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Factors Influencing Employee Retention in the State Corporations
BUSI 240-Organizational Behavior 1
Liberty University
2022
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Factors Influencing Employee Retention in the State Corporations
Employees are an important resource in an organization as they positively contribute to the
execution of organizational objectives and mission. Amstrong (2006) states that the
retention of such employees has been shown to be significant to the development and the
accomplishment of the organization’s goals and objectives especially in building
competitive advantage over other organizations in the phase of increased globalization. An
employee's decision to resign from an organization is rarely due to a single event, such as
being passed over for a promotion, a plum assignment or for monetary reasons. One such
event may, however serve as a catalyst, but most employees leave because of multiple
factors - the turnover drivers such as diminished job satisfaction, a tense work environment
and better advancement opportunities elsewhere (Davies, 2001).
As turnover is a symptom of a larger systemic problem such as ineffective retention
management, companies’ ought to understand what causes people to commit themselves to
being productive and loyal. They must design jobs, systems and organizations that support
rather than inhibit it. Fostering commitment means an understanding that people need to
have a stake in their work, and that employees respond when employers pay attention to
their needs and involve them (Benkhoff, 1997; Dobbs, 2001).
Therefore, to achieve quality retention programs, organizations ought to determine the
retention factors relevant to their employees and then focus strategies on these factors. For
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each employee group, information can be gathered from current and former employees on
their perceptions of why people stay or leave. Exit interviews and follow-up surveys with
former employees are being adapted to yield more accurate, useful information.
Interviews, focus groups and surveys among current employees provide perceptions of the
relevant factors and their importance. Finally, it is advocated that there may be a
distinctive edge in simply doing all of the key things well. By providing a reasonably high
level of attention to the factors important to employees, a strong organizational culture is
built and maintained.
Employee Retention
Zineldin (2000) defines retention as an obligation to continue to do business or exchange with
a particular organization on an ongoing basis. Retention is “customer liking, identification,
commitment, trust, readiness to recommend, and repurchase intentions, with the first four
being emotional-cognitive retention constructs, and the last two being behavioral intentions.
According to Fitzenz (1990), retention is driven by several key factors, which ought to be
managed congruently: organizational culture, strategy, pay and benefits philosophy and career
development systems. Day (2000) argued that if companies cannot retain their employees, the
economic results could be devastating for an organization. A substantial amount of value
could potentially end up employed by a competitor, or become the competition.
For organizations, the high cost of recruitment and selection (Pfeffer, 1998), the lag and
productivity loss during the assimilation period (Davies, 2001), the likely loss of business
opportunity (McCallum, 1988; Walker, 2001), poor customer relationship (Clarke, 2001;
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Messmer, 2000), and hidden cost of loss productivity (Das, 2002) have subsequently
highlighted the importance of retaining committed employees as an aspect of survival for
organizations. Employers seek to treat employees as valued assets who can be a source of
competitive advantage through their commitment, trust, adaptability and high quality skills and
knowledge (Storey, 1992). This empowerment should increase the competitiveness of the
business. Arthur (1994) concluded that by using commitment strategies, organizations had
significantly higher performance and lower turnover, compared to those using control
strategies.
Employee retention issues are emerging as the most critical workforce management challenges
of the immediate future. Since the mid-1990s, scholarly research investigations have been
focusing not only on determining why employees leave organizations but also concentrating
on those factors positively influencing employees to stay with an organization (Hoisch, 2001),
as well as the benefits associated with retaining tenured workers (Ramlall, 2004). Effectively
designed and well implemented employee retention programs that increase employee tenure
more than pay for themselves through reduced turnover costs leads to increased productivity
(Simons and Hinkin, 2001).
Factors Influencing Employee Retention
There are several factors that influence employees’ decision to leave or stay with an
organization. The decision to stay or leave an organization involves evaluating cost and
benefits. If the present value of the returns associated with turnover exceeds both monetary
and psychological costs of leaving, workers will be motivated to change jobs. If the discounted
stream of benefits is not as large as costs, workers will resist changing jobs (Ehrenberg and
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Smith, 1994). The explicit and implicit benefits associated with staying/retaining a job will
be reduced if a worker is unhappy in the current job, if the immediate cost of leaving is low, if
the utility from the new job is great, or if the new job offers a comparable compensation
package.
Factors influencing employee retention can be divided into individual and firm factors.
Individual factors include gender, marital status and education among others. Women are often
considered less valuable with regard to human capital than their male counterparts because
they are more likely to face interrupted careers for the considerations of families (Sicherman,
1996) and other issues such as sexual harassment. Marriage, too, could be used to screen for
workers in the recruitment process (Keith and McWilliams, 1995). Married people more often
make job decisions based on relatively complicated concerns, including kinship responsibility
and children issues (Glass and Riley, 1998). Such concerns may cause them to want to hold
onto their jobs longer than unmarried people. Education is related to turnover in that it impacts
the number of job openings available to a worker, and the turnover cost they are able to bear. If
a worker's education tends to be less firm-specific, job opportunities will be relatively large
and job transfer cost, as part of transaction cost (Williamson, 1981), will be relatively low
(Barnes and Jones, 1974).
