Employee turnover reflects organizational identity

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

Dr. Boidurjo Rick Mukhopadhyay

(The author, international award-winning development and management economist, formerly a Gold Medalist in Economics at Gauhati University)

Employee turnover is resource-costly because it reduces social capital for organizations, slows down new asset creation, and affects the general personality of social affairs within a business firm. Studies have shown that high turnover rates are linearly and destructively connected to firm performance. For readers interested in HR and organizational behaviours, employee turnover is the rotation of employees around the labour market, that is, between firms, jobs, occupations and between the states of employment and unemployment. In other words, the concept captures employees moving into or out of an organization. Typically, one would assume that organizations seek to retain highly productive and competent employees in order to improve firm-level effectiveness and output, however, this is certainly not a general case. It is a fact that employees are dissatisfied, unhappy, lack a sense of belonging to the firm, and eventually lose the meaning in their work.

It becomes increasingly concerning when organizations, after having used up limited resources for recruiting, training and developing the employees - some of the recruits leave the organization to move elsewhere. They leave with their skills, social capital, future potential, and contribute to the organizational critical mass in some cases. If the needs and aspirations of employees are discussed and reviewed from to time so that they can grow and add meaning to their own as well as organizational goals, it typically reduces the turnover ratio. Studies show that employee turnover can be measured by dividing the number of employees that leaves an organization per year by the average amount of employees in that same year. The result is then multiplied by 100 in order to denote it in percentage. Obviously, this should not include the employees who were moved around by the employer to different subsidiaries or member organizations of the firm context. That would fall under the definition of involuntary turnover, on the contrary, voluntary turnover happens when the employer ends the contract with the employee, the process being initiated by either party.

There are consequence costs associated with a turnover that would direct recruitment costs endured while looking for a replacement, lost labour between the time the individual quits and a replacement, lost productivity while departing employee and reduced productivity of the new hire while learning the job. These are important considerations.

A) Why do employees leave their jobs and switch employers?

Looking at the core factors contributing to turnover from a wide range of studies could be largely summarized under five factors. Firstly, Personal factors and Employee Attitude - the more satisfied the employees are, the more committed they will be to their organizations, and consequently the more they will be productive in their organizations; whereas dissatisfied ones would experience more turnover intentions and increased absenteeism. Attitude towards the work and also the workplace matters significantly and this goes beyond reward and compensation factors. Secondly, the importance of timely and adequate Performance Appraisal and Feedback – studies show that supervisors in most organizations do not give honest and candid performance reviews because they might damage the self-esteem of the employees. This does not help employee morale. The use and implementation of 360-degree feedback are really important. Thirdly, the Lack of Recognition – the little or the lack of credit for employee efforts causes their productivity levels to wane. The ambiguity of roles can also stop people from giving their best at work; also, morale is affected when employees have no say in the decision-making process. These can significantly affect morale, productivity, and the general level of engagement in the workplace.

Fourthly, Lack of Personal and Professional Advancement – most employees at any level value professional development opportunities while also equally valuing potential for career advancement. Fifthly, Ineffective Communication, in the 'The 7 Hidden Reasons Employees Leave: How to Recognize the Subtle Signs and Act before its Too Late', shows how poor communication between management, employees and between the departments is one of the reasons why employees leave their organization. The above list is not exhaustive but certainly captures some of the critical factors and causes that lead to high employee turnover.

B) Morale, Effort, Performance, and Reward systems

Identifying and listing factors that could lead to ways of reducing employee turnover cannot be generic guidance. It would depend on organizations, employees, levels in the hierarchy, markets, specific skillsets, the role of HR, and also the overall job market in an Economy. It is, however, suggested that firms must make conscious efforts to develop a thorough understanding of employee turnover from the perspective of causes, effects and strategies to minimize turnover. The achievement of any organization is closely knotted to the job performance of its employees, and the worth of the employee's workplace environment influences their motivation level and hence performance. There is a strong relationship between effort, performance, and rewards. Rewards, however, are not necessarily and always tangible ones such as compensation and paid vacation but the ability to develop belongingness at the workplace. The workplace environment that is set in place impacts employee morale, productivity and engagement - both positively and negatively.

C) The case of Non-profits, a sector which typically experiences a very high employee turnover.

Money is not the motivator for employees joining the non-profit sector. Generally, the pay is typically low, and the hours are long. The opportunity to have an impact and make the world a better place is a strong motivating factor in this sector. According to a study conducted in the US, 75% of employees and 82% of managers work at a non-profit because they want to make a difference in people's lives. However, this sector is no exception to high employee turnover and in fact, is higher than most others that studies would show.

The Forbes Business Council states that even before the pandemic, "the voluntary annual turnover rate is 19% [within non-profits]—far outpacing the all-industry average of 12%". To explain these high rates, a study by non-profit HR found employees in the non-profit feel regularly overworked and underpaid, find little opportunity for advancement inside their organisation, and are also frustrated at the lack of flexibility within their schedule. Certainly, the crisis over the past two years did not help this at all, to add to the challenges.

Another study conducted in the US, flags that the non-profit in the country has reached a critical stage where the challenges are becoming increasingly insurmountable. 45% of responding non-profit employees who were a part of this study indicated that they will seek new or different employment in the next five years. Of that group, 23% said that non-profits would not be among the types of organizations they intend to pursue. Of the 45% who said they'd seek other employment, 49% said that non-profit organizations do not pay enough. Additionally, 19% said that non-profits do not offer good long-term career opportunities, and 12% concluded that non-profits are not well-run businesses.

At the same time, it would be important to recognize the vital roles that non-profits play in society. They contribute to the UN SDGs, create critical partnerships, address community-level challenges, and of course, lead to development. Therefore, leaders in this sector need to prepare for a generational shift. As Baby Boomers exit the workforce, younger generations have a new perspective on life, the workplace, and how they would like to be managed. This needs investigation and thorough consideration while letting go of assumptions about the new generations.

At the same time, openness to adopting new policies at the workplace is essential, e.g., work-from-home or hybrid work policy, allowing more schedule flexibility are some of the employee expectations to manage. Trust and recognition of values are critical, and this needs building with time; therefore, leaders need to identify the importance of the 1-to-1 meeting with a clear purpose and support employees with their personal development plans. This also includes looking for ways to involve employees in the organization's mission and strategy. Non-profits generally tend to attract those who are drawn by the purpose and values of organizations that believe in a certain cause - this is an advantage, to begin with. When management can meaningfully reinforce the connection between employees' jobs and the advancement of the mission, it becomes more than just a routine job for a paycheck. It is about the identity of the organization after all.