Turnover Cost And Retention Management

Employee retention management, have been a topic of interest for about as long as business itself, but studying the psychological nuances of the issue began gaining prominence in the early part of the 20 century as theorists began linking motivation to meeting needs.

As competition in the business world has intensified, motivation and employee retention have been under the focus ever since to get a leg up on enhancing workforce support for key corporate initiatives.

Agency Costs

One Main factor that an organization can face when trying to retain talented employees is the company may still have to cope with agency costs. When information about an employee’s activities is difficult to obtain, Sigler (1999) explained that the employee (or agent of the shareholders) may be motivated to act in his own interest which may diverge from the interest of the organization. This divergence of interests results in costs to the organization in the form of excessive perquisite consumption, shirking of job responsibilities and poor investment decision making.

It is in an employee’s interest to over consume perks and shirk job responsibilities of the firm if they are not sole owners of the organization. If most company employees have their wealth tied up in the organization for which they work, they may attempt to make investment decisions which are less risky than the stock holders of the firm would prefer. This is done to reduce the risk of failure by the company which protects the non- diversified employee from loss of wealth. This investment strategy may also reduce the return on investment that the diversified owners of the firm desire (Sigler, 1999). The employees or agents of the organization may also use a short sighted approach in investment selection to enhance their own career chances. This strategy may cause the firm to miss out on profitable long term projects or much needed research and development.

Retention Management

Thus, retention management is essential to address these obstacles so that organizations can focus and strive to achieve competitive advantage and technological leadership. Many studies suggest that high-employee-involvement work practices enhance employee retention. Most efforts on retention and commitment are thus considered from the employer’s point of view. New and refined programs are continuously introduced along this line, and are expected to have a positive impact to the organization. However, if the value proposition is viewed from the individual’s perspective, different factors assume different weights. Baby boomers are more interested in job security and benefits, young employees are more interested in pay, advancement opportunities and time off. Such differences may reflect stages in the career cycle or deeper generation differences. In addition, there are also gender differences within demographic groups e.g. young women may want different things from what young men want.

Retention management is often defined as a strategic and coherent process that starts with an examination of the reasons why employees join an organization. Studies have indicated that it is driven by several key factors, which should be managed congruently: organizational culture and structure, recruitment strategy, pay and benefits philosophy, employee support programs and career development systems. In other words, these should be effectively addressed as corporate-wide initiatives. Studies of progressive human resource management practices in training, compensation and reward sharing however, have revealed that these can lead to reduced turnover and absenteeism, better quality work and better financial performance of the organizations.