Retention Management

Recruitment, Selection and Placement

ABSTRACT

This research paper covers the retention management process, as it pertains to business. The two types of turnovers, involuntary and voluntary, will be explained, along with the cost and consequences of each. Also covered are reasons why employees are discharged. Details of why companies downsize will be reviewed. Statistical information is noted throughout the paper. Finally, it will reflect on what happens when an employee leaves a company and the reasons why. Saint Leo’s core value of excellence should be incorporated into every business and organizations policies and procedures and be a fundamental component of the retention management process.

Has it ever crossed your mind, why your fellow co-worker, lost his or her job? You may ask, “were they fired?” This situation is classified as a turnover. There are different types of turnovers and they are conducted in different manners. The main three are voluntary, discharge, and downsizing. Each explains if an employee is leaving a job for good, if they have been fired or if they are asked to leave in order to benefit them for the better. Voluntary turnover is connected with involuntary turnover. Under voluntary it holds both avoidable and unavoidable turnover. Involuntary holds both discharge, and downsizing in it. The first type of turnover is called voluntary or involuntary. This is either divided into avoidable or unavoidable. Avoidable is usually “initiated by the employee” (Heneman, Judge, Mueller, 2012, p. 685). This symbolizes that the worker “could have been prevented by certain organization actions, such as a pay raise or a new job assignment” (Heneman, Judge, Mueller, 2012, p. 685). Unavoidable turnover refers to an employee quitting. This also is a circumstance that the “organization probably could not have prevented”. Examples of unavoidable turnover are “retirement or by returning to school” (Heneman, Judge, Mueller, 2012, p. 685). More examples are: “people who quit due to dual career problems, pursuit of a new and different career, health problems that require taking a different type of job, child-care and elder-car responsibilities, or leaving the country” (Heneman, Judge, Mueller, 2012, p. 685). Another type of turnover is called involuntary, and just like voluntary it holds two main points. They are discharge and downsizing. Discharge, like many people know is a nice way to say fired. The technical term is “aimed at the individual employee, due to disciple and/or job performance problems” (Heneman, Judge, Mueller, 2012, p. 685). Do you ever wonder why discharge turnover happens? “Discharge turnover is due to extremely poor person/job matches, particularly the mismatch between job requirements. The other form of discharge turnover involves unacceptable job performance” (Heneman, Judge, Mueller, 2012, p. 689). Examples of poor job performance are “dress code violations, horseplay” (Heneman, Judge, Mueller, 2012, p. 689) and bringing prohibited items into the work-place. This pertains to employee who comes into work late every day, who eats food, knowing it’s prohibited and the ones who do not follow the rules and in turn do as they feel. Downsizing, on the other hand usually “targets groups of employees and is also known as reduction in force (RIF)” (Heneman, Judge, Mueller, 2012, p. 685). This “occurs as part of an organizational restructuring or cost –reduction program to improve organizational effectiveness and increase shareholder value” (685). Examples of downsizing are permanent or temporary layoffs, closings, and company mergers. “Downsizing turnover reflects a staffing level mismatch, in which the organization is, or is projected to be, overstaffed” (Heneman, Judge, Mueller, 2012, p. 689). This means that there are too many employees and some people will need to be let go in order to balance out the company. There is a lot of this going on today because the economy is not moving fast enough for companies to make a big enough profit to pay the multitude of employees they have. “Overstaffing may be due to a lack of forecasting and planning, inaccuracies in forecasting and planning, unanticipated changes in labor demand and/or labor supply, or downturns in the economy” (Heneman, Judge, Mueller, 2012, p. 689). Moreover, to protect the bottom line, many companies have restructured their hiring practices. In order to analyze turnover it requires that the “three types of turnover be measured and benchmarked, that specific reasons for employees’ leaving be identified, and that costs and benefits of each type of turnover be assessed” (Heneman, Judge, Mueller, 2012, p. 689). The first thing a company must analyze is the turnover rate. Turnover rate equals the number of employees leaving divided by the average number of employees, and then multiplying that number by 100. In order to find this formula an organization “will require data on, and decisions about the following: what is the time period of interest, what is an employee that ‘counts’ and how to calculate the average number of employees over the time period, such as straight or weighted