Chapter 12

Employee Separation & Retention

What are Employee Separations?
Employee separation— occurs when an employee

ceases to be a member of an organization.

Turnover rate— refers to the rate at which employees

leave the firm.

 Calculating Annual Turnover Rate

 *

Example

• Over the course of 6 months, you have had 12 employees leave a department.
The average number of employees in the department is 50.

• The annual turnover rate is:

12/50 * 12/6 = 0.48 or 48% (0.48*100)
Source and Type of Turnover
Source of Turnover

Voluntary Involuntary
Type of Turnover

Quits Terminations
External

Voluntary Mandatory
Internal Transfers Transfers
Estimating the Cost of Turnover
The cost of turnover can range from 20% to 300% of the
lost employee’s annual compensation!

Looking at the most conservative end (i.e., 20%) of this

range, at an average salary of $30,000, the cost of turnover
per employee will be $6,000(20% of $30,000).

For a company with 1,000 employees and a 20% turnover

rate, the annual cost of turnover will be at least $1,200,000.
Estimating the Cost of Turnover (continued)

0.20 = [X ÷ 1000]

X = 0.20 * 1000

X = 200

Annual Cost of Turnover = 200 * 6000 = $1,200,000

 Costs of Employee Separations

Severance pay is compensation designed to assist laid off employees as they search for
new employment.
Benefits of Employee Separations
Reduced labor costs – total labor costs decrease as labor force
shrinks.

Replacement of poor performers – may be needed if they

don’t respond to coaching or feedback.

Increased innovation – separations can stimulate innovation

and creativity.

Opportunity for greater diversity – separations create

opportunities to hire new employees with diverse backgrounds.
Types of Employee Separation

Voluntary Separation

Involuntary Separation
Voluntary Separation

A separation that occurs when an employee

decides, for personal or professional reasons, to

end the relationship with the employer.
 Reasons for Voluntary Separation
Reasons Examples Response

Outside Factors  Relocation of spouse  Provision of career

 Desire to travel
 Work-family conflict
 Illness
Push Factors  Lack of career development
opportunities
 Boredom
 Ineffective supervision
 Personality clashes
breaks
 Flexible scheduling
 Provision of childcare
facilities
 Employees should be
given a fair opportunity
to voice their concerns.

Pull Factors  Higher salaries offered by  Ensure external equity

competitors.  Effective communication
 Better career opportunities
elsewhere
Types of Voluntary Separation

Quits

Retirements
 Types of Voluntary Separation (continued)
Quits - The decision to quit depends on:

The employee’s level of dissatisfaction with the job.

The number of attractive alternatives the employee has outside the organization.

 In recent years some employers have been using pay incentives (may
amount to a lump-sum cash payment of six months to two years of salary)
to encourage employees to quit voluntarily.

Retirements - A retirement differs from a quit in a number of respects:

Quits vs Retirements
 First, a retirement usually occurs at the end of an employee’s
career, while a quit can occur at any time.

 Second, retirements usually result in the individual receiving

retirement benefits from the organization. People who
quit, do not receive these benefits.

 Organizations plan retirements in advance, while quits are

much more difficult to plan for.
Involuntary Separation
A separation that occurs when an employer decides to terminate
its relationship with an employee due to:

 A poor fit between the employee and the organization

 Economic necessity

Organizations must avoid wrongful discharge.

 Termination of an employee for reasons that are either illegal or
inappropriate.
 Wrongful Discharge
A discharge may be considered wrongful if:
Example
An employee is terminated for refusing to Employee is terminated for refusing to
do something that is illegal, unethical or dump chemicals in a nearby lake.
unsafe.

An employee is fired on the basis of his or A manager does not reprimand white
her age, gender, race, religion, employees for being late but fires a black
disability etc. worker for this offence.

An employee is terminated for reporting Employee is terminated because he

corruption or other wrongdoing by the reported that some key managers were
company (whistle blowing). stealing from the company.
Types of Involuntary Separation

There are two types of involuntary separation:

 Discharge

 Layoffs
Discharge
A discharge takes place when management decides that
there is a poor fit between an employee and the
organization.

Specifically, the discharge can occur because of:

 Poor performance
 Employee’s failure to change some unacceptable
behaviour that management has tried repeatedly to
correct.
Discharge (continued)
 Discharge can also occur if an employee engages in serious
misconduct such as theft or dishonesty.

