Running Head: IMPACT OF LOW PAY ON EMPLOYEE TURNOVER

Impact of Low Pay on Employee Turnover

By

Bilal (10819)

Syed Muneer Iqbal (15208)

Institute of Business Management

Department of Management Sciences

Submitted to

Sir Usman Ali

Karachi, Pakistan

2019
 Acknowledgement

We are extremely thankful to Sir Usman Ali who is our instructor in our research report. He
has given us a wonderful opportunity to research on various corporate sectory sector. Our
teacher has been very helpful throughout the entire report/ project and he gave his valuable
suggestions when needed. This report/ project helped us in understanding what are the
impacts of low wages and salary on employee turnover.This project would not have been
possible without the cooperation and support of our teacher.

Furthermore, we would also like to thank all the participants who filled the questionnaire.
They were very helpful and immensely contributed to this report/ project. They helped us
working with dedication and provided interesting knowledge about their lifestyles that they
use in their decision-making. To sum it all up, working on this report/ project has been a
wonderful learning experience.

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 Abstract

One of the major focuses of the recent economical situation in corporate sector is
perceived and anticipated as high turnover and unavailability of skilled employees especially
in local and small & medium enterprises. It is widely believed that lower salaries are
responsible for this and that higher salaries will therefore help reduce shortages and stabilize
turnover rate. Yet there is little empirical research that examines the relationship between
employee turnover and salary differentials. This paper examines this relationship of salaries
of employees and the turnover rate of their organizations using data on a sample of various
companies belonging to different sectors located within large metropolitan areas in Pakistan.
Keywords: Low wages, low salary, employee turnover,

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Contents
Chapter 1: Introduction..............................................................................................................5
1.1 Background of study......................................................................................................5
1.2 Scope of study.................................................................................................................5
1.3 Significance of Study......................................................................................................6
1.4 Objective of study...........................................................................................................6
1.5 Problem Statement.........................................................................................................6
1.6 Research question (OPEN ENDED QUESTION).......................................................6
1.7 Limitation of Study........................................................................................................6
1.8 Assumptions....................................................................................................................7
Chapter 2: Literature Review................................................................................................8
2.1 Review of Literature......................................................................................................8
2.2 Conceptual Framework...............................................................................................10
2.3 Hypothesis: (DIRECTIONAL HYPOTHESIS).......................................................10
Chapter 3: Methodology........................................................................................................11
3.1 Data Collection.............................................................................................................11
3.2 Variables.......................................................................................................................11
3.3 Sampling Technique....................................................................................................11
3.4 Inclusion Criteria.........................................................................................................12
3.5 Approach of Research.................................................................................................12
3.6 Population and Sample................................................................................................12
Population are the different sectors in Pakistan who are running their business in Pakistan,
and samples include the companies that are offering low wages to employees..................12
3.7 Time Horizon................................................................................................................12
3.8 Study Setting.................................................................................................................12
3.9 Interference...................................................................................................................12

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 Chapter 1: Introduction
1.1 Background of study

In today’s era where it has been widely recognized that the employees are a major
capital for the organization. Employees are not mere personnel that the organization pays to
do a certain work rather they are individuals that contribute towards the growth and
development of the organization. The organization grows, earns profits, all due to the efforts
of the employees. It is these employees that acting as a resource for the organization prove to
be valuable assets as it is they who are the source of all cost savings done and all profit
opportunities maximized for the advantage of the organization therefore it is imperative to
keep the best within the organization and not a trained and developed resources leave the
organization. In todays competitive corporate world a talented and qualified professional has
no shortage of good job offers and the trend of changing organizations frequently has become
more common. In this changing landascape it is very crucial for organizations to not let any
of their valueable resources leave the organization and that too over a simple and easily
solvable reason of low pay.

Generally, it is believed that a large employee turn over is detrimental for the
organization and it impacts the business of the organization and also results in financial
impact. In this research we are going to evaluate whether low pay is a factor for employee
turnover in Pakistan. Other study, was compiled by researchers Arnaud Chevalier, W. S.
Siebert & Tarja Viitanen, “Wage policy, employee turnover and productivity”, It yielded
encouraging data suggesting a positive link between low wage and high employee turnover
(2003). Some other researches also concluded that the impact is weak but yes there is a
positive impact.

