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1. Introduction

1.1 Background of Study

During the past decades, employee turnover has become a major human resource

issue to most of the organisations. Employee turnover can be very costly to an

organisation in terms of recruiting and training new employees that might lead to the loss

of capital which may be an obstacle to an organisation’s growth (Davidson, Timo &

Wang, 2010). As an example, America’s largest clinical testing firm Quest Diagnostics

had used a specific costing model to calculate if a reduction of 5 percent in annual

employee turnover would save up to $31 million a year (Evans, 2002).

Managing employee retention and keeping the turnover rate below target is

becoming one of the most challenging issues facing most organisations worldwide

(Phillips & Connel, 2003). Employees are the backbone of any successful business,

therefore they have to be motivated and maintained in an organisation at all cost to make

sure the organization to be globally competitive in terms of providing quality products

and services to its customers (Ongori, 2007). Organisations which struggling of retaining

employees must understand the requirements of employees first before implement any

retention strategy.

1.2 Research Question

What are the factors influencing employee retention in an organisation?

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1.3 Aims and Objectives

The purpose of this study is to gain insight of human resource management factors

that influence employee retention in an organisation.

The objective of this study:

1. To analyze work environment, reward and compensation, training and

development and work-life balance as factors influencing employee retention

in an organisation.

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2. Literature Review

2.1 Review of variables

There are four variables in this study. Dependant variable is retention while

independent variables consist of work environment, rewards and compensation, training

and development and work-life balance. The four independent variables will be analyzed

whether they have influence to the dependent variable which is employee retention.

2.1.1 Work environment

Work environment is considered one of the most important factors affecting

employee’s retention (Denton & Zeytinoglu, 2006; Nelson, 2007). Employees will be

happy to work in a positive environment which they feel they are motivated, contributing

to the organization and helping the organization to move forward. However, a negative

environment such as little or no motivation among employees, lack or limited strategic

direction from leaders and poor work challenges may lead to unhappy employees and this

makes other job opportunities become attractive to them (Knudsen, Busck & Lind, 2011).

In addition, negative workplace environment such as low morale, high levels of stress,

lack or creativity and motivation are the direct result of working in unfavorable

conditions and this may increase the rate of employee turnover (Lanscape Management

Network, 2010).

A positive work environment will ensure a strong relationship among employees.

Employees will choose to stay in an organisation when they have strong relationship with

their colleagues (Liao et al., 2004). Besides, according to Jenaibi (2010), employees who

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have a positive experience with regards to working hours, work environment, sense of

fulfillment with their jobs and higher job satisfaction are more likely to stay with the

current employer. Ramlall (2003) also revealed that people are tend to work and stay in a

company that provide good and positive work environment, where employee feel that

they are valuable to the organization and making the difference. Stacy Sullivan, Google’s

human resource director indicates that a positive and happy work environment is how

they remain the turnover rate at 4 percent while national average was 29.3 percent for

companies in information industry (Kopytoff, 2007).

The interesting part of work environment is that work environment characteristics

may differ in services sector and production sector because services sector directly deal

with the clients. The interactions between employees and clients are psychological such

as work load, decision and support, while the interactions in production sector are more

on physical (Johnson, 2008). Therefore it is crucial for Human Resource managers to

recognize the emerging needs of employees and provide them a good working

environment in order to keep them committed with the organisation (Faucette, 2012).

2.1.2 Reward and compensation

Reward and compensation is the most critical factor when it comes to attract and

retain talents. Various studies have showed there is direct impact of employee rewards

and compensation on employee turnover and retention (Martin & Schmidt, 2010; Jenaibi,

2010; Ramlal, 2003; Nelson, 2007). According to Abadi et al. (2011), rewards can be

categorized into extrinsic rewards and intrinsic rewards. Extrinsic rewards such as pay,

monetary bonus, advancement and promotion while intrinsic rewards refer to being able

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to take on more challenge on work, having a feeling of accomplishment and feeling good

about oneself. According to Miller (2010), many organisations indicate that rewards and

compensation is the main issue to retain top employees.

Furthermore, Chelladurai (2006) revealed workers’ satisfaction is a function of

what they perceived their contribution towards organisation and what they should receive

in return by using discrepancy theory1. Employee will feel satisfied with their pay if

what they receiving are equivalent to the time, energy and efforts they contribute.

However if they feel that their efforts and contributions exceed the pay, dissatisfaction

may occur (Ajila & Abiola, 2004; Okpara, 2004). Kay, Zhao and Moncarz (2009)

indicated that highly competitive wage system can promote employee’s commitment and

thus results in attraction and retention. Parker and Wright (2001) also signified that a fair

wage may influence the recruitment and retention of employees and influence their

behavior in the work place at a same time.

However, McKeown (2002) argued that using high pay or wage to retain

employees is only for short terms and negative. Organisations need to have a proper

rewards and compensation program if they want to retain their key employees for a

longer period (Thomas, 2009). Ongori (2007) concluded that when high performers are

insufficiently rewarded, they quit the job. According to Thinking Leaders (2010),

Google Inc. indicates that rewarding employees works effectively. Besides retaining

employees, they had reported $209,624 in profit per employee in 2008, which beat all

other technological giants including Apple, Microsoft and Intel. Nevertheless, Nelson

(2007) revealed compensation is an expected reward simply for coming to work. Firms

1 Developed by E. Tory Higgins in 1987, the discrepancy theory assumes that people are motivated to reach a condition in which their self-concept matches their personally relevant self-guides (Challadurai, 2006).

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will still lose their valued employees if they fail to offer intangible intrinsic rewards that

give value and meaning to the work experience.

