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Factors Affecting Employee Retention

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Factors Affecting Employee Retention

Galhene Arachchillage Buddhima Ewumini Senevirathna

(CB006122)

BSB10183-3-Project

Submitted to the Business School in partial fulfillment for the degree of

Bachelor of Arts (Hons) in International Business Management

Supervised By: Dr. Saman Yapa

Word Count: 2198 (Excluding figures)

HF16A1IBM - CB006122

FINAL INDIVIDUAL ASSIGNMENT MARKING SCHEME (85%)

Student Name: Galhene Arachchillage Buddhima Ewumini Senevirathna

Student Number: CB006122

Project Title: Factors affecting employee retention

Supervisor: Dr. Saman Yapa Assessor: Mr. Rajitha Silva

Criteria 1st

Marker

(%)

Comments 2nd

Marker

(%)

Comments Final Agreed Marks

(%)

Introduction (10%):

Comprehensive

introduction with aim,

objective,

question/problem

justification, related to

the literature review.

Resources Selection

(20%): Appropriate in

respect of the above and

contemporary, has

breadth and depth.

Critical Analysis and

Review of Literature

(40%): Level of

analysis and critical

review of resources.

Conclusion (20%):

Ability to synthesize

and develop

arguments/perspectives.

Report Presentation

(10%): Accurate

referencing, logical

structure and language

proficiency.

TOTAL (%)

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i

Acknowledgements

My sincere gratitude and special thanks go to Dr. Saman Yapa, my supervisor, who supervised

me throughout this project, giving regular feedbacks and guidance to follow. I would also like

to thank, Mr. Rajitha Silva, who was appointed as my assessor, and thus gave me the needed

guidance to proceed with this final project in the VIVA session.

I also take this opportunity to express my sincere gratitude, to our Project module lecturer, Dr.

Hemamali Tennakoon, and not forgetting our lecturer for Research Methods module, Mrs.

Nazeefa Fawzer who gave us the groundwork for research. Without the knowledge and

contributions gained from all these lecturers, the successful completion of this project could

have not been possible.

Furthermore, I would like to extend my thanks to my institute, Asia Pacific Institute of

Information Technology, for providing me with all the needed resources and facilities,

including the library and IT facilities mainly, to make this project a success. Finally, yet

importantly, I would like to express my heartfelt gratitude and special thanks to my beloved

parents and brothers for their motivation, blessings, and all the strength they gave me to proceed

throughout, because without them nothing could have been possible. And furthermore, not

forgetting my beloved friends, who willingly helped me whenever needed, to solve my doubts,

and to make this report a success.

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Table of Contents

Acknowledgements ..................................................................................................................... i

List of Figures .......................................................................................................................... iii

Abstract ..................................................................................................................................... iv

Chapter 01 – Introduction ...................................................................................................... 1

1.1 Background and Scope ............................................................................................. 1

1.2 Problem statement ..................................................................................................... 1

1.3 Problem justification ................................................................................................. 1

1.4 Research objectives ................................................................................................... 3

1.5 Significance of the study ........................................................................................... 3

1.6 Chapter Summary ..................................................................................................... 3

Chapter 02 – Literature Review ............................................................................................. 4

2.1 Employee Retention ................................................................................................. 4

2.1.1 Compensation ....................................................................................................... 4

2.1.2 Work-life-balance ................................................................................................. 5

2.1.3 Working-environment ........................................................................................... 6

2.1.4 Superior-subordinate relationship ......................................................................... 7

2.2 Chapter Summary .................................................................................................... 7

Chapter 03 - Conclusion .......................................................................................................... 8

References .................................................................................................................................. 9

Appendix .................................................................................................................................. 15

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List of Figures

Figure 1: Employee turnover (Industry wise) ............................................................................ 2

Figure 2: Voluntary turnover (Country wise) ............................................................................ 2

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Abstract

In today’s dynamic business environment, increased globalization, with social, economic and

technological developments has resulted with a fierce competition among companies. Talent

shortage being identified as a salient issue globally; had caused competition even in the labour

market. Thus, this had made it crucially important and mandatory for companies to retain their

existing employees, although it is a challenging issue encountered by firms across the globe.

Thus, the sole purpose of this study is to identify and analyze the major factors that affect

employee retention.

The initial chapter introduces this study, by providing the background and scope of the study,

problem statement and justification, research objectives and the significance of this study.

Secondly, through the gathering of a vast literature, a literature review is presented, where it

initially provides an idea on what employee retention is, and through the gathered articles, four

commonly identified factors were selected; compensation, work-life-balance, working

environment and superior-subordinate relationship, and are comprehensively analyzed with

literature and thereafter this finally concludes, with the conclusion that if the aim of employee

retention is to be achieved, all these factors will have to be put into practice together, rather

than individually, because only if all four are implemented together, will the objective of

achieving employee retention be successful, both in the short and long term.