Turnover intention means a departure made based on personal wishes, which contains
the reasons for the pay, promotion, job satisfaction, relationship with supervisor; involuntary
separations is defined by the organization to enforce the separation, including severance,
termination and other reasons.
The organizational commitment is defined as the goal, the faith and trust and recognition of
the value of members of the organization, and the organization has a strong sense of
belonging, pride, identity and loyalty, willing to pay more effort for the organization and
strongly willing to continue to serve as members of the organization.
Money is measured a highly important motivator as has been found by several studies.

1.2 Scope of study

Our study will only be evaluating the Pakistan’s operating companies, which may
include the local and multinational businesses. The evaluation is based on the analysis of
secondary data available in publications.

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1.3 Significance of Study

The significance of the study will redound the benefit to the companies, by reducing
employee turnover due to low wages.

1.4 Objective of study

The literature indicates that there is a positive relationship between low wages and the
employee turnover, but at some literature also supports that low pay is not the major factor
for employee turnover. We will be evaluating the impact of lay pays on employee turn over
in Pakistan across multiple sectors.

Following is the objective of the study;

-This study is conducted to evaluate the impact of low wages on employee turnover.

1.5 Problem Statement

“What is the impact of low wages on employee turnover in Pakistan”.

1.6 Research question (OPEN ENDED QUESTION)

1. What are the factors for employee turnover intention?

2. What are the factors for employee turnover in Pakistan?
3. Why the companies need to reduce employee turnover?
4. Is there any significant impact of low wage on employee turnover?

1.7 Limitation of Study

The following are the limitations of our research that can have an adverse effect on the results
on the research.

 This Research analyze country specific data on the reputation of firms with respect to
Pakistan only.
 This study consider only measure the variable of pay and employee turnover.
 Sample was only limited to the data available in publications as the nature of this data
is confidential for organizations.
 This Research didn’t consider many potential industry effects that may influence
relationships among variables.
 Sample size for this study is limited to secondary data available in publications.

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1.8 Assumptions

The following are the assumptions that our involved in our research:

 The data available is authentic and genuine.

 The companies do not know impact of high employee turnover.
 The companies consider that employee turnover is not majorely due to low
wages.
 The research methodology is valid and reliable.
 The limitations are not going to affect the research analysis to a great exent.

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 Chapter 2: Literature Review
2.1 Review of Literature

Financial satiety is a main concern for employees and employers both. For employees,
wages are the most significant factor that satisfies their economic requirements. From an
employer’s perspective it is of utmost importance to have it’s employees satisfied with their
pay as it would affect their behaviours and attitudes. Services sector where the product is the
employee itself a satisfied employee and an unsatisfied employee can result in a significant
financial impact.(Singh & Loncar, 2010)
Equity theorists suggest that employees try to find the balance between what they
devote or put into their works in terms of the effort, technical knowledge and abilities, and
what they receive in terms of an outcome in the form of financial compensation or
recognition. [ CITATION JSA63 \l 1033 ]. There are three results when representatives analyze
their info/yield proportion with referent others that may impact their execution. In
circumstances where the results or yields are seen to surpass inputs, the individual is being
over-compensated. Despite what might be expected, if inputs are seen to surpass the yields,
the individual is being under-compensated. The ideal circumstance is when inputs approach
yields and the reward is viewed as evenhanded. In the event that the information yield
proportion isn't in parity, people will encounter trouble caused from blame of being over-
compensated or the sentiments of hatred from being under-remunerated, and these emotions
will fill in as an inspirational factor prompting reclamation of value. (Greenberg, 1987;
Huseman, Hatfield, Miles, Hatfield, & Miles, 2014)
Given the prior, we can justify that compensation fulfillment is caused, to a limited
extent, by observations with respect to the value of one's compensation. Pay fulfillment can
be viewed as a surrogate for reasonableness and equity, which consequently directly affects
workers' inspiration and in this manner their activity fulfillment.(Eby, Freeman, Rush, &
Lance, 1999) There is evidence of relationship between organizational behavior and retention
of employees in organizations, as hypothesized in the study of Koys (2001) according to
which organizational behavior of employees is influential on their intentions of leaving their
employing organization.(Koys, 2001) Workers base their choices in regards to remaining in
their current company or moving to another on the pay factor. On the off chance that they are
offered better remuneration and advantages from another business, they begin rushing

