Retention and Turnover Part I: Theory of Causes

Why do people choose to come to a company in the first place? Why do people stay at a company or leave? What motivates each behavior and how can employers motivate people to stay longer? These are the questions being asked, as they have been for decades, as employers struggle with a decreasing pool of talent and increasing business needs. The negatives of turnover are obvious: greater costs to hire and train new employees, lost knowledge and experience, decreases in productivity, and lower quality of work. The positives are less well understood, but no less real: infusion of new ideas, additional of new knowledge and experience to the company?s knowledge base, lower wages as new employees often enter at a lower scale, and enhanced promotional opportunities for those who stay. The costs of replacing a lost employee can be staggering. Costs can be as much as 3x base salary for a mid-level manager. Formulas abound for calculating replacement costs. The Saratoga Institute offers a commonly used one. There are others that are less traditional. But any way you calculate it, turnover costs money. Some turnover is probably unavoidable. This is the kind of turnover caused by people getting married, moving to be nearer parents or children, employees leaving for medical reasons, etc. This is often called functional turnover and is the baseline below which a company rarely goes and can do little to change. Other turnover is generally considered to be preventable. Peter Hom and Rodger Griffeth, associate professors at Arizona State and Georgia State Universities respectively, have done extensive analysis of the literature and of past research into causes and cures of turnover. They have formulated an integrated model of factors that contribute to employee retention and turnover. They say that in order to retain people, a company must satisfy three basic groups of conditions: (1) there must be things that satisfy people such as proper compensation, adequate job scope, met expectations, and acceptable stress levels, (2) there must be things that create commitment such as a sense of justice and fairness, employment security, a belief that the job held is valuable and useful, and a belief that the company invests in its people, and (3) the labor market has its own influence on employee?s decisions to leave or stay. It is obvious in today?s highly competitive market for information systems professionals, for example, that the market has a powerful influence on employee decisions to stay or leave. Yet, we find that in many cases these professionals cannot be lured away by money or any other single factor because the company they currently work for meets most of the conditions in the three groups above. What is important here is that no single factor in and of itself is decisive in causing turnover or retention. Like so many others things in life, it is the systemic effect of several factors that leads to a final decision. Another argument is that selection is key to retention and that if we could only choose the right people from the start we would have much less turnover. While I believe that it is possible to test for selection according to criteria for past success, I am not convinced that those criteria are what most company’s need or really want for future success. The topic of testing for employment will be the basis of a future column. Next week we will discuss how to build models to attract and keep employees and how to incent employees to stay.