Employee turnover evaluation in a Florida comprehensive services company

¶ … High Employee Turnover in a Florida

In recent years, organizational knowledge and employee turnover have been the focus of an increasing amount of attention from management experts seeking to identify improved methods of providing effective human resource services to help companies recruit and retain qualified employees (Droege & Hoobler, 2003). To this end, the purpose of this study is to determine the relationship between high employee turnover and personal factors against the preference for compensation. This evaluation will be conducted on a comprehensive services organization located in Northeast, Florida that employs more than 12,000 people. The organization is one of the largest billing and customer service organization in their county.

Statement of Problem. Today, there is a problem with the subject financial services company experiencing a high level of employee turnover. The problem can be alternatively attributed to an increase in hiring, automated self-paced CD-ROM training technology, outsourced new hire agreements, and increase competition from similar industries in the local area as indicated by computer generated reports, exit interviews, weekly employee surveys and feedback from trainees. Despite the overwhelming research and focus on employee turnover, few have been able to link turnover to a specific personal or intrinsic characteristic. Therefore, the significance of this study is that it will create an opportunity to investigate employee's behavior as it relates to the factors that are able to motivate and retain valuable human capital. In addition, this investigation should be able to uncover what factors drive employees to select a pay method or compensation that would motivate them for increased performance and reduced turnover.

Review and Discussion

Definition and Nature of Employee Turnover.

In-house engineering," "revolving door policy," and "management by turnover," may sound better, but these euphemistic are being used to describe employee turnover today (Burgess, 1998, p. 55). In their essay, "Turnover: The Real Bottom Line," Sami M. Abbasi and Kenneth W. Hollman (2000) report that "Turnover is the rotation of workers around the labor market; between firms, jobs, and occupations; and between the states of employment and unemployment" (p. 333). By whatever name or form, though, employee turnover represents one of the most significant causes of declining productivity and sagging morale in both the public and private sectors (Farrell & Whidbee, 2002; Akpotu & Nwadiani, 2002). Management theorists suggest that high rates of employee turnover are responsible for the failure of U.S. employee productivity to maintain pace with foreign competition (Abbasi et al., 2000). According to Simon Burgess, "Worker turnover generally refers to the movement of workers around the labor market, between firms, and among the states of employment, unemployment, and inactivity. It has been known for some time that worker turnover and job turnover are 'large'" (p. 55). Likewise, Frederic D. Frank points out that employee retention and employee engagement are completely integrated concepts that represent two fundamental human resources challenges in the 21st century. "How do we keep our talent, given unprecedented shortages and erosion of loyalty," he asks, "and how do we keep them engaged, and even passionate about the work they do?" (p. 11). Given the growing severity of these problems, today, it has become increasingly important for managers to better understand what employee turnover means, how it can be measured and analyzed, and what steps can be done to mitigate its adverse impact on the accomplishment of organizational goals. Clearly, as employee mobility increases by virtue of Internet-based human resources recruiting and a volatile job market (Grossberg & Sicilian, 2004), companies are faced with the need to not only define and understand the nature of employee turnover, but to recognize its impact on their bottom line as well; these issues are discussed further below.

Employee Satisfaction and Customer Turnover. One of the most important components of making new customers happy and retaining loyal old customers is to ensure that they receive quality customer service. A dissatisfied employee, whether new or tenured, though, is unlikely to provide this level of service on a reliable basis. For the purposes of this discussion, the entire range of causes of employee satisfaction and dissatisfaction come into play, and these factors are by definition highly subjective and individualistic. Nevertheless, no customer wants to do business with an enterprise characterized by poor customer service and employees who are not motivated to provide that service.

According to Grant:

It must be appreciated, however, that though the absolute level of employee satisfaction has little to do with motivation, it is an important determinant of the volume of employee turnover, employee gripes, absenteeism, alcoholism, and related variables. High employee satisfaction as well as high motivation must be developed for an organization to succeed (emphasis added) (Grant, 1990, p. 12).

Given the make or break nature of ensure that a company has satisfied employees providing reliable and quality products and services for both its internal and external customers then, it becomes necessary to identify the specific causes and correlatives of employee turnover within the organization; these issues are discussed further below.

