Retention Programs are much cheaper and

Much easier than Replacement Programs.

-Penguin

HRM:
Literature
Review
Factors Affecting Employee
Retention

Aisha Badar|Maria Razzak|Muhammad

Ahzam |Muhammad Hassaan Baig |
Yashra Naveed
Table of Contents
Table of Contents ............................................................................................................................ 2

Employee Retention........................................................................................................................ 1

Employee retention: ........................................................................................................................ 1

Significance of Employee Retention ....................................................................................... 1

Factors affecting employee retention: ............................................................................................ 2

Organizational Perspectives: ....................................................................................................... 2

Employees’ learning and working climate .............................................................................. 3

Retention equity ...................................................................................................................... 4

Personal Perspectives .................................................................................................................. 5

Education ................................................................................................................................. 5

Constituent attachment ............................................................................................................ 5

Need Based Motivation ............................................................................................................... 6

Strategies for Employee retention .................................................................................................. 7

Local Perspective ............................................................................................................................ 8

Bibliography ................................................................................................................................................ 10
Literature Review: Factors Affecting
Employee Retention
Employee retention:

Employee retention can be defined as a process where effort is made for the employees’

longevity in stay with the organisation, and to foster an environment that promotes long term

employee engagement (De Sousa Sabbagha, Ledimo, & Martins, 2018; Govaerts, Kyndt, Dochy,

& Baert, 2011; Sandhya & Kumar, 2011).

Numerous researches have been carried out on employee retention and thus have found out several

reasons why employees stay. There is a dire need to understand the factors that affect the retention

of employees in order to underpin those and reduce the labour turnover.

Significance of Employee Retention

Turnover Costs added with the costs of lost talent emphasises the significance of employee

retention. Importance of retention through turnover costs may be emphasized when we break

turnover cost into hiring costs, training cost, and productivity loss- which accounts for 25% of

the average employee salary as many industry experts have quoted. Company information loss,

interrupted customer services, more turnovers, adversely affected goodwill are some ripple

effects of employee turnover (Sandhya & Kumar, 2011).

Moreover, it’s relatively easy to recruit than retain employees. When an employee leaves,

investment put into them is lost. Financial drain occurs by spending to induct replacement,

training etc. An important asset is lost, carrying away skills, knowledge, and relationships,

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creating a hollow space (Fahim Marwa Gaber, 2018). Competitive landscape, more

opportunities, lucrative offers - lead to job hopping & less commitment to work. There's a bundle

of varying needs of employees, specially pertaining to generation Y, which if not satisfied,

quitting is preferred (Naim Mohammad, 2018). Ramlall reinforces this by stating that job market

today is highly competitive, making retention a challenge for organisations. The agile

environment requires firm employee commitment to give competitive advantage. Losing crucial

employees results in adverse economic impact and lost intellectual capital (Ramlall, 2004) . It

mutually benefits the employee and organisation. Retaining talent serves as a competitive

advantage for the employer (De Sousa Sabbagha, Ledimo et al. 2018).

Factors affecting employee retention:

Employee retention can be influenced by both the firms and even the employee; hence, they are

clustered into 2 broad groups, “Organizational perspectives” and “Personal perspectives”, by a

group of researchers, namely Eva Kyndt, Filip, Maya, and Bastiaan, studying on employee

retention (Kyndt, Dochy, Michielsen, & Moeyaert, 2009).

Organizational Perspectives:

Organizational factors refer to the steps’ firm take to ensure employee retention. These include

employees’ learning and the working environment (Kyndt, Dochy, Michielsen, & Moeyaert,

2009). Other factors include retention equity, and need based motivation (Ramlall, 2004).

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Employees’ learning and working climate

As the name suggests, it refers to the environment wherein employees both learn and work(),

where employees grow in terms of their career and adding to their knowledge bank. Also, under

this, comes training and provision of challenging tasks. Both of these play an important role in

the development of employees and thus gives them a reason to stay at the firm (Black, 1995). So,

those employees who start to feel they aren’t learning, they are very likely to leave the company.

Hence, in order to retain such employees, firms need to provide them with promotion and career

advancement opportunities (Rodriguez, 2008). That is why high potential employees are more

likely to stay as since companies prefer an internal employee fill a top-level position, they invest

more in such employees thereby making them stay for longer (Dries & Pepermans, 2008).

This conclusion is supported through an empirical research conducted by a group of researchers

where career advancement was found to be one of the main reasons for employee retention

(John, Julianne, & Michael, 2008). Moreover, further evidence suggests training and

development is critical for employee retention strategy (Cloutier, 2015). It promotes the positive

learning culture in the organization, and they feel the growth in their skills hence they value

those employers which provide employees with training. In one research, employees rated

training higher than salary and new technologies (Tapsell, 1999).

