Employee turnover is one of the most frequently studied phenomena among organisational scholars because of its practical importance to employees and employers alike. (Morrow & McElroy, 2007). By definition, employee turnover can be defined as “the rate of change in the working staff of an organization during a defined period”. (Shahnawaz & Jafri, 2009). This essay aims to discuss the issue of high employee turnover by first prove that high employee turnover is a considerable problem for organisations because of the negative impacts on organisation performance, human and social capital losses and high costs associated with turnover. Different literature perspectives developed on the relationship between turnover and performance are reviewed. Secondly, key work-related and non-work-related factors contributing to the problem of high employee turnover will be analysed. Work-related factors include supervisory relations, compensation, recognition and working environment. Non-work-related factors, or personal factors, are personal problem or circumstance and personality. Finally, the essay recommends two interventions that can be adopted to reduce turnover rates in organisation along with its benefits and risks.
From the above definition of turnover, there are two types of turnover based on reasons for leaving an organisation, which are voluntary and involuntary turnover rates. While voluntary turnover refers to employee departure initiated by employees, involuntary turnover refers to employee departure initiated by organisation (Shaw, Delery, Jenkins & Gupta, 1998). “A report distributed by the Society for Human Resource Management SHRM (2004) states that 75% of employees are actively seeking a different job” (Cloutier, Felusiak, Hill & Pemberton-Jones, 2015). Significantly, employee turnover is regarded as a serious matter in organisations (Morrow & McElroy, 2007), which results in the increasingly 1500 academic studies addressing to topic (Holtom, Mitchell, Lee & Eberly, 2008). There are many studies confirmed the negative effect of the high level of turnover on organisations due to human and social capital losses (Hausknecht &Trevor, 2011; Shaw, Gupta, & Delery, 2005), negative impacts on organisational performance and high costs involved.
It is said that the most brilliant and proficient employees are the most mobile and more likely to leave (Abbasi & Hollman, 2000) which conveys a loss of valuable knowledge, skills and abilities to organisation (Shaw, Gupta, & Delery, 2005). As to the relationship between employee turnover and organisational performance, it is proved to be significantly negative (Park & Shaw, 2013; Morrow & McElroy, 2007). Especially, the relationship for involuntary turnover is not as negative as for voluntary turnover (Park & Shaw, 2013).
This includes both proximal outcomes such as productivity, error/loss rates and absenteeism; and distal outcomes such as customer satisfaction, sales and financial performance (Heavey, Holwerda & Hausknecht, 2013). Specifically, one standard deviation increase in turnover rates causes a 40% reduction in workforce productivity and a 26% reduction in financial performance (Park & Shaw, 2013). Lower productivity can result from a disruption in daily operations due to an overall low number of employees or inexperienced employees without complete training. An example about sport teams was demonstrated by Rao & Argote (2006), which indicate that new players in a particular season negatively influence the whole team performance. This is due to their different styles, lack of personal interactions and relationships among players which are idiosyncratic and need time to develop (Rao and Argote, 2006)
- By whatever type and form, employee turnover incurs costs which use up financial gains (Cascio, 2006; Reiche, 2008). Direct costs, or “out-of-pocket” costs, can include termination, advertising, recruitment, selection, orientation, training, relocation and overlapping of salary. For example, as cited in (Abbasi & Hollman, 2000) the cost of losing a typical worker is at $50,000. Hebenstreit (2008) estimates that the expense organisations spend for recruiting a new employee is half to 200% of the former employee’s salary. Moreover, there are many hidden costs associated with the problem such as disruption of customer relations, the vacancy cost until the job is filled, costs resulting from disruption of the work flow, and the sagging morale of remaining and new coming staff (Abbasi & Hollman, 2000). In total, the cost of employee turnover causing to American industry is up to $11 billion a year (Abbasi & Hollman, 2000)