Top managers are realizing that a key driver of success for a company is the way in which the company manages its employees. In today’s volatile economy it is imperative for companies to proactively engage with the turbulent environment in order to ensure that their company experiences stable growth, increased customer loyalty and shareholder value. This is only possible if top managers are able to decrease turnover intentions, and increase the rate of retention in their company. The impact of turnovers is severe in that companies not only experience financial instability, but also production is affected thereby the quality of the product/services offered to customers is not up to the standard. Jac Fitz – enz founder and chairman of Saratoga Institute “and his colleagues have developed a formula for calculating the cost of turnover that considers expenses associated with termination, replacement, vacancy and learning curve productivity loss. Their research indicated that the average cost of a termination for a non – exempt employee is approximately equal to six months of pay and benefits. For a professional or manager, this estimate jumps to the equivalent of a full year’s salary and benefits” (Scott, 2003, p. 2). The cost of an employee quitting a company has a negative impact that pushes the company further away from reaching its goals.
There are multiple reasons for low employee retention rate; it could be because baby boomers are approaching their retirement age, the economy, downsizing, poor company culture, fierce competition etc. Whatever the reasons may be the reality is that companies for a long time have been faced with the challenge of recruiting, and maintaining high performers. As employees quit an organization they not only decrease the standard of productivity but also rob an organization of its customers. The main aim of this review is to offer a comprehensive report of the research that has been done in the area of turnover literature to understand the factors that lead to an employee’s decision to quit. The paper is categorized into two sections; the first part consists of research materials that study turnover intentions based on a theoretical foundation, namely the social exchange theory. The social exchange theory addresses employee retention from the employee’s point of view by examining job fit, personal sacrifice, career mobility, and from the employer’s point of view by looking at HR practices, the role of managers, the relationship between agent and structure and the tools for creating an effective workplace. The second part consists of practical tools or practices from companies to combat employee retention.
The Theory of Social Exchange
Job Fit and Personal Sacrifice as Mechanism of PSS, POS and Turnover Intentions
As organizations find themselves facing a turbulent/dynamic external environment, it is important that they proactively engage with the environment to maintain a stable growth for the company. One of the ways by which companies can be proactive is through effectively managing their workforce or the human resources. But managing human resources is in itself a complex task because the training, the education, and the skills people have keep changing over a short period of time. In other words, the knowledge that is pertinent to an organization’s success today may become obsolete tomorrow. In such a situation, Dawley, Houghton and Bucklew (2010) write that “not only will recruiting qualified employees become a priority, retaining knowledgeable workers will be equally important” (p. 238 -239). Organizations try to reduce the rate of voluntary turnover because of its negative impact on the company’s performances, finances and services. According to Dawley, Houghton, and Bucklew, previous research on turnover intentions have revolved around the concept of POS/perceived organizational support. This significant study states that employees’ form impressions/opinions about the extent to which an organization values and cares about the employees and their contributions, and how ready organizations are to reward them. Hence turnover intentions are based on these employee impressions. The authors state that further research had been done to link PSS/perceived supervisor support and turnover intentions. From previous research it has been found that the mediating factors that link PSS to POS and finally the turnover intentions include ‘organizational justice,’ ‘participation in decision making,’ ‘increase in job satisfaction,’ and ‘commitment.’
Dawley, Houghton and Bucklew contend that the mediating factors or the ‘mechanisms’ that link PSS, POS and turnover intentions of previous researchers have all focused on the ‘organizational attitudes’ towards turnover intentions. Instead of studying turnover intentions from the organizations point of view, the authors state that the perceptions of employees towards the organization must be the deciding factor of turnover intentions. In order to be more specific about what these perceptions are, the authors study turnover intentions in the light of two organizational constructs – job fit and personal sacrifice - that have been overlooked in most turnover studies. The authors have two hypotheses, the first hypothesis states that job fit will partially mediate the relationship between PSS and POS. the second hypothesis is that personal sacrifice will partially mediate the relationship between POS and turnover intentions; Thereby drawing a link between PSS, POS and turnover intentions.
The two organizational constructs – job fit and personal sacrifice – are in reality categories of influence that fall under the term job embeddedness. This term states that there are a ‘web of influences’ that connect an employee to the organization. Job fit throws light on employee’s perception of ‘comfort’ or ‘compatibility’ with the work culture of the organization. The higher the job fit, the less likely is an employee to quit the organization. The authors state that “job fit is enhanced when an organization’s culture offers an environment consistent with an employee’s personal values and career goals, and when a job utilizes an employee’s skills, abilities, and job specific knowledge” (Dawley, Houghton & Bucklew ,2010, p. 243).