Causes and Correlation of Employee Turnover. One of the most important components of this analysis would be to identify sources of employee dissatisfaction so that appropriate remedies can be developed and implemented; one such component relates to how well an employee believes an employer is living up to its end of the employment agreement, which can assume a wide variety of manifestations depending on the enterprise and type of work involved, but virtually every position has some type of psychological contract element to it that provides both the company and the employee with a framework in which to communicate and respond (Bamber & Iyer, 2002). Therefore, to the extent that these psychological contracts are viewed as being violated by a company's management is likely the extent to which that company will experience increased incidences of employee turnover.

The types of guarantees made to employees as codified in an employee contract can be explicitly or implicitly communicated in a number of ways such as written documents, oral discussions, or organizational practices and procedures; as a result of the traditional nature of this relationship between employee and employer, Kikul suggests that people will actively seek out this information in order to know what is expected of them and as a way to represent this relationship. "For example, employees may perceive that their firm has promised them fair pay, attractive benefits, opportunities for growth, advancement, a supportive work environment, and sufficient tools and resources," Kikul notes, but if companies fail to deliver on their perceived end of the contract, employees may respond by seeking employment elsewhere (p. 320).

The size of the company involved does not really matter in this regard; both small and large companies are able to provide their employees with some type of job satisfaction enhancer that can make the difference between a satisfied employee and yet another empty vacancy for human resources to fill. For example, Kikul points out that larger companies can provide their employees with the opportunity for career development and advancement in specialized roles and jobs, while small business can offer their employees the opportunity to learn a broad set of skills and abilities across multiple functions and areas of the organization.

Employers will breach this written or unwritten agreement at their peril, though. Whether intentional or not, even perceived violations of these contracts between employee and employer can have disastrous consequences for a company since it can result if wholesale resignations, lawsuits and negative public relations. According to Kikul, "When breaches or violations occur within an employee's psychological contract, it can be experienced as a unique form of distributive injustice, as a variety of unfulfilled promises can deprive the employee of desired outcomes and benefits" (p. 321). From an equity theory perspective, workers attempt to identify an equitable balance between what they receive from the organization and their own contributions; however, when employees perceive that their employer has failed to live up to their end of a promised incentive or benefit, they may likewise withhold their own contributions (Kikul, 2001).

This problem, in particular, is perhaps more serious than many employers might believe; past studies have determined that around 55% of employees believed their psychological contract had been breached or violated by their organization during the past two years. These studies examined the impact that a psychological contract breach can have on the employment relationship and found that employee trust and satisfaction were negatively related to violations of the psychological contract; furthermore, such violations were positively related to the actual incidence of turnover being experienced. These also studies determined that there was a moderate relationship between specific breaches and trust, civic virtue, performance, and intentions to remain with the organization.

According to Kikul, pay that was based on current level of performance, training, career development, and responsibility were associated with employee trust; likewise, high pay, training, and development were all related to extra-role behavior; and, promotion and responsibility were associated with actual turnover, while development was related to job performance. Other studies have reported employees having higher levels of perceived organizational support, commitment, and lower levels of turnover intentions when their employment relationships were characterized by mutual high obligations (both employee and employer obligations were consistently perceived to be high) (Kikul, 2001). Finally, this author suggests that the nature of the relationship and the type of psychological contract that emerges between workers and management is highly subjective and will naturally involve individual perceptions that may not be completely discernible without further investigation. In this regard, Kikul adds that employee perceptions of contract breach "represents a cognitive assessment of contract fulfillment that is based on an individual perception of what each party has promised and provided to the other" (Kikul, 2001, p. 321). Just as an individual's perceptions of their own self-worth and self-esteem are unique, the manner in which these psychological contracts can be breached or violated can also be unique as a result of individual differences in how people view the world around them.

There is a common theme that runs throughout the analysis, though, and people inherently appear to have a fine-tuned sense of justice that alerts them to when this psychological contract has been violated by their employer. Inevitably, this breach of faith will result in a dissatisfied and unproductive employee or yet another job announcement in the want ads. According to Kikul, "When employees perceive that their psychological contract has been breached, they feel deceived and mistreated, and these feelings can have a pervasive impact on the relationship between the individual and his/her employer" (Kikul, 2001, p. 321). In his book, the Effort-Net Return Model of Employee Motivation: Principles, Propositions, and Prescriptions, Phillip C. Grant (1990) reports that, "Enriched jobs, with high salaries, status, good working conditions, fringe benefits, and so on, will not motivate unless the enrichment is granted (or experienced) as a result of higher employee effort expenditure rather than irrespective of it" (p. 12). Past research into the nature of employee turnover has investigated the relationship between employees' perception of a "psychological contract" between themselves and their employers (Kickul, 2001). The growing body of evidence suggests that "the psychological contract is conceptually different from both a formal and an implied contract in that it considers an individual's beliefs about the terms and conditions of an agreement between the individual and his/her employer" (Kickul, 2001, p. 320). Given these shifts in the perception of the relationship between the employed and the employer, analyzing employee turnover assumes some new challenges, but there are some useful techniques available to managers today that can help this in this regard; these are discussed further below.