 Managers who decide to discharge an employee must make sure

they follow the company’s established discipline procedures.

 Most companies have a progressive discipline procedure that

allows employees the opportunity to correct their behaviour
before receiving a more serious punishment.
 Progressive Discipline Procedure

Careful use of this procedure:

• Sends a message to other employees that the organization is fair.
• Reduces the likelihood that the problem employee will sue the company
for wrongful discharge.
Layoff
 Layoffs are a means for an organization to cut costs.

 A layoff differs from a discharge in several ways:

 With a layoff, employees lose their jobs because a change in the

company’s environment or strategy forces it to reduce its workforce.

 In contrast, the actions of most discharged employees have usually

been a direct cause of their separation.
Detrimental Effects of Layoffs
Layoffs can:

 Affect the morale of the organization’s remaining employees,

who may fear losing their jobs in the future.

 Reduce a region’s economic vitality.

 Have an adverse impact on investors.

 Hurt a company’s standing as a good place to work in.

 Layoff Survivors
Problems faced by layoff survivors Consequences
• More work • Higher turnover rates
• Unsettling changes • Lower productivity
• Self assessment of contribution • Reduced job satisfaction
• Guilt • Increased sabotage
• Depression

Reassuring the survivors of the layoff

• Create a healthy and engaging workplace

• Listen to survivors’ concern
• Show appreciation for survivors’ work
• Help employees see the importance of their work
Alternatives to Layoffs
 Pay freeze

 Pay cut

 Job sharing

 Reduced work hours

 Leave without pay

 Retirement incentives

 Hiring freeze

 Retraining
Outplacement
The main goals of an outplacement program include:

 Reducing the morale problems of employees who are about to

be laid off or are likely to be discharged.

 Minimizing the amount of litigation initiated by separated

employees.
 Assisting separated employees in finding comparable jobs as

quickly as possible.
Outplacement Services
The two most common outplacement services are:

 Emotional Support
 These outplacement programs usually provide counseling to help
employees deal with the emotions associated with job loss (e.g.,
shock, anger, denial and lowered self-esteem).

 Job-Search Assistance
 Resume writing
 Interviewing & job search techniques
 Career Planning
 Negotiation skills
Staff Retention Strategies
The following six factors have been shown to have a
positive impact on employee retention:

 Pay
 Managing Expectations
 Nature of the Task
 Family Friendly HR Practices
 Training
 Quality of Line Management
Staff Retention Strategies (continued)
Pay

 Mixed evidence concerning the importance of pay in employee

retention.
 The strategy to retain employees through pay increases can be easily

matched by competitors.
 Improving benefit packages may prove more effective.

 Pay rates and benefit packages may play a relatively marginal role

in retaining good people.

Staff Retention Strategies (continued)
 Managing Expectations
 Employees should be provided a ‘realistic job preview’ before they

take up a job offer.

 Nature of the Task

 Organizations can improve employee retention by making jobs more

complex and meaningful.

 There is a strong positive relationship between task complexity and

employees’ satisfaction, motivation and retention.

 Task complexity can be increased through interventions such as, job

enrichment and job rotation.

Staff Retention Strategies (continued)
 Family-Friendly HR practices
 Paid maternity leave
 Provision of daycare facilities
 Career breaks
 Offering flexible work schedules (e.g., telecommuting and job
sharing)

 Training & Development

 Training may have both a positive and negative impact on
employee retention.
 Type of training and source of sponsorship can influence
employee retention.
Staff Retention Strategies (continued)
 Improving the Quality of Line Management

 It is common to find managers who are:

 ‘Quick to criticize but slow to praise’.

 Too tied up in their own work to show an interest in their

subordinates.

 Unwilling to solicit inputs from their subordinates.

Improving the Quality of Line Management
(continued)

 The effectiveness of the supervisors can be enhanced by:

 Selecting people for line management roles following an
assessment of their supervisory capabilities.
 Ensuring that all newly appointed line managers are trained
in the art of effective supervision.
 Regularly evaluate line managers on their supervisory skills.
 Staff Retention Strategies:
Exit Interviews
 An employee’s final interview following separation!

 The purpose of the interview is to find out the reasons why the
employee is leaving or to provide assistance in finding a new job.

 The interview should not be conducted by the exiting worker’s

supervisor because he or she is often the reason for voluntary
separation!

 On the contrary, the interview should be conducted by someone who is

in a neutral position and has good communication skills.