average” (Heneman, Judge, Mueller, 2012, p. 690). After collecting this data, organizations start making breakouts of the statistics. This is done “according to various factors, including type of turnover: voluntary or involuntary; type of employee; job category; and geographic location” (Heneman, Judge, Mueller, 2012, p. 690). With this data, it helps the company find a solution to guarantee the least amount of turnover. So what is the process an employee must go through before officially leaving a company? An organization must “ascertain, record, and track the various reasons why employees leave” (691). This data is used to determine the main causes of their workers leaving. In order to find the answer many use certain tools to solve the problem. “Tools for conducting such probing are exit interviews, post exit surveys, and employee satisfaction surveys. All three tools can be used to help gauge whether the decision to leave was voluntary, and if so, the specific reason—thus allowing a determination of avoidable or unavoidable turnover” (Heneman, Judge, Mueller, 2012, p. 691). A common way to find out why the employee is leaving is to conduct an exit interview. “These interviews are used to explain such things as rehiring rights, benefits, and confidentiality agreements. Because of the major implication of a potentially inaccurate measurement, the organization should not dramatically alter its retention strategies on the basis of any one interview” (Heneman, Judge, Mueller, 2012, p. 691). So how do they conduct these interviews? There are five main points that should be done while in these interviews. The first one is “the interviewer should be a neutral person (normally someone from the human resources department or an external consultant) who has been trained in how to conduct exit interviews” (Heneman, Judge, Mueller, 2012, p. 692). This is done to avoid a biased opinion. The second point is, “the training should cover how to put the employee at ease and explain the purposes of the interview, how to follow the structured interview format and avoid excessive probing and follow-up questions, the need for taking notes, and how to end the interview on a positive note” (Heneman, Judge, Mueller, 2012, p. 692). This is to ensure the employee feels comfortable all throughout the interview. In order for it to be successful the interviewer needs to know the proper steps to certify that they get all the information they needed in a benign environment. The third point is “there should be a structured interview format that contains questions about unavoidable and avoidable reasons for leaving, and for the avoidable category, the questions should focus on desirability of leaving, ease of leaving, and job alternatives” (Heneman, Judge, Mueller, 2012, p. 692). This is to find out if the employee is leaving on their own account or if they were indeed fired. This is also conducted if the worker is transferring to another part of the company. The fourth point is “the interviewer should prepare for each exit interview by reviewing the interview format and the interviewee’s personnel file” (Heneman, Judge, Mueller, 2012, p. 692). The interviewer should be well prepared before entering the interview in order to present a high level of professionalism. The fifth point is “the interview should be conducted in a private place, before the employee’s last day” (Heneman, Judge, Mueller, 2012, p. 692). In order to get all the needed information the employee interview should be conducted before they leave. After that they are not required to return to the workplace. The sixth and final point for conducting an exit interview is “the interviewee should be told that the interview is confidential and that only aggregate results will be used to help the organization better understand why employees leave and to possibly develop new retention initiatives. The organization must decide whether to conduct exit interviews with all departing employees or only those who are leaving voluntarily” (Heneman, Judge, Mueller, 2012, p. 692). Another type of tool to monitor an employee’s time at the company before they leave is to conduct post exit and employee satisfaction surveys. These are in place “to minimize departing employees’ concerns about confidentiality in exit interviews and possible employer retaliation” (Heneman, Judge, Mueller, 2012, p. 692). It usually consists of the same questions asked in an exit interview. Both are now used more online because they are suitable and cost effective to the company. By using the online method, it is easy to store more data and collect more information. Employee satisfaction surveys are used as “a good way to discover the types of job rewards that are most dissatisfying to employees and might therefore become reasons for leaving” (Heneman, Judge, Mueller, 2012, p. 693). These surveys are a little more complicated than post exit because “designing, conducting, analyzing, and interpreting results from these surveys require substantial organizational resources and should only be undertaken with the guidance of a person explicitly trained in job satisfaction survey