Analyzing Employee Turnover. As noted above, the concept of the relationship between an employee and his/her organization has been widely accepted and reported in many different forums, including academic journals, practitioner journals, and management textbooks following the adage that in order to manage something, it must first be measured. In their essay, "The Real Costs of Turnover: Lessons from a Call Center," Barbara Hillmer, Steve Hillmer, and Gale Mcroberts (2004) point out that, "Replacing employees involves more than just advertising for positions, interviewing candidates, and providing initial training. But obtaining quantitative data to determine the true cost of turnover is often difficult" (p. 34). To help overcome these constraints to analyzing employee turnover and its associated costs, managers require some method by which they can capture and consistently calculate the cost of turnover. "These data are critical for making the right decisions to commit resources and change organizations to reduce employee turnover," Hillmer et al. add (p. 34). To help quantify these costs in a modern call center setting, Hillmer et al. (2004) investigated the typical costs associated with recruiting and training new hires and report the following common costs involved in almost case:

1. Screening. This component relates to the costs required to screen potential candidates who will eventually be interviewed by other managers in a company. These costs should take into consideration the fact that some of the candidates will fail to meet the minimum qualifications for an interview, some of those invited for an interview will subsequently decline the interview, some candidates interviewed will not be offered a job, and some of those who are offered a job will not complete the training and will ultimately work for the company for less than six months, thereby requiring the process to begin anew;

2. Interviewing. This component relates to the costs of the time actually required for a company's personnel to interview potential replacements;

3. Testing. This factor relates to the costs required to administer routine tests that are required for all candidates as part of the interview process;

4. Wages. There is a cost involved in terms of the salary paid for new workers while they are being trained; for the purposes of their analysis, Hillmer et al. (2004) included the cost of training replacements who were hired and began training but did not complete the training or the first six months of full-time work;

5. Training. This component relates to the costs associated with training a single replacement working at least six months after completing training; this component also includes the cost of the trainer's salary and the cost of a training facility or comparable space to administer the training;

6. Orientation. The penultimate component involved in the costs associated with replacing an employee relate to the initial orientation period required for new hires. "This would include employee pay while participating in the orientation, cost to provide the orientation, and the cost to initialize the benefits for a new employee," Hillmer et al. note (p. 35).

7. Technology. The final component relates to the costs required to make any technological changes to a company's equipment when a new employee begins work (Hillmer et al., 2004).

Other management experts suggest that there is a superior method of analyzing employee turnover. According to Deane Waldman and Sanjeev Arora essay, "Measuring Retention Rather Than Turnover: A Different and Complementary HR Calculus" (2004), while many companies seek to improve their human resources function by analyzing their turnover rates, they should instead be reviewing their retention rates, but these two concepts are not necessarily inversely related:

Retention rate is not simply the inverse of turnover. Retention rate measures what is wanted rather than what is undesirable. It is easy to calculate. For the line manager or workforce planner, retention rate complements the determination of turnover, particularly for highly skilled employees. Additionally, the combination of retention rate and turnover offers a more complete view of worker movement that either does alone. It can tell us exactly who leaves, and from that we learn more about why they leave, what it really costs the organization, and what to do about it. (p. 6)

Having established that employee turnover is something that can be measured and analyzed, it is important to understand its consequences to the organization if high levels of turnover are left unresolved; these issues are discussed further below.

Consequences of Employee Turnover.

High turnover rates impose significant personnel costs on any company (Gomez-Mejia, Horn, & Miller, 2001), but there are also a wide range of consequences - virtually all of them negative - typically associated with employee turnover (Clark & Hyson, 2001). At some point, everyone becomes a liability rather than an asset for a company, and there may in fact be the occasional case where the departure of an employee will help an organization more than harm it by virtue of personality conflicts, distracting other employees with idle chat and so forth. Nevertheless, most instances of employee turnover will cause more harm than good, and these damages can assume some unexpected forms for the unwary manager today.