This report has utilized journal articles and books mainly, to critically and comprehensively

analyze and evaluate the factors in different views.

Keywords: Employee Retention, Compensation, Work-life-balance, Work environment,

Superior-subordinate relationship

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Chapter 01 – Introduction

1.1 Background and Scope

In the current competitive, global business-environment, organizations were continuously

triggered by social-developments and economic-advancements, which consequently passed

pressures to the labour-market (Burke and Ng,2006). According to the report from Hay Group

(2013), an employee turnover-rate of 23% was forecasted and the number of global voluntary-

quits were expected to be around 192 million by 2018.

Thus, on one hand, the organizational-issue was the lack of talented-workers, meanwhile, on

the other hand, organizations were faced with the risk of losing their skilled, experienced

human-resources which they already possessed (Gharib et al.,2017). This has potentially

created a competitive disadvantage to organizations (Moncarz et al.,2009) and subsequently

has forced them to consider employees as an important asset, who needs to be protected and

retained (Kossivi et al.,2016).

Retaining talented employees will not only boost the competitiveness of companies, but will

also reduce the cost of companies alleviating costly recruiting-cycles; which counts for like

two-thirds of organizational spending, and any interruptions on the ongoing-operations.

(Kumar,2012). Therefore, since issues of employee retention are recorded to be emerging with

the current and predicted increases in turnover rates, retaining employees is likely to be a major

challenge for employers in the immediate-future, which needs much focus from organizations

(Walsh and Taylor,2007). Thus, the key focus of this research is to recognize and analyze the

factors affecting employee retention, based on secondary-research-articles.

1.2 Problem statement

Increasing levels of voluntary employee-quits affect the employee retention levels of firms

adversely, causing expensive costs to organizations, thus hindering their future success.

1.3 Problem justification

When a company loses a skilled, talented employee, there happens to be an adverse impact

on company operations with major delays and disruptions at work. This will result with

unsatisfied customers which will affect the company’s profits.

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Furthermore, it was also noted that 86% of employers encountered difficulties in attracting new

recruits and 58% faced difficulties in retaining their existing human-capital (Ramlall,2003).

Referring to the massive costs, one study noted that recruitment-replacement costs accounted

for like 50 – 60% of a worker’s annual salary and up to 100% for specialized managerial

positions. Meanwhile, Fitz-enz (1997) noted that firms on average makes losses of around $1

million with every ten professionals leaving the company. Thus, the significance of employee

retention is a widely-discussed area in past research articles based on increasing turnover levels

and related turnover-costs. Over the years, voluntary turnover has been recorded to be

persistently rising in almost all the industries across the globe (Huselid,2000; Abbasi,2000) as

shown by the following illustrations;

Figure 1: Employee turnover (Industry wise)

Source: (Janani,2014)

Figure 2: Voluntary turnover (Country wise)

Source: (Elkjaer and Filmer,2015)

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1.4 Research objectives

 To identify key organizational factors that affect employee retention

 To analyze how those factors identified affect employee retention

1.5 Significance of the study

For long-term health and success of companies, employees and their retention is vital.

Subsequently, this study will enable companies to identify and analyze the main factors

affecting the retention of employees, which could be widely used and applied by companies to

find solutions to the employee retention problem, which could help firms save employee-costs

which are almost two-thirds of their spending (Kumar,2012).

1.6 Chapter Summary

This chapter is an outline to the overall research; providing a brief introduction with

background and scope of the study, the problem statement to be addressed, the problem

justification, with the main objectives and the significance of the research.

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Chapter 02 – Literature Review

2.1 Employee Retention

Employee-retention is generally ‘the intention of employees to stay loyal to their current-

workplace’ (Huang et al.,2006). It is when employees are encouraged to remain in the

organization for a long-period or until the ongoing-project is complete (Bidisha,2013). Thus,

as cited by Govaerts et al (2010), the survival of organizations was highly-dependent on their

human-assets. Subsequently, has it created; a mandatory requirement for organizations to retain

those human-assets (Horwitz et al.,2003).

Thus, this literature review mainly focuses on recognizing the factors, and how they affect

employee retention. Subsequently, as per studies of (George,2015; Moncarz et al,2009; Kossivi

et al,2016; Umamaheswari and Krishnan,2013); compensation, work-life-balance, working-

environment and superior-subordinate-relationship were noted as the commonly identified

factors affecting employee-retention.