Personal sacrifice on the other hand is what an employee might loose if he quits the organization. It could be salary, opportunities for development, social, cultural ties etc. An employee is less likely to quit an organization if s/he will incur a loss because of their decision to leave a company. Both perceptions, job fit and personal sacrifice, can be easily controlled by the organization. Employees have a tendency to interpret the actions of the supervisors (PSS) as the actions of the organization (POS). Therefore supervisors have the power to control PSS by making sure that employees have a good job fit. Second the organization can create personal sacrifices to ensure that employees do not quit their company. They could implement rewards, training and development, raises etc. By doing this an organization can make sure that an employee’s intention to quit is less likely because he/she has a lot to loose.
In order to explain the dynamic relationship between the organization and the employee, and to clarify the link between PSS, POS and turnover intentions, Dawley, Houghton and Bucklew build their hypothesis upon a theoretical foundation. They state that the relationship between an employer and an employee is a give and take relationship, where the organization has something to offer to the employee, and in return the employee offers something to an organization which is high performance, less absenteeism, and not quitting. The theory that best explains this dynamics between the organization and the employee is called the social exchange theory. The social exchange theory is built upon the phenomena known as the ‘norm of reciprocity’. The authors write, “The social exchange process generally involves a series of interdependent and contingent interactions between two parties resulting in certain types of obligations that may lead to a high – quality relationship” (Dawley, Houghton, Bucklew, 2010, p. 240).
Therefore, if an employee perceives that the organization values their contributions and their skills are utilized and rewards are implemented, and that the supervisors are supportive of the welfare of the employees, then their perception and behavior towards the organization is positive. This proves that job fit does mediate the relationship between PSS, and POS. If an employee feels that he/she will loose a lot if he quits a company then s/he is less likely to do so. Therefore the employee’s decision to stay is built purely on calculative motives, and not because of emotional ties to the organizations. The employee knows that the company s/he is working for offers a lot of opportunities that other companies may not have. This proves that personal sacrifice partially mediates the relationship between POS and turnover intentions.
By contending that job fit, and personal sacrifice are partial mediators of PSS, POS and turnover intentions, the authors are throwing light on the interdependent relationship between job fit, and personal sacrifice in that these two factors are like two pieces of a puzzle, together they link PSS, POS and turnover intentions. The most important point of this link is that it is the employees’ perception of job fit, and personal sacrifice that determines turnover intentions, and not organizational attitudes. Therefore organizations have to put more effort into increasing job fit, and personal sacrifice in order to decrease turnover intentions.
Six Critical Ingredients of a workplace
Instead of studying turnover intentions from the perspective of the employees, Jacob, Galinsky, and Hill address the issue of retention, job satisfaction, and job engagement by addressing the various strategies that organizations implement to create an effective work place. In other words, the factors that help organizations retain employees, through job satisfaction and job engagement is “not a “perk” for employees. It is a strategic business tool that may enhance employees’ engagement and productivity, thereby serving employers and employees” (Jacob, Galinsky, Hill, 2008, p. 142). Although this line of thought seems to echo the social exchange theory discussed by Dawley, Houghton and Bucklew, the emphasis has been removed from the employee, and it is the employer who has the upper hand in strategically managing people in order to increase productivity, and finances. Therefore the more effective the workplace is the less likely is an employee to quit the job.
Jacob, Galinsky and Hill state that there are six factors that are essential to creating an effective workplace. They point out that five factors out of the six pertains to work, they include: Job autonomy, learning opportunities, supervisor support for job success, co - worker team support for job success, and involvement in management decision making. The sixth factor, “workplace flexibility recognizes the relationship between employees’ work life and their life outside of work” (Jacob, Galinsky, Hill, 2008, p. 142). The authors argue that these six work place factors are “strategic policies and practices intended to serve business and employee needs, rather than exploring workplace factors designed simply to accommodate the needs of employees” (Jacob, Galinsky, Hill, 2008, p.142).
Based on this argument the authors contend that the six workplace factors, i.e. job autonomy, learning opportunities, supervisor support for job success, co worker team support for job success, involvement in management decision making, and workplace flexibility positively relate to three work outcomes, namely job engagement, job satisfaction, and employee retention. They also state that the three work outcomes, i.e. job engagement, job satisfaction, employee retention positively relate to the overall workplace effectiveness.