Furthermore, the organisational culture and innovative tools are amongst the important factors

that also promote knowledge sharing within an organisation. It is a crucial part of the wider

knowledge management process as it enhances individual as well as organizational performance;

thus, learning needs are satisfied through the wider culture (Naim Mohammad, 2018).

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Additionally, working climate here refers to how the working conditions and the culture of the

firm assist in employee learning and as well as retention itself. So, a culture where employees are

encouraged to be creative and take on initiatives, and are recognized for their creativity and hard

work, such employees are more likely to stay (Cooperrider, 2007).

Retention equity

Retention equity focuses on the relationship between employee and firm. It states that the

employees are more likely to be retained if there is a good relation between the firm and its

employees. Now, the relationship is built and maintained from both parties; however, the firm

plays a major role in it. So, a firm can build its relationship with its employees by investing in

employee development and seniority, as well as providing the workers with monetary and

extrinsic benefits (Lengnick-Hall, 2011). Govaerts ET. Al. (2011) adds learning attitude and

creativity, and leadership skills to factors influencing retention equity.

a) Monetary and extrinsic rewards: They refer to the pay of employees and the financial and

non-financial perks employees get which could include pension package, free medical,

etc. employees are quite sensitive to this aspect, so they keep a close check of their

rewards and the rewards of people in the industry. Therefore, they are more likely to stay

if the firm provides them with fair pay package and reward (Porter, 1973).

This can also be linked with the concept of value equity explained by Robert and

Lengnick in their research which states workers tend to compare the benefits they get in

return for their input. So, at the point where they believe that are not being given fair

rewards for their service, they will be more likely to move

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 b) Seniority: Porter also suggested, and Govaerts ET. Al. (2011) supports, that employee

would be more likely to stay if he/she is willing to give a longer length of service at the

firm. This could be due to seniority related perks, career advancement opportunities or

other reasons (Porter, 1973).

c) Learning attitude and creativity, and Leadership skills: as employee characteristics have a

positive relationship with intention to stay. Hence, the more eager an employee is to

learn, and the more creative solutions he uses, the more likely he is to stay working in the

organisation. As for leadership skills, they cohere with other personality traits which

influence retention.

Personal Perspectives

Personal perspectives are all those factors which are caused by the employees themselves. They

include the level of education and constituent attachments.

Education

Previous research suggests that employee’s level of education is negatively related to employee

retention (Kyndt, Dochy, Michielsen, & Moeyaert, 2009). The reason stated was that employees

who are more willing to learn like to have more opportunity to learn and hence are more likely to

move in order to expose themselves to new experiences (Kyndt, Dochy, Michielsen, &

Moeyaert, 2009).

Constituent attachment

Constituent attachment refers to the how much is an employee attached to different people

associated with the firm like colleagues, supervisors, and even customers (John, Julianne, &

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Michael, Targeted Employee Retention: Performance-Based and Job-Related Differences in

Reported Reasons for Staying, 2008). In an empirical research regarding employee retention, this

was the 3rd most quoted reason for employee staying at the firm (John, Julianne, & Michael,

Targeted Employee Retention: Performance-Based and Job-Related Differences in Reported

Reasons for Staying, 2008). Fulfilling the developmental needs of an employee, reflects

organisation’s commitment towards them. In return, employees also generate attachment and

identification with their organization. This organizational citizenship behaviour is employee’s

commitment towards their work. Intention to stay increases with it (Naim Mohammad, 2018).

Sinha (2012) cites that the factors emerging of retention strategies also indicate that employees

stay when they have strong relationships with others with whom they work (Clarke 2001).

Also, under this comes organisational commitment. This construct refers to the degree employees

identify themselves with the organization, align themselves with the objectives of the company,

and feel a sense of membership in the organization, thus, and will likely to stay in the firm

(Curtis, 2001). Organizational commitment can be generated by firm’s norms and practices

which include high ethical standards and corporate citizenship (Lengnick-Hall, 2011).

Need Based Motivation

Developing retention practices takes up a chunk of investment, so referring to motivation

theories is important to develop the right practices. Based on various motivation theories

(Maslow's, McClelland's, Equity, Expectancy, Vroom's, Porter's, Motivation-Hygiene, Job

characteristics), key factors that shall underlie retention practices include employee needs,

productive environment, adding responsibilities, fairness, development and appraisal (Ramlall,

2004). Sandhya and Kumar add to this by dividing retention into five major aspects of

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motivation: compensation, growth, support, relationship, and environment. Samuel and Chipunza

(2009) found the following intrinsic motivational variables to have significantly influenced

retention amongst employees: training and development; sense of belonging to the organisation;

job security; challenging/interesting work; and freedom for innovative thinking. Ramlall’s study

finds that satisfied employees exhibit motivation towards work, in the form of directed, strong,

and persistent effort. They select jobs which satisfy their needs. Most of the 6 motivators are

intrinsic, such as sense of belonging, development, challenging work, freedom of expression.