According to Hillmer, Hillmer and Mcroberts (2004), "Human resource managers know first-hand the benefits of committing the resources and activities necessary to reduce employee turnover. Not only do they understand the direct costs of replacing employees, they are also aware that less-visible costs are associated with the replacement of an experienced employee with an inexperienced new hire" (p. 34). While most casual observers might believe that these consequences are related almost solely to the costs associated with recruitment and training, these costs are actually much more profound and potentially devastating for a company, depending on its need for and use of intellectual properties.

For example, Dess and Shaw (2001) suggested that employee turnover can adversely affect a company's performance through loss of social capital. In this regard, social capital refers both to the tacit knowledge of a company's employees. According to Droege and Hoobler, "Organizational knowledge is comprised of two broad categories: knowledge that is explicit codified knowledge -- and knowledge that is not codified but exists primarily within the minds of employees -- tacit knowledge" (p. 50). In contrast to tacit knowledge, codified knowledge is not in jeopardy when employees leave a company; while the most efficient use of such codified knowledge may continue to reside within the mind of the departing employee, any codified knowledge is retained simultaneously within the employee's mind and within the organization in explicit formats such as employee handbooks and company databases.

This view is also supported by Fahey and Prusak, but these authors suggest there is another risk involved when employees leave. "Because codified knowledge frequently originates as tacit knowledge," they point out, "the potential for creation of new codified knowledge is at risk. New knowledge is created through the ongoing interaction between tacit knowledge embodied in the individual and the explicit knowledge possessed by the organization" (p. 266). In the age of information, these losses may represent the most significant for many companies seeking to achieve a learning organization capacity, and the loss of one member of such a team can mean the difference between success and failure, but the costs consequences of employee turnover, of course, do not stop there.

In many cases, the same causes of employee turnover will first result in a decrease in worker productivity, potential sabotage of company goals, and increasing incidences of absenteeism, all of which can cost the company - and the American economy - an enormous amount of money. According to Dalton and Mesch (1990), "It has been reported, for example, that for every.5% of increase in national absence rates in the United States, the gross national product goes down by some $10 billion"; adding some perspective to the magnitude of absenteeism in the United States, these authors estimated that absenteeism in hours lost is some 40% as large as the total number of hours lost to unemployment.

The estimated cost of absenteeism to a given company, as reported by the Wall Street Journal, is enormous: "The Research Institute of America estimates that a one-day absence by a clerical worker can cost up to $100 in reduced efficiency and increased supervisory workload. It figures absenteeism's total productivity drain on the U.S. economy at near $40 billion a year" (Dalton & Mesch, p. 371). Furthermore, there are other powerful forces at play in the decision whether to replace workers who eventually become sufficiently disillusioned with a job to move on.

Clark and Hyson (2001) point out that "new hires, as well as establishment growth rates, tend to be procyclical, moving in the same direction as general economic activity. Under good economic conditions, firms replace workers who separate, whereas during downturns, employers may delay hiring until the economic situation improves" (p. 32). Therefore, the decision to rehire can have a positive or negative effect on the company's bottom line depending on the nature of the position involved and what previous contribution is had made to accomplishing the company's goals, but in any event, it is important to control employee turnover to the maximum extent possible simply by virtue of the exorbitant costs involved, which are discussed further below.

Controlling Employee Turnover.

In spite the inevitability of employee turnover in any organization, a number of management experts have suggested methods by which managers can develop appropriate turnover reduction programs and enhance job survival because the vast majority of employee departures are based on common and avoidable reasons. According to Abbasi and Hollman, "Some organizations alleviate their vulnerability with sound employee development programs and good employee relations. They provide the tools which allow workers to develop their careers and gain a palpable sense of personal achievement. In other words, they create an environment in which employees want to stay" (p. 333). In order to facilitate improved employee relations, managers must demonstrate a character-based approach to the employer- employee relationship because even a perception of a violation of this trust can result in employee dissatisfaction and increased incidences of turnover. Abbasi and Hollman suggest that managers "must show commitment and respect and provide fair, equal, honest, and consistent treatment to all employees. Further, they must demonstrate integrity and honesty at all times" (p. 334). While these may sound like just so many organizational behavior platitudes, therein lays the essence of what represents a solid basis for a good human resources program that is designed to control employee turnover.