2.1.1 Compensation

Compensation was defined as the sum of both financial and non-financial remuneration,

offered to employees by employers for the provision of their valuable services (Osibanjo et

al.,2014). It constitutes of wages/salaries, bonuses, incentives and other fringe-benefits like

holidays, health-insurance and company-vehicles (Patnaik and Padhi,2012).

On one hand, compensation was identified as a motivator; and therefore, a key-retention-

strategy (Gardner et al.,2004), which had a direct relationship with employee retention

(Hytter,2007). Meanwhile, on the other hand, Teseema and Soeters (2006), cited more

specifically that voluntary turnover was high among employees who valued higher financial-

rewards as a part of their compensation-package, which subsequently implied that

compensation plays a major-role in retention. For instance, professional nurses who migrated

from South Africa cited compensation as the reason for their leaving (Spence et al.,2009).

Yet controversially, Hayes et al (2006) and Kossivi et al (2016) stated that compensation and

retention holds no-direct-relationship. For example, though Google Inc. was famous for having

a generous-compensation package, their median tenure was around one year, due to the fact of

the tech-market being hyper-competitive, with many new job-opportunities (Business

Insider,2015).

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Also, in the recent global survey of CEOs carried by PWC (2011), they discovered that 65%

of corporate-leaders were focusing on non-financial rewards. Also, it was further cited by

millennials that ‘money is not everything’. Furthermore, based on a research carried by Kovach

(2001) among industrial blue-collar workers, it was noted that wages/salaries alone do not

satisfy workers.

Thus, it could be realized that; compensation is moreover a key-driver of retention, yet it alone

will not retain employees in the long-term, as unlike in the past generations, today’s employees,

both managerial and blue-collar workers think much about the worth of their job, in many other

aspects, like work/life-balance and employer-employee relations (PWC,2011), rather than just

focusing on pay-rates.

2.1.2 Work-life-balance

According to Hudson (2005), work-life-balance was defined as a properly-planned balance

between a person’s personal-life and professional-life. Meanwhile, Estes and Michael (2005)

stated that work-life-balance includes; flexible work-arrangements and leaves, including

practices like; flextime, teleworking, job-sharing-schemes, family leave-programs and onsite

child/elderly-care.

Over the years, work-life balance has become an increasingly significant factor for many

professionals in organizations. Unlike in the past generations, in the present-day business

environment, employees tend to demand for flexible work-schedules which brings a balance

between their professional and personal lives (Ellenbecker,2004). According to a survey

carried by PWC (2011), 95% reported the importance of work-life-balance, whereas, 70%

stated that it is highly important. Millennials from Japan were the least concerned people about

work-life-balance, but still 85% of them said that work-life-balance is important to them.

Furthermore, Kossivi et al (2016) and Arnolds (2005) stated that; jobs that offer work-life-

balance offer opportunities for employees to fulfill their family and other responsibilities; like

child and elderly-care-commitments, educational-plans, religious-observances and fulfill the

need for reduced levels of stress, with flexible-work (ACAS,2015). These will boost employee

retention levels, whereas, work places which lack work-life-balance will be encountered with

high turnover levels, implying low-retention levels. For instance, in Taiwan, family matters,

mainly including child care and traditional family responsibilities (Sinha and Sinha,2012);

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regularly has affected the retention of working-women, who consequently tend to have higher

turnover-rates than men (Naqvi and Bashir,2012). Thus, with respect to this concern, if work-

life-balance existed, working mothers could have planned their work schedules by considering

their home and children-based schedules, thus allocating dedicated time for both their

professional and personal lives (George,2015).

2.1.3 Working-environment

A conducive working-environment refers to one with a pleasant-working-experience, adequate

resources and a certain degree of flexibility, and is said to be contributing immensely in

retaining employees (Alexander et al.,1998).

Furthermore, as per the researches of Miller et al (2001), it was identified that employees

benefit from an environment that provides them a sense of belonging; and that will encourage

them to stay committed and loyal to the workplace for longer (Irshad,2014). Meanwhile,

according to Lok et al (2005), the presence of job-autonomy, positive feedback and innovative

and supportive organization-culture too was noted to have a positive relationship with

employee retention. Meanwhile, Andrews and Wan (2009) stated that different organizations

should adopt different working-environments, according to employee needs. For instance,

manufacturing organizations were noted to require an encouraging environment where

employees were given the opportunity to expose their full capabilities; whereas, service

organizations, directly dealing with clients, were supposed to follow a psychological-

dimension, to interact and understand the clients well. (Umamaheswari and Krishnan,2016;

Shalley et al, 2011)

On the other hand, Raziq (2015) contrastingly mentioned that, if organizations pay no attention

to the working-environment, it will result with an adverse effect on employee satisfaction and

performance, causing retention levels too to fall.

