitment to corporate priorities.

 Encouraging high performance through a system of appraisal and rewards based on an

objective assessment of employees contribution.

 Developing its human resources through in house and external programmes so as to

progressively update skills and attitudes which in turn would propel performance

excellence.

 Providing welfare and infrastructure amenities of good quality to all employees both

at workplace and in the housing complex.

ENVIRONMENTAL POLICY:

 Achieve and sustain excellence in petroleum refining by producing quality products in an

eco friendly and safe environment by adopting sound / efficient technologies.

 Continuously strive for prevention of pollution through efficient use of resources such as

raw materials, water and energy.

 Continual improvement of environmental performance by minimizing air emissions,

odour and effluent generation and better management of solid and hazardous wastes.

 Comply with all statutory, regulatory and other applicable requirements.

 Promote environmental responsibility and propagate the policy among all employees,

concerned contractors and suppliers. Policy is also available to the public.

 Sustain and promote green belt.

3.0 RESERCH DESIGN 3.1 OBJECTIVES OF THE STUDY:

• To identify the retention strategies practiced at PCL.

• To evaluate the effectiveness of the existing retention strategies.

• To evaluate the benefits that PCL receives from the retention strategies.

• To assess the satisfaction level of employee with existing retention strategies.

3.2 SIGNIFICANCE OF THE STUDY:

 This paper would focus on the importance of making employee retention, an

organisation-wide issue.

 It would identify the retention strategies, their effectiveness and if they need to be

modified.

 It would also identify the benefits that PCL receives by implementing these strategies.

3.3 LIMITATIONS OF THE STUDY:

The scope of the project is limited to:

 Current employees of Petrochemicals Company Limited.

 Data collected from the exit interviews conducted for the employees who left the

organisation over the years.

3.4 RESEARCH QUESTIONS AND INVESTIGATIVE QUESTIONS:

1) What are the retention strategies at PCL?

 Is employee retention considered an organisation wide issue at PCL?

 Are the retention strategies implemented throughout the organisation?

2) How effective are the retention strategies at PCL?

 Has the attrition rate changed with the implementation of these strategies?

3) What are the benefits that PCL receives by implementing these strategies?

 Has the implementation of these strategies contributed to the organisation’s

overall growth?

4) Are the employees satisfied with the existing retention strategies?

 Is there a need to modify the existing retention strategies?

3.5 Methodology

The methodology adopted for the study included a mixed approach of both descriptive

and exploratory. A sample size of 10% of the total sampling frame was included in

the study. Convenience sampling was adopted to get the responses from the subjects,

which include employees of PCL at different levels. A questionnaire was used for

capturing the data which consisted of about 12 variables both independent and

dependant variables. The research tool was piloted before administering on the

subjects for the purpose of validation.

4.0 Data Analysis and Results

Among the respondents, 67 percent felt that the retention strategies in PCL were attractive

and 78 percent opined that they were effective. About 69 percent felt that the management

should revisit the exiting strategies since they were framed at least 5-6 years back. The

respondents in the middle and top management (more than 75%) indicated that new

dimensions should be included in the retention strategies. Nearly 85 percent respondents

opined that they benefitted from the retention strategies currently being followed in the

company. Most of the employees (nearly 70%) were graduates and a few (about 8%) were

post graduates.

The study revealed that about 87 percent of the respondents felt that employee retention was

considered an organisation wide issue at PCL.

The study indicated that the retention strategies were implemented throughout the

organisation.

4.1 Factors That Affected Employee Retention:

The following are some of the factors that affected employee retention:

 Shifting markets

 Demands for specific skills

 Business conditions

 Demographics

 Lifestyle changes

 Technology issues

 Trends in work life decision as employees needs change

4.2 Employee Retention Strategies:

Employee Retention Strategies’ goal is to help organizations see the underlying contributors

to retention and make the essential changes to build lasting, sustainable retention-rich

cultures.

The basic practices kept in mind in the employee retention strategies are:

 Hire the right people in the first place.

 Empower the employees: Give the employees the authority to get things done.

 Make employees realize that they are the most valuable asset of the organization.

 Have faith in them, trust and respect them

 Provide them information and knowledge.

 Keep providing them feedback on their performance.

 Recognize and appreciate their achievements.

 Keep their morale high.

 Create an environment where the employees want to work and have fun.

These practices can be categorized in 3 levels: Low, medium and high level.

Figure: Three Levels of Employee Retention Strategies - Low, Medium and High

Employee Retention Strategies are broadly classified under the following:

1. Compensation

2. Environment

3. Growth

4. Relationship

5. Support

Compensation

Compensation constitutes the largest part of the employee retention process. The employees

always have high expectations regarding their compensation packages. Compensation

packages vary from industry to industry. So an attractive compensation package plays a

critical role in retaining the employees. Compensation includes salary and wages, bonuses,

benefits, stock options, allowances, insurances, vacations, etc.

Environment

Employee retention is about managing people. If an organization manages people well,

employee retention will take care of itself. Organizations should focus on managing the work

environment to make better use of the available human assets. People want to work for an

organization which provides:

 Appreciation for the work done

 Ample opportunities to grow

 A friendly and cooperative environment

 A feeling that the organization is second home to the employee

Growth

Employees work in an organization to achieve their personal goals as well. Organizations

cannot keep aside the individual goals of employees’ and foster organizations goals.

Employees’ priority is to work for themselves and later on for the organization. If he’s not

satisfied with his growth, he’ll not be able to contribute in the organization’s growth.