The only extrinsic motivator was compensation. Management should identify motivations that

lead to satisfaction as dissatisfied employees exhibit a will to seek out better opportunities

elsewhere. Thus, employee motivation and job satisfaction are crucial retention promoters (De

Sousa Sabbagha, Ledimo et al. 2018).

Strategies for Employee retention

Investment towards employees generates a return through retention boosting strategies. There is

no single best strategy, though literature mentions some - work conditions, salary, job

enrichment, organizational factors, Society for Human Resource Management factors, job

security, and intrinsic factors. Strategies linked to HR are crucial here, including job design/

analysis, participation, info sharing, grievance channels, staffing, training, appraisal,

compensation and benefits (Fahim Marwa Gaber, 2018). Different strategies have been studied

to increase retention. These include, training and development, job characteristics, work/life

balance, benefits and compensation. Conversely, bad hiring practices, low compensation, stiff

managerial style, negative workplace culture - all these deter retention (De Sousa Sabbagha,

Ledimo et al. 2018). Based upon social exchange theory, which focuses on mutual benefit,

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individuals have great developmental need, so organisations shall work towards developing

employee competencies, yielding commitment and retention in return. Competency development

includes strategies such as incorporating social media, mentoring, leadership, knowledge sharing

(Naim Mohammad, 2018). On top of all measures taken, is the training of employees

Sandhya and Kumar classify this list of employee retention strategies into three levels: Bottom

Level, Middle Level, and High Level. Bottom Level is achieved through maintaining a motivated

environment, performance appraisals, and monetary and fringe benefits. Middle Level is

achieved when the employee feels he is gaining something, when training and development takes

place, and when their exposure increases. High Level has to do more with Maslow’s Self-esteem

Needs. When an organisation understands its employees’, self-esteem needs and provides them

opportunities accordingly, that is when this level may be achieved. An overarching idea that

Sandhya and Kumar are trying to give is that of retention strategy through employee motivation.

Local Perspective

It is imperative to define the local context while discussing and devising the HR strategies and

retention because the factors that contribute to employee retention in North America or

particularly US might not be the same to the factors contributing to retention in South Asia or

particularly Pakistan. The US labour market is highly developed and structured which is not the

case in most developing countries including Pakistan.

HRM is still in its infancy in Pakistan however the issues surrounding it have troubled the

employers for a long time. Most employers think that the cost of maintaining a separate HR

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department outweighs the benefits that it provides especially in the current scenario of economic

downturn. The HR as a separate and independent department exists most notably in

Multinational organizations and is nearly absent in most small organizations which are the major

source of employment for the masses. According to a research conducted by Sapnai Bai the

employee retention has become a major competitive issue in small organizations due to high

turnover rate and increased cost of hiring and training (Sapna Bai, 2016). Small organizations

usually outsource HR services if they think they cannot solve the problem themselves. Most

small organizations are family-controlled businesses and they tend to retain the power of hiring,

firing and giving promotions to themselves rather than giving it to an independent department

which can do the same job more efficiently and remove bias while making decisions. In this case

the relationship between the owners and the employees can play a significant role in employee

retention. A similar research by Tehmina Sattar and Khalil Ahmad conducted at Punjab

University found that empowerment of workers is directly related to work performance and

satisfaction at Job. This suggests that the employers should also focus on the employee

relationship and work environment rather than just focusing on compensation and incentives to

retain employers (Sattar, 2015). That however does that mean that compensation plan and

incentives are irrelevant to employee retention. Many employers in Pakistan complain about

employees leaving just because they received a higher pay package from another employer. The

research by Sattar also indicates that there is a positive correlation between the rewards and

incentives and the engagement and performance. An employee would be more willing to perform

a job when he thinks that he is being rewarded fairly for doing his job and the overall morale of

employees would increases if there is a standard salary for everyone based on their designation

and that is competitive with the market. As we previously discussed that the market is not often

9
structured so some people might receive more compensation than others even though they are

doing the same job. This is mainly because they could bargain a better deal during the interview.

The company should maintain a standard wage structure and compensation plan or otherwise it

would be a negative factor in employee retention (Ahsan Lubna, 2014).

Some other factors which are examined during the study of telecom sector were support from

supervisor, workplace environment, rewards and career growth. There is also an increasing trend

of work-place balance especially for women. Workers try to maintain that by avoiding work

during off hours (Shoaib, 2009).

Some researches carried on specific industries of Pakistan towards employee retention also

illustrated some factors. For eg, in the leather industry, the blue-collar employees are often not

respected and properly paid in Pakistan and this is a main reason of high turnover (Hassan, 2011)

& another on PIA showed that there is a high correlation between the two factors of career

advancement and high retention rate or low turnover (Nawaz, 2012).

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