The findings of this study prove that any one of the six factors or all have a positive impact on employee retention, job satisfaction, and job engagement. If an employee has job autonomy s/he is more likely to be engaged in the job as employees feel that they are contributing their best efforts to meet the company’s goal. Similarly, learning opportunities, and supervisor support have a positive impact on employee retention, satisfaction and job engagement because employees are being productive by developing their careers. Involvement in decision making helps to “facilitate psychological empowerment” (Jacob, Galinsky, Hill, 2008, P. 145). Also workplace flexibility has been proved to increase satisfaction, and retention.
Therefore, these six factors are tools that management can use to create an effective workplace that retains employees. Although this article focuses on the organizational effort in creating an effective workplace, it is similar to Dawley’s, Houghton’s and Bucklew’s study in that it is the exchange relationship between the employer and the employees that determines job satisfaction, job engagement, and employee retention rate. The six factors become the mechanisms that link an effective workplace to job satisfaction, engagement and employee retention just as job fit, and personal sacrifice link PSS, POS and turnover intentions.
HRM Practices and Quit Rates of Good and Poor Performers
By using the social exchange theory to describe the employee and organization relationship, and analyzing the relationship in the light of HRM practices, and the employer’s perspective, Shaw, Dineen, Fang and Vellella dig further into the employer’s attitudes towards turnover, and the impact of those practices on turnover intentions. Though Jacob, Galinsky and Hill discussed the factors that influence job satisfaction, engagement, and employment retention as a strategic tool used by management, they did not go further by discussing the employer’s expectations behind the strategic tools. Shaw, Dineen, Fang, and Vellella throw light on the motives behind HRM practices, and its impact on employee retention rate.
According to the authors, “HRM systems reflect the different investments organizations make in their employees, and also the different behaviors organizations expect of their employees” (Shaw, Dineen, Fang, Vellella, 2009, p. 1016). Based on the theory of social exchange, the authors state that these HRM practices, from an organizational point of view, define the norms of exchange to the employees. The resources of exchange can be tangible or less tangible. “Training, job security, and procedural justice systems are less tangible” (Shaw, Dineen, Fang, Vellella, 2009, p. 1018) whereas pay and benefits are tangible. The point is that these resources of exchange communicate to the employee that an organization cares about them. But from the employer’s point of view, inducements, and incentives are the level of expectations an organization has about specific desired contribution from the employees like less absenteeism, more production etc.
Shaw, Dineen, Fang and Vellella (2009), state that “HRM practices can be categorized into two distinct social exchange dimensions – practices designed to enhance employee’s expected outcomes (HRM inducements and investments) and those that focus on employer’s expected contributions from employees (HRM expectation, enhancing practices)” (p. 1015). The authors contend that these two HR practices do not impact all employees in the same way in that high employer expectations may not force all employees to feel the need to quit a company. In other words what the authors are stating is that the factors that lead to turnover intentions depend on whether an employee is a good performer or not.
Both good and poor performers react positively to high inducements and investments. From an organizational point of view high inducements, and investments increases employees perceived obligation to an organization. The company’s inducement and investment practices sends “signals about long term employment” (Shaw, Dineen, Fang and Vellella, 2009, p. 1018). Therefore this HR practice makes sure that employees feel obligated to work in an organization because the company has a lot to offer. This idea is similar to the organizational construct, the personal sacrifice, which Dawley, Houghton and Bucklew refer to as the partial mediator between POS, and turnover intentions in that an employer is handcuffed to the organization because s/he knows that they have a lot to loose financially, and in terms of career development etc if they quit a company.
Though reasons for the HR practice, inducement and investment, and its impact on turnover is easy to describe, the second HR practice, expectations enhancing practices throw light on a complex relationship between the employer and employee. By implementing a performance management system, employers are able to separate the poor performers from the good performers. This practice helps organizations to direct their incentives, and rewards only to those who perform well. The negative aspect of this practice is that it does not allow job autonomy, and does not promise employees long term job opportunities. Shaw, Dineen, Fang and Vellella contend that this practice does not always increase turnover intentions. They say that good performers continue to work because high expectations equal high opportunities for growth, and recognition. But for the poor performers this could mean more pressure and frustration. Even then it is likely that they will opt to quit a company because poor performers may view this HR practice as an opportunity to grow, or they may not have an alternative company that tolerates poor performance for high incentives.
