2014

[EMPLOYEE RETENTION]
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Contents
Importance of Employee Retention.............................................................................................................. 3
Reasons and Costs of Turnover..................................................................................................................... 4
Strategies for Improving Employee Retention.............................................................................................. 6
Development of a strategic retention plan: ............................................................................................. 6
Collaborative Decision making model: ..................................................................................................... 7
Compensation Plan ................................................................................................................................... 8
Training and Development of employees: ................................................................................................ 9
Strategy for outsourcing and a flexible working environment ............................................................... 10
Introduction to SMEs .................................................................................................................................. 11
Employee Retention in SMEs ...................................................................................................................... 11
References: ................................................................................................................................................. 13

Importance of Employee Retention

Numerous challenges have arisen before the Human Resource professionals, as globalization
changes the business environment. As the organizations become global, their means of operating
the business change substantially. These changes become necessary as the business environment
becomes competitive. One such example is the change in the consumer demand for goods and
services and a change in operations brought about b new wave of technology (Tokomak and
Iheriohanma, 2010). These changes propel the organizations to adopt new and more rigorous
methods of production. As a result of rising expectations and more stringent working conditions,
employees seek to shift to another workplace that offers more flexibility, thereby accelerating the
rate of employee turnover in organizations. Employee turnover has a direct toll on the
productivity and commitment of employees because employee departure would mean that
execution of pre planned business ventures becomes all the more difficult and so the company is
plunged to exhibit conditions of declining productivity. This phenomenon is taking the face of
reality in light of current conditions of uncertainty and corporate downsizing. In todays
competitive environment, the impact of losing talented employees is increasing exponentially
because an organization critically relies upon the capacity and knowledge of its employees and
human resource is treated as a valuable asset.
Nigeria is one country that has been inflicted with this difficulty and recruitment of competent
personnel with the required knowledge has become all the more difficult. Management has to
face a lot of problems in retention of employees. That is why retention strategies have become
crucial to the survival of Nigerian organizations in the competitive global work environment. As
a result of competitive pressure, there have been improvement in the area of attracting skilled
employees and new retention strategies continue to sprout in an attempt to manage the human
resources (Samuel, 2008; Nwokocha, 2012).
In consistency with the above described scenario, one can contemplate the importance of
employee retention in organizations. Employee retention is defined as the plan put into effect by
the organizations in order to retain the competent workforce (Gberevbie, 2008). As a result, new
and improved retention strategies are designed in order to retain employees in the organization so
that employee turnover can be avoided. Mobley (1982) explains that turnover is the cessation of
employees association to the organization who were previously hired by the company on

monetary compensation. Organizations put in a lot of effort in order to reduce turnover because
turnover incurs immense losses over the company. Sunil Ramlall in his study (Ramlall, 2004)
discusses a previous research done in 1997 by Fitz-Enz, who believes that when a company loses
10 managerial level or professional employees, it means that company has incurred losses of $1
Million. He believes that for one employee turnover cost is at-least one year salary of that
employee. He believes that knowledge that critical employees carry is really important so
organization must try to retain its employees as long as they can. He also discusses another
research done by Toracco in 2000, who says that information is most valuable asset to any
organization and employees know all that valuable information but still many organizations are
not looking to retain their employees which can hurt them in future. He believes that
organizations cannot take a passive action in this regard, they must be active. (Ramlall, 2004) as
all the skills and expertise of an employee holds meaningful value for the benefit of the
company.
As per research done by Cornell University, ILR School (Hausknecht, Julianne, & Howard,
2008)they found out that retention is very critical element of talent management. In this study,
they have worked on how job performance indicators affect the retention of the employees in a
specific organization; they have also worked on employees at different levels like top
management and line employees, to find out their preferences when considering staying on a job.

Reasons and Costs of Turnover

The phenomenon of turnover arises interest in many organizations as it is potentially costly to
business (Mobley, 1977; Price, 1977) and so organizations are geared to understand the reasons
why it happens so as to solve this problem. Since there is no universally accepted reason for a
turnover, thus turnover has been classified as voluntary and involuntary. Voluntary turnover
occurs when employees would leave competent jobs in order to work somewhere else more
competent. This turnover is very costly to the organization because losing out on a valued
employee, who was previously working at a critical position in the organization messes up the
schedule of business plans and thereby reduces the productivity of organization. Apart from the
direct loss, the indirect loss to the organization is the cost associated with recruitment and
training of another professional and losing out a trained employee to another competitor.

