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FACTORS INFLUENCING HIGH STAFF TURNOVER IN COMMERCIAL BANKS IN
KENYA: A CASE OF COMMERCIAL BANK OF AFRICA
Background to the study
Employee turnover can be defined as when an employee ceases to work for an
organization. On a wider level, it is defined, as the proportion of employees leaving an
organization during a given period of time, usually one year (Armstrong, 2006).More
importantly however, the analysis of the number of those leaving employment and the reasons
for their departure will provide information indicating whether any action is required to improve
on the retention rates. Turnover is even more costly because of lost productivity and unnecessary
replacement costs (Armstrong, 2008). Employee turnover has received substantial attention from
both academics and management. Much of this attention has been focused on understanding its
causes.
In the United States of America (USA), (Smith, 2007) argued that businesses spend over
USD200billion annually recruiting and replacing their employees. In the healthcare sector in
USA for example, a report by (Meudell& Rodham, 2010) estimates that the turnover rate would
reach a level of 29% in year 2020. Gustafson (2001) showed that the hospitality industry in the
USA and elsewhere is experiencing a labor shortage with the high rate of turnover. Forecasts
have considerably predicted current and future shortage in the supply of information technology
(IT) professionals in the USA. A jobs forecast by (Computerworld, 2008) estimates that there
were 350 000 vacant IT jobs in the USA in 1998 with a forecast of 1.3million more IT
professionals needed in the next decade with a turnover rate of 13% or higher.
This suggests that turnover would continue to be a problem in the years ahead. To reduce
the ever increasing turnover rates, organizations must understand and put in place the right
strategies to retain these professionals. Average labor turnover in the UK is 15.7 per cent
according to a (Central Bureau of Investigation, 2009) survey. Most firms see labor turnover in
terms of a cost to the business that could be reduced by better HR management, training or
rewards. Turnover has a significant impact on organization and these needs to be measured.
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In a survey conducted by the (CIPD ,2008) attitudes towards turnover were revealed as follows:
52% of respondents felt that labor turnover had a minor negative effect on organizational
performance; 21% stated there was no effect; 17% stated a serious negative effect and 9% that
there was a positive effect. Turnover rate over the next 5 years is expected to leap from 14.6% to
18%, meaning the talent exodus will stand at almost 4.7 million in 2018.
In the United Kingdom (U.K), the Chartered Institute of Personnel Development (2008)
reports that the overall turnover rate for the U.K. in the year 2006 was reported as 18.1%. The
turnover trend is therefore increasing and this concerns management and corporate world hence
demands an urgent attention from the policy makers. Turnover rates vary from sector to sector
with the highest level of turnover (22.6%) found in the private sector organizations with the
public sector having an average turnover rate of 13.3%. According to (Saari& Judge, 2004) the
following factors were listed as crucial retention strategies for IT professionals in the USA and
U.K in the order of importance:
Salary, Bonus and stock option based, the chance to learn new skills (i.e. those that the
market values); the reputation of the organization in technology and working conditions
(physical, colleagues & boss, casual dress) were some of the retention strategies particularly
successful in maintaining a low turnover rate, one of the solutions suggested was an increase in
salary. A Computerworld (2008) survey found that the majority of IT professionals admitted to
having left their former organizations for more money, while above half of these professionals
left for career advancement. Common practice suggests that most people need a vacation break
to prevent job stress and burnout. Furlonger (2007) reports that Scandinavian and European
organizations typically offer more vacation benefits and three day weekend mini-vacations than
their USA counterparts.
Employee turnover statistics are being used by South African organizations to examine
the impact turnover has on their operations. Managerial-level employees, especially those with
scarce skills, are consistently being offered well-paying jobs globally and some of these offers
are too attractive for them to resist (Capelli, 2009).Therefore, when managerial-level employees
decide to resign or even when they are dismissed they contribute to an organization‟s turnover
rate. The literature clearly points-out that there are more than 30 causes for voluntary employee
turnover in organizations in South African.
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Common reasons causes of stuff turnover are poor relations between employees and managers
(Blake, 2006).Conflict resolutions mechanism (Armstrong, 2006) has also greatly influenced
staff retention. Lack of a career advancement plan (Grobler, Warnich, Carrell, Elbert and
Hatfield, 2006) causes staff turnover as high job dissatisfaction increases among employees.
Mismatch between the employees and the job or the organization (Barney et al 2009). A person-
organization fit is when a person and an organization have common characteristics and/or meet
each other‟s needs. In the South African context the level of pay dispersion and inequality within
Luyt,2008) organizations drives turnover as employees leave when rewards, such as bonuses and
incentives, are not linked to performance.
Banking Industry in Kenya.
The Companies Act, the Central Bank of Kenya (CBK) Act and the Banking Act are the
main regulators and governors of Banking Industry in Kenya. These Acts are used together with
the prudential guidelines which Central bank of Kenya issues from time to time. Banking
industry has 45 players (CBK, 2012). To address issues that affect the Banking industry in
Kenya, banks have come together and formed a forum under the Kenya Bankers Association.