By attempting to understand turnover intentions from a social exchange point of view, and from the employer’s perspective, and practices, Shaw, Dineen, Fang, and Vellella throw light on the dynamic relationship between the employer, and the employee based on two categories, i.e. good and poor performers. Therefore, it is no longer job fit or personal sacrifice or the six factors that are essential in creating an effective workplace that solely act as the cause of turnover intentions, but the performance level of the employee is also crucial in determining turnover intentions.
The Multidimensionality of Organization Commitment Construct
It is clear to see that the importance of the social exchange theory is an essential framework to understanding the factors that influence turnover intentions. These factors could be addressed from an employee’s point of view through job fit and personal sacrifice, or from an employer’s perspective through HRM practices or through the strategic tool used for creating an effective workplace. But the purpose of studying these factors from different angles is to understand the dynamics of the organization commitment construct.
Organization Commitment is defined as “the relative strength of an individual’s linkage to the organization” (Wagner, 2007, p. 236). Wagner states that this linkage has been categorized into three distinct themes; they are ‘affective commitment,’ ‘normative commitment’ and ‘continuance commitment.’ Affective commitment is similar to the construct of ‘job fit’ in that an employee is committed to an organization if he perceives that his skills are used, and his values are similar to that of the organizations. “ Normative commitment designates the feeling of obligation to continue employment, while continuance commitment indicates the awareness the employee has related to the costs associated with leaving the organization” (Wagner, 2007, p.236). Continuance commitment can also be described as ‘personal sacrifice.’ When an employee perceives that by quitting he may loose a lot of opportunities a company has to offer, s/he decides to persist.
Wagner’s contention is that researchers and mangers fail to understand the complexity of the organizational commitment construct in that the dynamics of the construct is its multidimensionality. The organizational constructs, i.e. job fit, and personal sacrifice, cannot be removed from the six factors that create an effective workplace, and the organization commitment construct cannot be studied in isolation without the understanding of job fit, personal sacrifice and the six factors. In other words, organizational commitment is complex, “there are multiple definitions and conceptualizations of the concept” (Wagner, 2007, p.236). Studying the relevance of organizational commitment in the light of nursing turnover research, Wagner contends that the importance of the multidimensionality of organization commitment is often overlooked or underused in that only selected factors that influence turnover intentions are studied like job satisfaction.
Wagner argues that “organizational commitment should be viewed in a continuum, with one end defined by a high degree of commitment and intent to stay with an organization, and the other end characterized by low levels of commitment, coupled with a desire to remain as a member in the organization” (Wagner, 2007, p.241). The point in this argument is that job satisfaction is irrelevant in determining turnover intentions. Echoing Shaw’s, Dineen’s, Fang’s and Villella’s argument that the performance levels of employees determine the intention to quit or persist, Wagner states that satisfaction plays a little role in understanding turnover intentions because employees who are not satisfied with their work do not quit a company because they have don’t have other options. In this light, the multidimensionality of the organization commitment construct must be taken into consideration to understand the reality of turnover intentions, and thereby understanding the complex relationship between the employee, and the employer as explained through the norm of reciprocity or the social exchange theory.
The Effect of Hopeful Leaders on the Resiliency of Employees and Organizations
So far the social exchange theory has been the most used theoretical framework to explain the factors influencing turnover intentions. Moving away from the exchange dynamics between employers and employees, Norman, Brett, and Kyle Luthans study the effectiveness of good leaders in an organization, and their role and impact on employee performance, and employee retention. The authors view the effectiveness of good leaders in the light of two theoretical constructs: Hope, and perceived organizational behavior (POB).
Norman, Brett, and Kyle Luthans do not refer to hope as an emotion that is abstract, and immeasurable, but in a more specific sense in that hope is a “positive motivational state that is based on an interactively derived sense of successful (1) agency (goal directed energy) and (2) pathways (planning to meet goals)” (Norman, Brett, Luthans,2005, p. 58). The authors contend that a good leader must posses both these essence of hope to be an effective leader. A leader cannot possess only motivation/will power, and lack the means to get the work done.
The main argument is that leaders are the representatives of the organization, and their actions have an impact on the way employees perceive the organization. Hence a leader must be someone who has the ability to create an environment that is built upon hope. A leader is flexible, positive, open to change, and proactive. The authors contend that if leaders are effective, and spread this sense of hope throughout the organization then the employees of the organization adapt and adopt the atmosphere of the organization and become resilient to threats within and without the organization.