Involuntary turnover is defined as downsizing for the benefit of the organization. For instance,
firing workers when they are not performing to the benchmark level can be classified as
involuntary turnover (Mobley, 1982). Involuntary turnover can also be viewed in a positive light
because as with the case of previous scenario, downsizing meant a reduction in the unnecessary
costs to the organization. Hence in this scenario, involuntary turnover has improved the
effectiveness of the organization.
While there may not be universally defined reasons for turnover, organizational researchers have
tried their level best in order to conjugate some reasons to this phenomenon. Sherratt (2000) and
Van Vianen, Feji, Krauz, and Taris (2004) have classified the reasons into two separate motives:
one is pull and the other one is push factor. The pull factors incorporate inequality in the
compensation of employees, the accessible opportunities to progress the career in the
organization and much better incentives available in private business ventures. The push factors
incorporate the dissatisfaction that the employees would experience with the current working
conditions, stringent monitoring at work allowing for no flexibility, lack of communication with
the manager, autocratic boss and no autonomy at work, and finally stress due to work. There also
have been some cases in which employees would use a culmination of both the push and pull
factors when deciding to leave job. Out of all the factors discussed, Griffieth, Hom and Gaertner
(2000) contend that pay and pay related benefits have the highest toll on employee turnover.
They have taken this position in the argument because the analysis of their research has provided
evidence that when a competent person is underpaid, he doesnt feel the motivation to work and
therefore he quits. Hence according to their analysis, it is easy to discern that the higher an
employee is paid, the more chances there are to retain him in the organization. Abassi et.al
(2000) takes a different approach to the argument and contends that insufficient hiring practices,
lack of recognition and autonomy at work, autocratic management, and lack of competitive
opportunities are responsible for the turnover of employees because they tend to make the
workplace unwelcoming to the employees.
There are many heavy costs associated with turnover of employees if an organization ignores
employee retention, this also highlights the importance of employee retention. Some examples of
those costs are:

It becomes difficult to maintain high quality standards.

It causes increase in recruitment and training costs.

In result of turnover, people with skills and knowledge leave work.

Intellectual capital becomes risky as a result of high turnover.

It results in decreased employee satisfaction.

It disrupts ongoing customer relationships.

Searching external market for substitutes.

Costs include knowledge, skill and contacts that those employees have.

Turnover leads to fewer employees at a certain time which cause overtime and as a result
costs of the organization increase. (G.Verlander & R. Evans) (Nwokocha & Iheriohanma,
2012)

Strategies for Improving Employee Retention

Understanding the costs of turnover to the organization in this fiercely competitive global
environment makes it necessary to alter and initiate new workplace trends that will improve the
retention strategies employed to retain the talented workforce. Incorporating improvement in the
retention strategies is also important because as the business continue to grow and expand,
handling human resource is becoming very difficult. Nigerian organizations are also a part of the
global businesses which are seeking to solve the problem of employee turnover.

Development of a strategic retention plan:

It is imperative for Nigerian organizations to develop a strategic business plan if they want to
remain sustainable in this highly competitive and terse business environment. A strategic
business plan will also align their needs for the right fir of employee in their organization. Hence
the strategic plan must be integrated with the human resource strategy in order to identify a
business that yields indisputable business benefits and satisfies the employees as well. However,
the plan must be regularly updated so that the employee information captured by this plan is
accurate. The role of the plan would be to categorize everything that is required for the retention
of employees and also to avoid any misunderstanding at the part of the employees. Hence when
prepared, this plan should be demonstrated to the employees at the time of their recruitment so
that it clarifies to them the value of the organization which they will be joining, what
expectations does the institution have from them and what value will they hold in organization.

The HR must explain the structure and systems of organization and it must be made clear that
what roles belong to a specific employee or department. They should also be informed that every
employee is supposed to know his colleagues and have a relationship with them. The plan will
also fulfill the role of acting as a standard of procedure defining job roles and responsibilities
prior to first day of the job. Since employees have expectations through job descriptions and
interviews, now employers must make it clear that what roles are to be performed by those new
employees. They must also try to explain how roles of different employees will vary with respect
to time. Finally, it must be communicated to the employees that all work to be done by
employees must be based on job standards of that department. Effective retention strategy
includes what is required of their employees in terms of both accuracy and meeting deadlines.