Firm-based factors include honored employee status, wage effects, performance, promotion
speed and effect of economic cycles. Human capital theory proposes that, when on the job
training is firm-specific, workers' skills will not be transferable. Therefore, even after receiving
a large amount of various trainings, workers may not be able to command a higher wage
either at their current firm or at a new firm. However, since specificity of human capital is
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beneficial to the firm (Williamson, 1981), the firm may pay the worker's training costs. Such
cost sharing and compensation may cause both parties to make appropriate human capital
investments, thereby reducing employees' turnover and increasing attachment (Lazear, 1998).
Likewise, workers who earn wages lower than they might be paid elsewhere are most likely to
leave their jobs (Ehrenberg and Smith, 1994). Lazear (1999) found that age-pay profiles are
steeper than age-productivity profiles. He argued that enhanced wages serve not only as
reward for enhanced skills but also as an incentive and perhaps a retention device.
The impact of different workers' turnover on a firm is not equal. “It was the performance level
of the employee, not the act of quitting or staying per se, that determines the positive or
negative nature of the retention/separation event” (Steel, Griffeth and Hom, 2002). Lazear
(1998) found that recent promotion is negatively related to turnover. Recent promotion also
adds to the worker's perceived firm-specific human capital value, meaning that he or she is
more suitable to the current firm than to others. Under such circumstances, promotion would
reduce turnover (Lazear, 1986). In addition to individual-based and firm- based factors, market
factors remain critical to workers' retention.
State Corporations in Kenya
A parastatal is a State Corporation under State Corporation Act Cap 446 (1987). State
Corporation has various meanings. First, it may be a corporate body established by or under
an Act of Parliament. Second, the President may by order establish a SC as a body corporate to
perform the functions specified in the order. Third, it also represents a bank or a financial
institution licensed under banking Act or other company incorporated under the company Act
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(Wamalwa, 2003). As at December 31st, 2012, there were 155 state corporations in Kenya
(GOK, 2012), with 86,000 state workers employed out of the total 681,100 public service
workers (Economic Survey, 2012).
State corporations in Kenya have been affected by a mass exodus of employees in search of
better terms and working conditions. Ndetei, Khasakhala, Omolo (2008) noted that many
doctors and nurses were leaving public corporations for the private sector because of better
terms of employment. They further acknowledged that more trained doctors and nurses were
leaving the country for better remuneration and working conditions in other countries like
South Africa and Ghana. In the transport sector, Kenya Airways has lost its well- trained pilots
and cabin crew to competitors both internationally and locally on the basis of pay and working
conditions (Mumero, 2012).
The state corporation industry however, is rapidly transforming and many reforms are taking
place to anticipate these challenges. Sunny Bindra (online.www.sunwords.com) suggests that
from the handful of state corporations that have excelled and made a difference, key lessons to
be learnt are that leadership is important, fresh work ethic and culture should be instilled in
employees and that a layer of protection is needed from politicians who interfere with the
efficient and effective running of the state corporations.
Retention of employees is becoming a real challenge in today’s operating environment as
employers begin to realize the value of people that make up the organization. The employment
relationship is undergoing fundamental challenges that have the implication for the attraction,
motivation and retention of talented employees and talent shortage has resulted in fierce
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competition (Flippo, 2001). Fitz-enz, (1997) states that long term success of an organization
depends largely on its ability to effectively manage and utilize its human resources which are
considered as the most crucial. Ineffective management of employees leads to a high rate of
staff turnover which has a significant economic impact on organizations especially because of
the knowledge that is lost with the employees’ departure. It is very costly to do nothing about
high rates of turnover because one key individual can hold the fortunes of a department or
business in their hands. Loss of several members of core staff in the same unit or team can
lead to instability of the entire organization.
State corporations are organizations formed and owned by the Government to provide services
to citizens. They are unique in their operations because they do not always operate for profit
but for the supply of services and goods meant for the general public welfare. As such, their
operations are unique and may not be compared to private firms. However, the state
corporations have been facing challenges which include the adoption and use of ICT, financial
resources and human resources challenges. State corporations have been experiencing shortage
of human resources both in the headquarters and in the field. At the same time, employee
retention in these state corporations has faced serious challenges following increased
globalization and internationalization of firms. The turnover of employees has been increasing
and this occurrence has undermined effective and efficient service deliver; a pointer to
employee commitment and retention policies at these firms (Njiru, 2008). Employees are now
more knowledgeable and demanding. This study will seek to establish factors influencing
employee retention in state corporations in Kenya.
Studies have been done in relation to employee retention; Pegg (2009), studied the impact of
benefits on talent retention, motivation and productivity levels and how organizations are
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choosing to inform their people about the type of benefits on offer. Mulwa (2010), carried out
a research on factors that influence staff turnover in World Vision and recommended a review
of existing pension plan to address staff expectation and Otieno (2010), studied the causes of
staff turnover in Private Primary Schools and recommended that employees compensated well
as an indicator for management’s appreciation of employees contribution and abilities. Muiruri
examined the factors influencing staff turnover at Jertec Junior academy in Nairobi. Manyura
(2012) investigated perceived factors affecting employee retention at Kenya Commercial Bank
Limited Headquarters. Although the study was done, it was just a case study of one
organization and the researcher did not find any empirical study on factors influencing
employee retention in state corporations.
