Factors Influencing Employee Retention
BUSI 240-Organizational Behavior 1
Liberty University
2022
Factors Influencing Employee Retention
Retention factors are utilized as an important topic for managers, organizations and
organizational researchers (Abbasi and Hollman, 2000). Consequently, retention of
talented employees can be a source of advantage for an organisation. However, there are
challenges in attempting to retain these employees. Compensation, job characteristics,
training and development opportunities, supervisor support and promotion were
identified as the top five retention factors. Companies try to keep valuable employees with
their cutting edge knowledge and skills, but the demand for high technology
employees with skills has
increased substantially, e.g. for ten positions only eight candidates with the required skills
qualify (Murphy, 2000). To add to this, competitors use aggressive recruitment tactics to
try and woo away valuable employees.
Employees make efforts to change dissatisfying work situations that would otherwise be
major factors in their decisions to leave their organizations. Employees who succeed in
changing dissatisfying work situations will lower their dissatisfaction and with intent to
leave changed to intent to remain, the likelihood increases that these employees will
ultimately remain with their organization (Steers & Mowday, 1981). It is the primary
responsibility of the management to identify talented and high performing individuals in
the first place and they should be recognized on merit in every aspect including monetary
rewards (Sigler, 1999). Lower compensation and poor benefits also increase the rate at
which employees voluntarily leave their employers. Many of the conditions that cause
people to leave also make it difficult to attract new applicants to replace them (Susan &
Schuler, 2000). Employee turnover can be extremely costly to an organization as the
average company loses about $100,000 for every professional or managerial employee
who leaves (Torrington et al, 2008). Specific factors influencing employee retention are
reviewed below.
Employee Empowerment
According to Hummayoun and Muhammad (2010) employee empowerment can create a
sense of belongingness and ownership towards the current organization. They tend to be
more confident and perform well. Indirectly, it will increase service quality and customer
satisfaction. In this competitive market, retaining a competent and capable workforce
is important in any organization. A high turnover rate in an organization may affect the
reputation and image of the organization. Employee replacement is problematic and costly
because the organization has to train a new employee if an experienced employee
resigned. Some studies have identified that lack of job dissatisfaction, low levels of
empowerment and low levels of support of superiors may lead to turnover (Salman, Iqbal
and Chandran, 2010). Human resources policies must focus at giving more self-
governance to the employee to avoid turnover and job burnout. Huselid & Becker (2000)
found that HR policies play a strategic role in employee retention through stimulating
skilled labour. The goal-setting process that involves employee can enhance employee
empowerment as the employee considers himself more empowered knowing his or her
job. Empowered employees tend to be more confident and try to give their best to their
employer because they are given more authority in the decision-making process
(Hummayoun and Muhammad, 2010). Employee empowerment can create a feeling of
obligation among employees to stay in the organization. Hence, the employees tend to
remain in the organization even when facing pressure from others who intend to leave the
organization because they feel that they are a part of the organization (Choong, Wong and
Lau, 2011). In essence, the intention to remain or leave the organization among the
employees is based on the job satisfaction of employees. The individual with a higher job
satisfaction tends to be more committed to the organization. They will be more likely to
remain in the organization.
Employee Training
According to Latham (1988), training is defined as the systematic acquisition and
development of the knowledge, skills and attitudes required by employees to
adequately perform an assigned job or task to boost performance in the job environment.
If the training is relevant and if it is efficiently and effectively designed and delivered, it
should impart new knowledge and skills as well as meet the employees’ and
organizational needs. When the results of training is reflected by improvements in
relevant knowledge and the acquisition of relevant skills, employee job performance
should also improve provided that the skills learned in training transfer to the job (Salas,
1999).
Improvement in performance such as productivity, quality and services are the training
outcomes provided that the job is strategically aligned to the organization’s needs. For an
individual employee, if their desired needs are fulfilled through the training programs
provided, there is no doubt that the desired outcome by the organization, retention on
employees, will be reached. Huselid (1995) suggested that perceptions of HR practices
such as providing training and job security by the company are important determinants of
employee retention. Moreover, some studies also state that HR practices such as benefits
and training are positively related to retention because the practices motivate employees
and “lock” them to their jobs which is so called employee retention. According to
Landsman (2004), he suggested that training is a valuable activity for enhancing skills and
improving staff performance and that training can address some of the factors contributing
to staff retention, such as perceived support from the supervisor, the agency and
community. Training can define roles more clearly to employees thereby minimizing job
stress. Organizations with sufficient training opportunities should thus have a higher
retention rate. Training alone, however, cannot address all of the factors contributing to
staff retention such as excessive caseloads and promotional opportunities within the
organization. It is therefore reasonable to say that training can play a role in
improving retention but it may not be sufficient to improve retention if other systematic
barriers are not addressed.