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towards it. There is an opposite connection between job fulfillment and intention of a worker
for turnover.(Tang, Kim, & Tang, 2000).
The perception of employees about their financial compensation being equitable and
market competitive has a significant negative relation with the turnover intentions that these
employees develop. The concept of financial compensation comprised the perception of the
employees that they are being paid reasonable according to the amount of time and effort that
they are putting in their assigned work as well as the perception that they are being paid
reasonably well as compared to the other jobs in their organization and/or the similar jobs in
the industry. the employees having a positive perception about their financial compensation
are less inclined towards leaving their organizations. The employees who have a positive
perception about their career progression, are less inclined to develop turnover intentions.
The concept of career progression has been studied as the perception of employees regarding
opportunities of promotions in the same organization. This means that the employees who get
promoted timely, are less vulnerable to turnover intentions.(Moazzam, 2017)
The level of equality among employees in the organization as well as the way they are
treated by the supervisor have also been found as significant predictors of turnover intentions.
(Opsahl & Dunnette, 1966)
The acceptability of salary with respect to the quantity of work that an employee does
for an organization is one of the prime elements of financial advantage. Furthermore, the
salary being paid to an employee, comparative to what he or she would earn by working with
another employer and the processing time of payment are respected dimensions in financial
benefit.(Chiu & Francesco, 2003)
Turnover intention means a resignation made based on individual needs, which holds
the reasons for the pay, promotion, job satisfaction, relationship with supervisor; instinctive
separations is defined by the organization to apply the separation, including severance,
termination and other reasons. It considered that the employee turnover intention is
experienced withdrawal when the next performance does not meet the future. (Hung, Lee, &
Lee, 2018)
More significant factor on increase productivity and decrease employee turnover that
employee perceived, growth, learning and development, exciting and challenging work, fair
pay and benefits, company policies should motivate employees and decrees employee
turnover. (Sajjad, Ghazanfar, & Ramzan, 2013)

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2.2 Conceptual Framework

LOW Employee
PAYS turn over
Below market pay Employee turn over rate

Over worked and under paid

Employee turn over intention
staff

Harsh working conditions and

Employee motivation
under paid staff

Employee job satisfaction

2.3 Hypothesis: (DIRECTIONAL HYPOTHESIS)

 Ho – low pay has a significant impact on companies’ employee turnover

 H1 - low pay has a significant impact on companies’ employee turnover rate

 H2 - low pay has a significant impact on companies’ employee turnover intention

 H3 - low pay has a significant impact on companies’ employee motivation

 H4 - low pay has a significant impact on companies’ employee job satisfaction

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 Chapter 3: Methodology
3.1 Data Collection

Data is collected by secondary means from published research journal articles.

Variables which we have indicated are

 Employee turn over rate

 Employee turn over intention
 Employee motivation
 Employee job satisfaction

3.2 Variables

Independent Variables Following is our independent variable:

 Low pay

Dependent Variable Following is our dependent variable:

 Employee turnover

Mediating Variables Following are our mediating variable

 Employee turn over rate
 Employee turn over intention
 Employee motivation
 Employee job satisfaction

Moderating Variables Following are our moderating variable

 Below market pay
 Over worked and under paid staff
 Harsh working conditions and under paid staff

The questionnaire used in this research is based on validated scale to measure the
concept of low pay on employee turnover.
Respondents have to choice on likert scale from 1 to 6 (from strongly disagree to
strongly agree) and answer for the proposition.

3.3 Sampling Technique

A nonprobabilistic Simple Random Sampling Technique will be used with the

descriptive targeted population. A Cross-sectional test will run including all data for each
company.

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3.4 Inclusion Criteria

We have chosen research articles encompassing different sectors and are limited to
Pakistan work conditions and the reason for choosing multiple sectors was to analyze the
variability of the same variable under same condition in different sectors in Pakistani
workplace.

TABLE 1: Sectors covered

1- Telecom
2- Governemt healthcare
3- Private Schools
4- Private Higher education institution
5- Banking
6- Pharmaceuticals

3.5 Approach of Research

The deductive approach is used to find out performance on revenue stream with
different variables.

3.6 Population and Sample

Population are the different sectors in Pakistan who are running their business in Pakistan,
and samples include the companies that are offering low wages to employees..

3.7 Time Horizon

Data will be collected once over the period of time and result will be evaluated on the
basis of it.

3.8 Study Setting

Research setting is Non-contrived, natural and correlational study.

3.9 Interference

Minimal interference.

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