The bottom line of this argument is that “leaders would need to be aware of how their actions are being interpreted and modeled, and therefore would need to examine their process” (Norman, Brett, Luthans, 2005, p. 62). In other words, the leaders are accountable for developing resiliency in employees, for creating an atmosphere that is positive, and is conducive to high performance, thereby reducing turnover intentions not only during the stable growth stages of a company, but also during turbulent times. Leaders have the power to control the perceptions of employees, and if leaders ensure that the employees perceive the organization in a positive light then they are committed to stay because employees also model their behavior after their leaders, and can relate to them.
Career Mobility at the Intersection of Agent and Structure
A different approach to studying turnover intentions is possible if one moves away the focus from the employer’s role in reducing turnover intentions, like leadership effectiveness, and creating an effective workplace to understanding the intent of quitting a job as an expression of career development. Forrier, Sels, and Stynen argue that the intent of quitting an organization throws light on the complex interplay between agency (the individual) and structure (the social context). They argue that most American researchers view employees as individual agencies who decide to quit based on free choice. But the reality is that career transitions are made because of structural restrictions like organizational policies, labor market segmentation, institutional rules etc. Also, it is the perception of the employee that acts as the agent of change in the midst of structural restrictions.
The authors state that career transitions can be both voluntary and involuntary; it can be for a higher position or for higher income, location, and intensity of the work environment. But the most important point made by the authors is that career transitions reflect the nature of the dialogue between people and their social contexts. According to Forrier, Sels and Stynen (2009) the “various factors that may stimulate voluntary as well as involuntary work – role transitions” (p. 742) are first, human capital that “encompasses the individual skills, knowledge, competencies, and attitudes influencing an individual’s career mobility opportunities” (Forrier, Sels and Stynen, 2009, p. 742), second, social capital defined as the social structure within which an employee is situated, third, self – awareness which is defined as ‘career identity’ that propels employees to reflect on their “strengths, weaknesses, goals, values, beliefs and who they want to become” (Forrier, Sels, and Stynen, 2009, p. 743) and fourth adaptability which refers to the “willingness and the ability to change behaviors, feeling and thoughts in response to environmental demands” (Forrier, Sels, and Stynen, 2009, p. 743).
The authors also contend that the demand in the internal and external labor market in terms of the number of jobs available, incentives offered and labor costs determines career mobility or transitions. Furthermore, the ease of movement that is the availability of alternative jobs in the market, the willingness to move based on “the attractiveness of the future work role versus that of the current and alternative work – roles” (Forrier, Sels and Stynen, 2009, p.748) and the shock events which are “very distinguishable events which lead an individual to make judgments about remaining with or leaving their current labor market position (Forrier, Sels and Stynen, 2009, p. 750) contribute to the decision to change careers/ organizations.
Therefore the point being made is similar to the principle of the social exchange theory in that the norms of exchange are the complex dialectic exchange between agency, and the structure. The factors that influence voluntary or involuntary turnover are cyclic in nature that is founded upon this dialogue between the employee, and the organization. Since this dialogue is cyclic in nature, the authors contend that career mobility has no boundaries, and is protean in nature. But it is the perception of the employees, and the policies and rules of the structure that determines the rate of career mobility within an organization.
In order to understand the factors that impact turnover intentions, it is necessary to have a working knowledge of the dynamic relationship between the employer and the employee. The problem is that the relationship in itself is so dynamic that it does not lend itself to an easy solution to the turnover intention problem. But what the exchange relationship offers to managers is that there are many factors or mediators like job fit, personal sacrifice, effective workplace, inefficient leaders, benefits, career development & mobility, promotion, that connect employee’s perception to turnover intentions. Also at the same time this relationship throws light on the different levels of performers and who reacts when, how and why. It is up to every individual company to collect data, and record the factors that contribute to a low retention rate of employees. An important point to note is that, although these articles address employee retention from different points of view it is important to consolidate these varied information into categories, and use this as an instrument to gather data. Every company has its own factor(s) that influence turnover intentions. But the reality is that companies cannot afford to overlook one factor for another. The success of the company in addressing turnover issue lies in the hands of the managers. If managers are not aware of the possibilities that these factors offer, then the company may incur only loss. Therefore companies need to balance managers’ awareness, employees’ perceptions, and the external environment in order to truly come to an understanding of turnover intentions which is only possible when companies analyze their present practices, its impact on employees, and the nature of their relationship, and the necessary tools to remedy turnover intentions like training managers to be hopeful leaders, developing careers, implementing useful benefits, establishing a competence market place, and holding managers accountable.