2.1.3 Training and development

Employees are expected to acquire new skills and knowledge to apply in the job

and share them with other employees to enhance job satisfaction and motivation (Evans,

2001; Anis et al., 2010). According to Arthur (2001), the more training and

development employees get, the more likely they are willing to stay. However, Wien-

Tuers (2001) argued that when the training ends, the turnover tends to begin. Training is

a symbol of organization’s commitment to staff, most of the leading companies

acknowledge that by providing training and skills development to employees is the key

factor to attract and retain them (Gasco, Llopis & Gonzalez, 2004).

Based on the research of Ruchi and Chandrashu (2012), training programs that

available to all employees correlate with a 70 percent increase in employee retention rate.

Irshad (2011) found that employees working in organization that has lower turnover rate

normally spent 59 percent time on formal training from total training period. Training

and development increase the job related skills of employee and hence increase

productivity. Organisations that have greater productivity will likely to increase

employee’s pay beyond their expectations hence result in employee retention (Memon,

Panhwar & Rohra, 2010; Irshad, 2011).

Sandhya and Kumar (2011) revealed that if employees are given development and

education by the organisation, they are willing to stay with the current organization and

use their time and experience for personal growth and development hence improve the

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productivity. Although there are researchers reveal that effective training and employee

development improve employee retention (Arthur, 2001; Ruchi & Chandrashu, 2012;

Irshad, 2011), Stern (2010) argued that well trained staffs often leave the organisation

and seek for a better career. Moreover, Fatima (2011) also indicated that work place

issue like career growth opportunities, training and development may affect retention but

not directly.

2.1.4 Work-life balance

Based on Valcour’s concept (2007) as reported in Abendroth & Dulk (2011),

satisfaction with work-life balance is defined as ‘an overall level of contentment resulting

from assessment of one’s degree of success at meeting work and family role demands’.

Reported by Miller (2010), Tom McMullen, a North American practice leader for Hay

Group, a consulting firm indicates that quality of work, and work-life balance have a

greater perceived impact on employee engagement and retention than physical financial

rewards such as salary and any other monetary benefits. Lambert (2000) revealed that

work-life balance is increasingly important for employee retention since the past decades.

Research by Boxall, Macky and Rasmussen (2003) revealed that work-life balance rated

as a major factor of retention by approximately 40 percent of employees tend to stay in

organization and over 50 percent of employees tend to leave the organization to seek for

better work-life balance.

In reviewing work-life balance, Hogue (2006) claimed that balance may become

the most important factor for twenty-first century. He also indicated that employees are

redefining success, not in financial terms but in quality of life. As reported by Preeti and

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Khana (2011), a study by Families and Work Institute2 found out earning and financial

benefits only have two percent impact on job satisfaction while job quality and workplace

support have a combination of 70 percent impact. Poor work-life balance is a major

source of stress, high level of stress in employees may influence their work performance

and increasing turnover rate (Waller & Ragsdell, 2012). Newman (2008) also indicated

that inflexible work arrangement or poor work-life balance as a primary reason talents

leave an organisation.

Tolan (2012) indicates that by having a good work-life balance, employees will

found that their job is much fulfilling and yet increase job satisfaction and retention.

However, the training specialist firm Morgan Redwood3 director Janice Haddon indicates

that work-life balance is not necessary to adopt when an organization is in a boom time.

It may bring fundamental impact on the corporate performance (Management Today,

2009). On the other hand, Holmes (2009) revealed employees with flexible work

arrangement and good work-life balance are more committed to their current employers,

more loyal and willing to work harder than required to help their employers succeed.

2 A nonprofit, nonpartisan research organisation that studies the changing workforce, the changing workplace, the changing family and the changing community (Families and Work Institute, 2012). 3 A human resource strategy, leadership development and coaching company specializing in stress management and wellbeing. Founded by Janice Haddon (Tolan, 2012).

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2.2 Underpinning Theory and Conceptual Framework

Herzberg (1959) two factor theory and Victor Vroom (1964) expectancy theory as

cited in Nawaz (2011) provided a theoretical background for this study. Herzberg

revealed that employees not only seek for job satisfaction, but also look at work

motivation. Thus employers have to understand what their employees seek for in order to

implement effective retention strategy. However, expectancy theory characterizes

individuals as rational beings. People think about what they have to do to be rewarded

and how much reward means to them before they perform their jobs. This theory

indicates that employers need to show to employees that their effort will be recognized

and rewarded well in financial and non-financial terms. The conceptual framework of

this study is shows in Figure 1.

Independent variables Dependent variable

Figure 1. Conceptual framework

Work environment

Work-life balance

Rewards & compensation

Training & development

Employee Retention

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3. Conclusion

Employee retention is a very important element that an organisation needs to

focus and invest. Without a good retention plan, an organisation will eventually lose their

key employees and suffer high turnover rate (Muneer et al., 2011). Given the growing

needs for organisations to retain their best employees in the face of competition, the

findings of this study indicates that human resource management factors such as work

environment, reward and compensation, training and development and work-life balance

play an important role in employees retention. This study helps organisations to

understand what human resource management can do to retain the employees as greater

turnover rate will bring a huge impact to the performance of the company as well. In

order to retain employees, the organisations must review their career and reward plans

and organize the plans according to the requirements of the employees that would

beneficial them in the long run (Samuel & Chipunza, 2009). Research indicates that

training methods, work incentives, competitive wages and work environment are

effective retention strategies for employees of any age (Arthur, 2001). However, future

studies can be more focused on certain industry or other factors such as intrinsic and

extrinsic rewards rather than human resource management factors.

1995 words

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