Collaborative Decision making model:

Most of the employees were reported to quote that they leave the workplace only because they
experienced lack of autonomy and flexibility in the work that was assigned to them. As per the
new trends of retention strategy, involving an employees feedback in the decision making has
become really important. Participation of employees in decision making is also important from
the perspective of securing loyalty and commitment from employees. Participation in the
decision making means that their choices and opinions are acknowledged by the top management
and together the decision has the capability to spread organizational harmony and efficiency.
Apart from this, one can also define informal relations to be carried out at organization called
Grapevine. This usually takes place during lunch or other breaks.
In Nigeria, even employees are concerned about the security of their job and they desire that if
they are giving their competence and hard work to the organization, than the management should
incorporate them in critical decision making to reflect that the management treats them as valued
employee (Iheriohanma, 2008). Nigerian and many more workers desire affection and good
relations with their colleague. They want to feel a part of the organizational culture and this will
only happen if the management in return includes the employee opinion in the formation of
policy making. Even if the organization expands its roots to different regions, treating all the
employees as a part of one big family is still possible owing to the advent in information
technology. Information and Communications Technology (ICT) has culminated the world into

one global village and now employees in one division of the organization can be in cross
communication with employees in other division of the organization.
Participatory decision making model is not only beneficial for the employees but it is also
beneficial for the organization because it has the capability of creating an environment that is
accommodating and cooperative and propels both the workers and the managers to perform
better (Iheriohanma, 2007). The implication here is that when employees feel a valuable part of
the organization, this emotional association stifles their intentions to leave the organization. A
participatory decision making environment will only result in case of a re-orientation of
managerial style from an authoritarian management to a more flexible one.

Compensation Plan
Samuel (2008) opines that many employees regard their compensation as a scorecard or a
benchmark to evaluate the value that their organization places over them in comparison to others.
Becoming aware of such employee means of assessing the organization, it becomes important for
a workplace to enhance their compensation strategies. Compensation not only includes the basic
salary or bonuses, rather it also includes a broad spectrum of other performance related benefits
like recognition programs or perks. One thing the organization has to be mindful about is that the
pay structure has to be competitive with regard to the industrial trends and should be comparable
to what other organizations are paying for the same position. If only the compensation plan is
devised fulfilling the above mentioned requirements and meeting efficiency benchmarks across
the entire spectrum of compensation tools, than only the employee will feel motivated to
continue working (Davar, 2003). All new employees are usually concerned about how their
performance will be monitored and rewarded. So you must make it clear by defining
performance management systems, provide regular feedback on work done by employees,
review performance regularly and promote values and results which are necessary for
organizational success and retention of employees. Another research tells us that most popular
retention strategies are related to compensation & benefits. The others include challenging work
environment, freedom / autonomy and support from top management. In this research they have
also ranked top 3 retention strategies out of five commonly used retention strategies as per
survey as shown below:

1. Challenging work assignments got 83% positive response.

2. Opportunities to specialization got 57% positive response.
3. Top management support got 50% positive response. (M. Horwitz, Chan Teng, & Ahmed
Quazi, 2003)
As per another research (Hausknecht, Julianne, & Howard, 2008), primary reasons behind
retention as per survey include job satisfaction, extrinsic rewards and constituent attachments.
Many employees believe that when they satisfy customers, it increases their job satisfaction as
well so more satisfied customers, more job satisfaction. For extrinsic rewards, employees cited
aspects ofthe companys compensation such as competitive wages, health benefits, retirement
contributions, and incentive plans as primary reasons for staying. Concerning constituent
attachments, employees mentioned having personal connections with co-workers, positive
interactions with guests, and healthy supervisor relations. (Hausknecht, Julianne, & Howard,
2008).

Training and Development of employees:

There are certain requirements that the employee needs to fulfill in order to get adjusted in the
new organizations workforce. Even if the employee is hired based upon his academics, he will
still remain devoid of the necessary skills that will make him a true member of the organization
because those skills are independent to individual organizations and can only be attained when
the employee is trained in those skills. Those skills are regarded as developing the career of
employees to help them handle more expertise. Hence career development can be defined as a
formalized channel and a planned effort by the management in order to strike a balance between
the skills that employee already possess and the skills required becoming a member of the
organization. Employees regard opportunities to develop their career on job as one of the most
important retention strategy. Therefore if the company wants to strengthen its relations with the
employees than it should focus upon providing them with the training and development needs.
Training and development is not only important from the perspective of helping the employee
blend into the organization but also it is important from the perspective of career progression of
the employee and attaining promotion over work (Butler and Waldrop, 2001). Thus even
credible researchers like Wan (2007) argue that the only way for organizations to improve the
productivity of its workforce and retain it in the organization is training and development.

Therefore, the organizations will have to invest in acquiring the skills and expertise of individual
employees in the workforce and then plan upon what training need has to be given to the
individual employee in order to make him competitive in the fast moving business environment.
For appropriate retention strategy, career development must be emphasized as all employees are
interested in hearing about career development, they want to know what factors will have
positive impact on their career. To retain generation X employees, it is very important to focus
on fast profession and development. An example of how this need was answered in Nigeria is
that during the times that information technology was becoming important and old employees
who had not been trained on computer knowledge were provided with the necessary training in
order to aid their understanding of complex software which will eventually make their work easy
(Iheriohanma, 2008).