Thus, this implies that it is widely imperative to analyze and identify the real needs of workers,

to provide them with a satisfactory working-environment, which could keep up retention levels.

For instance, when it comes to Google, Inc., it was known to be having an excellent, flexible

working-environment with work/life balance, yet they still had a low retention rate. Thus, no

matter how good the culture and environment was, when these talented people received

enticing offers from competing workplaces, they voluntarily shifted to competitors (Business-

Insider,2016).

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2.1.4 Superior-subordinate relationship

Jasper (2007) identified superior-subordinate relationship as another major factor affecting

employee retention. It was defined as the relationship between the supervisor and the employee.

According to Pitts et al (1990), employee’s perception about the organization was noted to be

strongly influenced by their relationship with the supervisor. This will keep workers much

engaged at work, with open-communication with the supervisor and that will act as a pathway

to gain employee commitment at work, thus raising retention levels (Landsman,2008). If this

relationship is not strong, employees will easily be demotivated and will seek other job

opportunities elsewhere (Kooker et al.,2007) Employees who feel valued, recognized and

honored with a sense of belongingness to the organization will be actively engaged in achieving

the goals and objectives of the business, with increased productivity, while increasing retention

rates (Mathis and Jackson,2010). This will also build a high-level of trust between the

employees and supervisors.

However, some countries in the world are said to be having a high-power distance cultures,

implying an autocratic-leadership and centralized-control (Sheridan,1992). Organizations in

such nations will also moreover follow an autocratic or top-down approach of management,

hence will lack this superior-subordinate relationship. For example, as cited by Newman et al

(2012), there was no relationship found between superiors and subordinates among Chinese

employees, where a high-power distance culture was present.

Yet, Ghapanchi and Aurum (2011) further cited the importance of superior-subordinate

relationship. Thus, ignoring the employees, not appreciating their commitments, not keeping

them engaged at work, but only finding their faults and telling and blaming the wrong person,

setting unrealistic-goals for the subordinates and unrealistic deadlines; make organizations fail

in keeping up good, strong relationships between supervisors and subordinates, thus

subsequently causing low employee retention levels (Mehta et al., 2014).

2.2 Chapter Summary

By analyzing a vast-number of past research-articles, the researcher identified four-key-

influencers on employee retention as; compensation, work-life-balance, and working

environment and superior-subordinate relationship, and based on past research findings, each

of them were analyzed with supporting examples, in this chapter, to understand how each of

them should be kept in a balanced way to achieve the aim of employee retention.

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Chapter 03 - Conclusion

In the competitive, dynamic business environment, retaining employees has become a

mandatory requirement. Thus, the course of this study being mainly to identify and analyze the

factors affecting employee retention, four commonly identified factors; compensation, work-

life-balance, working-environment and superior-subordinate relationship in past researches

were considered in this context.

Initially, compensation was proven as a retention strategy and meanwhile criticized by some.

Yet, it was realized as a major factor affecting retention, as many supported the view, although

the criticisms made it clear that, unlike in the past generations, today’s employees do not accept

money as everything, but just an influencing factor, which must be followed by other factors

like work/life balance. The researcher also discovered that not only managerial-workers, but

even operational-blue-collar-workers were not solely satisfied by their pay.

Referring to work/life balance, it was noted as a major requirement of today’s employees, if to

stay loyal and committed at work, mainly followed by the fact that even countries like Japan,

where people are usually said to be working-to-death with no concern about their personal

lives, recently reported that they valued work/life balance.

Thirdly, when it comes to working-environment, it was clearly identified that, a good work

place should create a pleasant working experience for employees, with adequate resources and

flexibility at work. However, it was also understood that the workplace environment should

differ from one organization to another, based on the different requirements of the people,

mainly based on the different industries that they were operating.

And ultimately, coming to superior-subordinate-relationship, it was widely identified

according to the human-nature, that a strong superior-subordinate-relationship was more likely

to engage workers, encourage two-way communication, motivate them to raise productivity,

which finally led to the building-up of a strong relationship with trust and confidence, thus

leading workers to stay committed and loyal to the business. However, this was also identified

to be impossible to achieve, based on cultural-backgrounds of certain countries like China.

Hence, in conclusion, rather than improving these factors individually, a positive change in all

the factors together will assist organizations in achieving employee-retention, thus minimizing

any cost-burdens and disruptions on operations. Thus, this research has been able to address

the set-objectives, while giving the researcher, potential readers and companies an analysis of

these factors which could be used as strategies in increasing future employee-retention-levels.

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