The sector contributes to Gross domestic product, provides employment, supports various sectors
of the economy, and transforms the economy and livelihood of Kenyans through its innovative
and creative product development with various sectors like e.g MPESA products. According to
the Association of Kenya institute of Bankers annual report ( AKIB ,2014) Kenya Commercial
bank is the second revenue contributor at 6.1Billion according to last year financial results in
corporation tax after Safaricom Ltd and has over 4000 employees.
CBK ensures proper functioning of the Kenyan financial system, the liquidity in the
county and the solvency of the Kenya shilling.CBK supervision annual report (2012) classified
Banks by asset and deposits and the seven largest banks by Asset base are Kenya Commercial
Banks, Equity, Co-op Bank, Standard Chartered, Barclays Bank ,CFC Stanbic and CBA in that
order. Size does not necessarily matter in terms of quality and quantity of deposits. For example
the report identified Citibank as having the richest client base in the business with average
deposit per client of ksh 22million with Equatorial commercial bank making the top 11 list with
ksh 1.296 million. Meaning the top 7banks with asset base may not even have quality deposits.
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Major issues facing the banking industry includes: competition for clients and talents,
staff turnover, fraud, minimum core capital requirements, Terrorism and Money laundering.
Global crisis in 2010 affected banking industry in Kenya and more so the mobilization of
deposits and the decline of Interest margins. Banks are very conservative with negative
information; however recruitment statistics from (Manpower & PWC 2012) revealed a standard
staff turnover rate to be 10 percent, meaning 3000 employees from the estimated 30000
voluntary leave employment, this is considered as normal and healthy statistics.
Background of CBA
CBA is one of the East Africa‟s largest private locally owned banks and has operation in
Kenya and Tanzania whose vision is to be a respected financial service provider in East Africa.
Commercial Bank of Africa was founded in 1962 in Dar es Salaam, Tanzania and immediately
therefore established branches in Nairobi and Mombasa in Kenya, and in Kampala, Uganda, with
the nationalization of banks in Tanzania, CBA was incorporated in Kenya in 1967.
The bank is composed of a highly experienced board of directors whose deputy chairman
is a leading businessman, entrepreneur and director of several companies in Kenya. The group
Managing Director is a chartered accountant who previously served as group financial controller
in a renowned newspaper printers and a leading bank in Kenya .CBA is ranked seven by asset
base and has Five hundred employees, according to CBA website. Its niche market is corporate
customers. The immediate competitors of CBA are Cfc-Stanbic, Citibank, Diamond Trust Bank,
Bank of Africa Kenya, Imperial Bank, Bank of Baroda, Family Bank, Prime Bank, Gurdian
Bank, Paramount, Chase and Nic Bank.
Statement of the Problem
Talent management and strategy implementation in the banking industry has increased
competition for skilled and trained work force (PWC, Delloite& CSS 2014). Organization have
reconsidered talent management with keen interests not only for their operations and business
but for succession .Talent is valuable, difficult to nature therefore organizations must attract,
select and retain talents as a competitive tool (Chepkony, 2012).
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Turnover contradicts the benefits derived by organizations when they spend scarce resources
attracting, selecting, socializing, training and developing employees (Wright & Bonett, 2007)
when these staffs cannot be retained. It is important that the banking industry adequately
motivates, retains skilled and experienced workforce (CBK/BSD, 2013) for strategy
implementation. Banking industry has witnessed considerable human capital flight despite the
growth in profitability for the past five years (PWC,2013) .The survey report released on
business daily noted increased competition for high end clients, qualified, trained and
experienced staff to implement bank‟s strategies..
However a mismatch (PWC,2013) in compensation and disparity in disposable incomes
rewards, bonuses and allowances for employees is unrepresentative of the super abnormal profits
reported. Nairobi managers are finding it hard to stick with top talents in the face of stiff
competition for human resources Exit interviews documented cemented this argument as
majority of employees leaving the organization mentioned inequitable reward management
system, poor employee-employer relations, non-commensurate employment package and unclear
career path as major reasons for the human capital flight.
Fierce competition and talent wars (Ernst & Young, 2014) has resulted to pay rise as
companies poach for staff rather than, train, motivate, retain skilled and highly performing
employees. The survey report conducted in Europe, Middle East, India and Africa. In Kenya the
report named professional services, banking, insurance and media in Kenya as the most widely
affected.HRM practices must be developed (Kelly, 2012) for the betterment of both organization
and employees.Turnover contradicts the benefits derived by organizations(Wright & Bonett,
2007) when they spend scarce resources attracting, selecting, socializing, training and developing
.Organizations success (Gratton & Erickson 2007) depends heavily on human resource
management. The consequences of turnover (Blau,2006) have received significantly less
attention from researchers. Identifiable characteristics according to (Andisi,2006 ) through
research should be used to develop policies to rectify the vice. Blake (2006) and Armstrong
(2006) have identified the existence of poor relations in the work place. Mismatch between
performance (luyt, 2008) and these are the gaps in tandem with what the research will bridge by
focusing on intrinsic, extrinsic, career development and employee relations factors.
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