Relationship

“Employees leave their bosses, and not their jobs”, this is a very common saying, which is

true considering the fact that relationship with the management and the peers becomes often

the reason for an employee to leave the organization. The management is sometimes not able

to provide an employee a supportive work culture and environment in terms of personal or

professional relationships.

Support

Lack of support from management can sometimes serve as a reason for employee

retention. Supervisor should support his subordinates in a way so that each one of

them is a success. Management should try to focus on its employees and support

them not only in their difficult times at work but also through the times of personal

crisis. Management can support employees by providing them recognition and

appreciation. Employers can also provide valuable feedback to employees and

make them feel valued to the organization.

4.3 Benefits obtained due to Employee Retention Strategies

The study revealed the following are important benefits obtained:

1. The Cost of Turnover: The cost of employee turnover adds hundreds of thousands of

rupees to an organization’s expense. While it is difficult to calculate the exact cost of

turnover, industry experts often quote 25% of the average employee salary as a

conservative estimate.

2. Loss of Company Knowledge: When an employee leaves, he takes with him

valuable knowledge about the company, customers, current projects and past history.

A lot of time and money is spent on the employee in expectation of a future return.

3. Interruption of Customer Service: Customers and clients do business with a

company through the employees. Relationships are developed that encourage

continued sponsorship of the business. When an employee leaves, the relationships

that employee built for the company are severed, which could lead to potential

customer loss.

4. Turnover leads to more turnovers: When an employee terminates, the effect is felt

throughout the organizations. Co-workers are often required to pick up the slack. The

unspoken negativity often intensifies for the remaining staff.

5. Goodwill of the Company: The goodwill of a company is maintained when the

attrition rates are low. Higher retention rates motivate potential employees to join the

organization.

6. Regaining efficiency: If an employee resigns, then good amount of time is lost in

hiring a new employee and then training him/her and this goes to the loss of the

company directly which many a times goes unnoticed. Adding to this is the fact that

expecting the same performance from the new employee cannot be assured.

4.4 SUGGESTED EFFECTIVE RETENTION STRATEGIES

The following strategies will help organisations improve retention, productivity, and all other

important metrics.

a) STRATEGIES FOR SUPERVISORS:

Hold supervisors accountable for achieving retention goals.

Supervisors won't achieve any other goal you assign them if they lose their best performers,

so make them accountable. This is the first strategy which should be implemented

immediately. Telling supervisors on all levels that they now have retention goals moves your

retention efforts from HR into the line management of your organisation, which is where

nearly all retention activity occurs after hiring.

Develop supervisors to build trust with their teams.

For every employee, communication, recognition, and development all fall behind trust. The

type of trust being discussed here is personal trust: trusting a supervisor to provide feedback

and tools for your success, assess your work objectively, tell you when you need to improve,

and present your achievements objectively to others. This is an employee knowing that his

supervisor “has his back” and really want him to succeed.

b) STRATEGIES FOR PEOPLE MANAGEMENT PROCESSES

Narrow the front door to close the back door.

This focuses on how hiring techniques can greatly influence retention. These techniques must

be used to check if the applicant can do the job, and if they will stay with the organisation.

New hires must align with who you are—your jobs, values, and standards—and give clear

indications they intend to stay.

Script employees' first 90 days.

First impressions predict how long employees stay, so early activities must be scripted to

present your company in ways that are both positive and truthful. The first 90 days is the

glue-binding period, as employees stay for things they believe are uniquely available from the

organisation. Having made the decision to join the organisation, they are now verifying if

their decision was right based on their early daily experiences.

Challenge policies to ensure they drive retention.

Blow the dust off last decade's thinking and drive your rules toward retention. Improve pay,

healthcare, and work flexibilities for the employees. Organisations that understand the full

cost of turnover are wise to offer benefits and benchmark themselves against other employers

to ensure they are competitive or better.

c) STRATEGIES FOR TOP MANAGEMENT:

Calculate turnover's cost to galvanize retention as a business issue.

Money speaks louder than numbers and percents. So in order to move the retention

discussion into the boardroom and other important decision-making arenas, the cost of

turnover must be translated into bucks.

Drive retention from the top, because executives have the greatest impact on achieving

retention goals.

Think about how your company manages sales, service, quality, and safety and then build

those same methods for retention. Most of the organisations look to HR to design and

implement retention solutions. As a result, retention initiatives are driven from the side of the

organisation chart rather than from the top. Employee retention is a management team game;

hence executives from all the departments in the organisation must be involved.

5.0 CONCLUSION:

Having a good effective and manageable employee retention strategy in any organisation is

absolutely necessity and at the same time is inevitable. The strategies discussed in this paper

relate to supervisors, people management processes and the top management. Carving,

crafting and implementing these strategies involves serious commitment from the

management and especially executives at the corporate level. This would certainly yield rich

dividends in productivity at the end in the long run.

REFERENCES

1. Stephen Taylor (2002), “The Employee Retention Handbook”. TMH Publication, New

Delhi.

2. Jack J. Phillips, Adele O. Connell (2003), “Managing employee retention: a strategic

accountability approach”, HR Journal, vol14, pp45-54.

3. Suzanne Dibble (1999), “Keeping your valuable employees: retention strategies for your

organisation’s most important resource”, Personnel management, Issue 4, vol8, 35-41.

4. Jennifer A. Carsen (2002), “HR How to: employee retention”, IJTD, vol. 9, pp13-22.

5. J. Leslie McKeown (2002), “Retaining top employees”, Journal of Management and HR,

Issue 6, pp35-40.

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