techniques” (Heneman, Judge, Mueller, 2012, p. 693). While post exit surveys focus on the job and how it is conducted, employee satisfaction surveys focus on what the employee was disappointed and satisfied with throughout their job experience. Cost can play a major role in a company when it comes to turnover. “It may well turn out that the nonfinancial costs benefits outweigh the financial ones in importance and impact for the development of retention strategies and tactics” (Heneman, Judge, Mueller, 2012, p. 694). Voluntary, discharge, and downsizing can all have different effects for a company. Voluntary turnover for instance can be “extremely expensive for organizations. Research consistently shows that organizations with high turnover have a low stock price, a low return on investment, low revenues, and other low financial returns” (Heneman, Judge, Mueller, 2012, p. 694). “Nearly 70% of organizations report that staff turnover has a negative impact.”
“Recruitment brochures and testing materials, orientation program materials, and induction materials such as benefits enrollment forms all add to staffing cost. Cash outlays include paying for the departing employee’s accrued but unused paid time off, possible temporary coverage for the departed employee, and hiring inducements for the replacement employee” (Heneman, Judge, Mueller, 2012, p. 696). Incorporating the cost of turnover within a company can show dire effects. Mercer Human Resource Consulting in Australia published a few facts about their company’s turnover rate. “Mercer estimated that the total cost of staff turnover could be equaled to anything from 50% to 150% of an individual's annual salary. For instance, a company with a total amount of 250 employees earning an average of $49,000 annually would pay around $3 million per year because of staff turnover if Mercer's research were to be believed”. The cost and benefits for the employee discharge are almost the same as voluntary turnover. “There may be an additional separation cost for a contract buyout of guarantees made in a fixed term contract” (Heneman, Judge, Mueller, 2012, p. 698). This kind of buyout is common in the public sector. “These guarantees are negotiated and used to make the hiring package more attractive and to reduce the financial risk of failure for the new hire” (Heneman, Judge, Mueller, 2012, p. 698). The problem with this is that it may make the cost of discharge higher. “A discharge is usually preceded by the manager and others spending considerable time, often unpleasant and acrimonious, with the employee, seeking to change the person’s behavior through progressive discipline or performance management activities” (Heneman, Judge, Mueller, 2012, p. 698). Although there are high cost values associated with discharge turnover, the outcome has many benefits. The cost and benefits for downsizing “are concentrated in separation cost for a permanent RIF since there will presumably be no replacement hiring and training” (Heneman, Judge, Mueller, 2012, p. 698). With downsizing, companies must pay attention to the different forms of severance cost. “First, employees can be paid for accrued time off. Second early retirement packages may be offered to employees as an inducement to leave early. Third, employees ineligible for early retirement may be offered a voluntary severance package as an inducement to leave without being laid off. The third is the most common form severance cost” (Heneman, Judge, Mueller, 2012, p. 700-701). What is included in a severance package? “A typical severance package includes one week’s pay for each year of service, continued health insurance coverage and premium payment, and outplacement assistance” (Heneman, Judge, Mueller, 2012, p. 701). An example of how costly severance packages can be is “the Wall Street securities firm Merrill Lynch and Company reduced its workforce 14% over a two- year period as part of a restructuring effort. About 15,000 employees were cut, at a severance cost of $1.2 billion ($80,000 per employee)” (Heneman, Judge, Mueller, 2012, p. 701). Just like discharge turnover, downsizing can also reap many rewards with the end result. A study conducted by lifeworkssolution.com concluded that “over 50% of the people recruited in to an organization will leave within two years. Approximately 50% of organizations experience regular problems with employee retention.” (Roth, 2008, beginning section, para 1) “The total turnover for the factoring and commercial finance industry across the European Union in 2011 was 1,111,493 million Euros” (EU National Associations, 2012).

References

Factoring Turnover in the EU. (2012, August). EU National Associations, IFG and FCI statistic"s. Federation for the Factoring and Commercial Finance. Retrieved from http://www.euf.eu.com/factoring-turnover/facts-and-figures/factoring-turnover-in-eu/menu-id-18.html
Heneman III, H. G., Judge, T. A., & Kammeyer-Mueller, J.D. (2012). Staff organizations. (7th ed., p. 374). Middleton, WI: Mendota House. (685-70)

Roth, H. (2008, February). Staff Turnover Facts. Life Works Solution, Retrieved from http://www.lifeworksolutions.com.au/news/staff-turnover-facts