Employee Compensation
Compensation is something, typically money, awarded to someone as compensation for
injury, loss or suffering or money received by an employee from an employer as a salary
or wage. Compensation is not only in the form of money (Reville, Boden & Biddle,
2003). It can also be in non-cash form. Benefits, such as pension, life and health
insurance, retirement plans and allowances that include company cars or subsidized
transportation, all represent a significant pay element in many large firms. In addition, for
organizations where tax advantages and economies of scale of purchasing that make it
economically advantageous for the firm to provide these elements, the compensation and
benefits are always viewed as tools for attracting and retaining desired employees (Hauser
& Baggett, 2002).
Research has shown that employees’ positions and length of employment traditionally
determine wages in most companies. A number of studies have shown evidence that
compensation satisfaction plays an important part in employee retention. DiPietro and
Condly (2007) used the Commitment and Necessary Effort (CANE) model of motivation
to find out how hospitality employees are motivated. They discovered that non-financial
compensation or the quality of the work environment played an important part on
employee turnover intentions. Companies are in danger of creating an unsatisfactory
working environment if there is no any compensation planning. Williams et al. (2007)
found that if employees are satisfied with how the company operates and communicates
its compensation policies, they remained committed to the organization. Furthermore, an
organization’s reward system can affect the performance of the employee and their desire
to remain employed. There are also numbers of researchers who demonstrate that there is
a great deal of inter-individual difference in understanding the significance of financial
rewards for employee retention (Woodruffe, 1999).
Performance Appraisal
Performance appraisal is a process of inspecting and evaluating an individual’s
performance in his or her duty to facilitate the decision of career development of the
individual. It evaluates the individual’s overall contribution to the organization through
assessment of his or her internal characteristics, working performance and his or her
capability to pursue higher positions in organization (Gruman & Saks, 2011). In order to
enhance organizations’ ability to survive through turbulent environment, most top
corporations take great care in managing the performance measures of their employees.
It is common understanding that top talents are keys to business success today, but how a
company manages its talents or human resources would be fundamental to the success
where the effective structure of performance measurement would ensure that a company
fully utilizes its competitive resources to a maximum. As extracted from the literature
review, performance appraisal plays the role as a medium of communication between
management and employee. An effective appraisal would result in enhanced employee
development from feedback as well as better employee satisfaction comprehension by
company.
However, if appraisal is simply applied as a tool of measurement and monitoring,
problems would arise where tension would overwhelm both the evaluator and respondent.
Webster, Beehr and Love (2011) studied how work stressors cause role ambiguity and
conflict and subsequently increased job dissatisfaction and turnover. It is mentioned in the
literature review that appraisal can be stressful to both evaluator and respondent if both
parties do not take its importance seriously or a confusing message is produced from the
appraisal. Similar to a negotiation, stress can affect an employee’s job performance where
he or she might be too concerned with the effect of the appraisal to career development or
compensation (O’Connor, Arnold & Maurizio, 2010).
Employee Commitment
Social exchange theorists have produced significant quantities of research that support the
theory that the level of commitment demonstrated by an organisation to the employee will
have a direct impact on the commitment that employees show to the organisation in return
(Wayne, Shore, & Liden, 1997). One useful mechanism for understanding commitment
behaviours is to consider the relationship between the employer and employee as one of a
fair exchange (Pinder, 1984), with the way in which an employer treats employees having
a direct bearing on their performance, attitude and commitment to the organisation.
Employee attitudes and behaviours, including performance, reflect their perceptions and
expectations, reciprocating the treatment that they receive from the organisation. In their
multilevel model linking human resource practices and employee reactions, Ostroff and
Bowen (2000) depict relationships suggesting that human resource practices are
significantly associated with employee perceptions and employee attitudes. Studies by
Tsui, Pearce, Porter, and Tripoli (1997), found that employee attitudes, most
specifically employee commitments, were associated with the interaction of human
resource practices and perceptions.
Koch and McGrath (1996) suggest that high‐involvement work practices can enhance
employee retention. However, most examinations of retention and commitment are from
the employer’s point of view and as a result, new and refined programs are continuously
introduced. These programs are expected to have a positive impact on employee retention
and commitment, therefore, investments in high‐ involvement work practices may
promote of a positive work climate that may result in lower turnover. Above all,
organisations have implemented HR practices and policies to reduce unnecessary and
unwanted employee turnover (Roberson, & Ellis, 2008).
Likewise, if employees are regularly provided with the opportunity to attend training and
development workshops, they will recognise the company’s commitment to improve their
skills and will be more likely to remain in the environment where they have a continual
opportunity to learn. This is mutually beneficial for employee and the company, as it
improves the strength of the organisation and retains key talent (Huselid, 1995).
According to Ogilvie (1986), these types of Human Resource Management (HRM)
practices are more likely to have a positive impact on employee commitment and
satisfaction than employee demographics or job characteristics.
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