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Essay on Employee Retention Issues in Business

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Retention

The level of retention of employees differs through out industry sectors, some organisations suffer from internal problems that increases turnover of their key employees. This paper will discus the main areas that organisations can review their policies and practices to decrease the level of key employees leaving.

There are hidden costs involved when there is a high turnover of employees, but each organisation deferrers with what is a normal level. It is not just a low retention rate that can cause problems, too high a rate will "stagnate" the workforce.

There is no overall "right" level and this is dependant on a number of factors, both internal and external. Pizza Hut has a staff turnover of more than 50% per year; this figure takes into account the vast number of casual workers the company employs. The technology company, 3M, whose has a wide range of career opportunities for employees, retains a high proportion of its staff. (Rigby, R. 2003).

When there is high retention this introduces new problems for the organisation. High retention levels, rather than being a company-wide problem, will often occur in pockets within businesses. For instance, an employee or a team may have become so good at their job(s), that their boss cannot bear too lose them or even promote them, which results in stagnation and de-motivation (Rigby, R. 2003).

If retention levels are in line with the norm for the type of organisation, then the productive employees should be encouraged to stay and the poor performers encouraged to leave. If this were measurable the then organisations would retain employees whose contribution produces a positive risk adjusted profit for the firm. These employees would have a positive influence on the firm. This is not the case, through various factors that will be discussed in this paper they leave, which forces cost onto the organisation. These employees leave an organisation because they become dissatisfied, underpaid or unmotivated (Sigler, K. 1999).

Cost to the organisation

A major factor of a high level of employee turnover that impinges on an organisation is the cost. The costs can be broken down into the costs of leaving, replacements, transition and indirect. The leaving costs are the payroll and the personnel administration of the employee leaving. The replacement costs are spent on recruitment of potential employees, the money and time spent on interviewing and any placement fees involved. Transition costs for a company include the training costs of new employees the unproductive time while the new employee is learning the skills required and any induction costs for the new employee. The indirect cost to a company is the potential loss of revenue because of decreased levels of customer service

Hacker, C.A. (1996) discussed the process of recruitment and advises that employers should consider three areas when they are preparing to employee, these are "the cost per hire of an employee; turnover rate; and productivity." The recruiting of an employee contains hidden costs; these include advertising and the time that is employed on screening and interviewing the prospective employee. Therefore, if the recruitment of people is not cost effective option, then high turnover of employees must be avoided. Retention of the current workforce is the most economic solution to an organisation (Hacker, C.A. 1996).

The cost of replacing workers who have left can amount to two and half times a worker's annual salary. These costs are rarely specifically identified in any accounting records. Therefore turnover cost data should be used to demonstrate the success of retention strategies over time (Risher, H. and Stopper, W. 2002).

Apart from the significant economic impact with an organisation losing any of its critical employees, there is also the knowledge that is lost with the employee's departure. This is the knowledge that is used to meet the needs and expectations of the customers (Bassi (1997) cited in Ramlall, S. 2004:54). Organisations cannot take a passive attitude toward knowledge management, Instead they should seek to sustain the competitive advantage and develop systems to control the value of knowledge (Stewart, (1997) cited in Ramlall, S. 2004:54).

The Human capital theory suggests that some labour is more productive than other labour simply because more resources have been invested into the training of that labour, in the same manner that a machine that has had more resources invested into it is apt to be more productive (Ramlall, S. 2004).

Employers need to review all the costs involved with employee turnover, not all cost are financial, hidden costs include the reduction in knowledge. These are not tangible, and will not show on the companies accounts, but through a lack of skills can in the long term reduce profit.

Recruitment

Key to retaining the right employees is recruiting them in the first place. This process must given consideration to their long term value to the organisation. The attraction and retention of key talent, is increasingly pivotal to organisational success. The ability to achieve competitive advantage through people depends in large part on the composition of the work force. This, is the function of who is hired, and how they are developed, these factors will lead to who is retained (Sturman, M 2003).

Retention begins at recruitment time, so it is important to select for organisational and cultural fit, not merely against the technical and skills requirements of a given job. Best practice companies have known this for a long time, and ensure that the selection process allows a full assessment of candidates' abilities, interests, aspirations, and values, and a deliberate review of how well these match their organisational culture (Risher, H. and Stopper, W. 2002).

Organisations are under increasing pressure to recruit the right people for the right job. The economic cost of getting this wrong can be vast, with the resources that have been ploughed into the process. Numerous factors are to be considered during this process including the culture of the organisation, legal implications, attracting and employing the correct candidate and the cost in time and resources. Therefore it is paramount that the process is fair, reliable and valid (Armstrong, M. 2001).

The employer's requirements relate to the labour process that is the supply side of the labour market. This is simply employing suitable people for the roles that are required. While this is described as the "human capital", this is a "sterile and limited interpretation of a variety of personal characteristics and dispositions which employees bring to the workplace" (Alcorso, C. 2003).

As Beardwell and Holden (1994) emphasise "essential to a good HRM practice is recruitment and selection, which must consider correct "fit" between personnel and job in order to maximise efficiency in terms of retention and HRM strategic planning". The organisation can use the recruitment process to continue, enhance or even change the organisational culture. When a change of strategic direction is required, recruiting the right candidates is a important factor to increase the chance of success (Beardwell, I. & Holden, L. 1994:225).

There are various recruiting sources, but their success rates are not equal. For example, employee referrals will yield higher quality workers than do sources such as newspaper ads or employment agencies. In a survey the top three sources of successful candidates are employee referrals, college recruiting and executive search firms. All these methods should be considered for effective recruitment. Although the best recruiting sources are still dependant on the type of industry and the job skills required by the organisation (Terpstra, D. 1996).

Recruitment of the right candidate is problematic, the skill of the recruiter is vital to appointing a successful candidate. Insufficient information about employees' performance can result in adverse selection by Managers. This arises from where the manager does not know the information h to ask from the candidate and the candidate does not know what to provide. Therefore, productive workers cannot distinguish themselves from non productive candidates (Sigler, K. 1999)

Reviewing and monitoring recruitment practices can lead to a reduction in key employees leaving. If the first stage of retention is recruitment, then best practice will lead to the correct candidate being selected. In the long term this will increase the retention levels of key employees within the organisation.

Reward systems

Amongst the theorist there a several key areas of management, which affects the retention of key employees, this includes motivation, job satisfaction, reward systems and the psychological contract. The first area reviewed is reward systems; these can be both intrinsic and extrinsic.



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