Strategy for outsourcing and a flexible working environment

A flexible working environment means providing the employees with the opportunity of striking
a balance in their professional and personal life. Work life balance is considered a crucial tool by
all the employees to be treated as a successful retention strategy because every employee regards
the opportunity to spend some time in social gatherings as positive. Hence a strategy aimed at
providing the employees with the necessary work life balance will entail how the employees are
supposed to handle their work when they have to attend to interests external to the organization
(Armstrong, 2003). Work life balance also becomes necessary because now-a-days employees
consider that they need some recreational time or time to spend with their friends in order to
avoid stress at work and improve the quality of their life. In the similar manner, outsourcing is
treated as an opportunity for the company to hand over the challenging task of locating someone
suitable for the organization to specialist firms outside the organization. It also leaves behind the
capacity for the human resource department to focus on developing already hired employees.
Hence together the strategy of work life balance with outsourcing will help the organization to
focus upon the growing demands of the employees and how to cater to those demands (Manfredi
and Holliday, 2004). To retain employees, a positive image and climate in the organization must
be developed. Every organization has some problems at a given time, so you must focus on
positives instead of those problems. New employees need to know politics of the organization, so

that they avoid missteps. Avoiding those missteps is necessary for employee retention. There
must be a model to measure employee retention for example: Six sigma can be used for this
purpose and feedback must be taken. (G.Verlander & R. Evans)

Introduction to SMEs
In most economies Small and Medium Enterprises (SMEs) are more than large companies by a
big margin. Small and Medium Enterprises (SMEs)have become important to almost all
economies in the world, as in Europe there are only 0.27% large companies, remaining are either
small or medium sized companies. These large companies are just 0.03% of stock exchange, this
clearly highlights the importance of SMEs. SMEs are more than 90% in other countries (like
Vietnam 97%) as well. (Hausknecht, Julianne, & Howard, 2008)
Small and Medium Enterprises (SMEs) businesses are growing worldwide specially Africa, it
has been generally agreed that there are immense opportunities for SMEs in Africa but there are
also difficulties exploiting these opportunities. Despite these opportunities, there are very few
players who have achieved success in this segment. (Garabal, Llavina, & Gonzalez, 2014)
The role of SMEs in an economy is enormous because they are growing very quickly. Some
major roles include employment generation since they need production and management staff to
produce their product, they provide a training avenue for the enhancement of local entrepreneurs
in different areas of Economic activities. Prosperity of SMEs has increased the level of social
and economic development, as there are more profits, more taxes especially in the rural areas
since most small sized owners belong to rural areas or are located there. Since SMEs are located
in rural areas, they help countries develop their rural infrastructure and other systems over there.
SMEs also decrease the job pressure on large companies and government as they also generate
employment. After the introduction of SMEs, standard of living of people has improved
significantly (Olalekan Yusuf & Sewhenu Dansu, 2013)

Employee Retention in SMEs

There was a research done by University of Economics HO CHI MINH CITY on factors
influencing retention in Small and Medium Enterprises. They proposed five factors which can

potentially effect satisfaction and retention of employees in Small and Medium sized companies,
those five factors were: training & career path, leadership, working environment, remuneration
& rewards and company policies. After research they found out that only 3 out of those five
factors effect employee retention and organizational commitment in Small and medium sized
companies while other 2 do not. Those three factors are: company policies, remuneration &
rewards and leadership. While training & career path and work environment does not have a
significant impact. (Hunh Thin Hi, 2012)
SMEs face different challenges while trying to retain employees. Since they are small or medium
sized companies they lack comprehensive orientation program or induction program, they also
do not define career path development for staff, corporate goals/vision are not defined clearly to
employees which is a big drawback as employees do not know ultimate targets of organization.
SMEs also lack job rotation, due to lack of job rotation employees do not get learning
opportunity and get bored from routine work, they also invest minimum in training &
development. To Save SMEs from these challenges managers have few alternatives. 1st one is to
outsource non-core activities, it is popular activity in SMEs these days. SMEs can simply
outsource non-core activities which will result in cost savings, it will be easy for a small
company to focus on its core business, they will have access to high class recruitment and
retention practices which is not possible with small or medium company doing its HR activities
themselves. Outsourcing can also result in positive brand image in the market since all activities
like orientation or induction will be done properly and positive brand image can lead to more
qualified or quality workforce. 2nd alternative is to create positive brand image. To create brand
image for retention purposes, company must move from family oriented to performance based.
To engage the workforce within organization, they must communicate the corporate goals and
vision to all newly employed employees. (The GMP Group)

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