Employee Turnover – Meaning, Causes and Effects

In today’s highly dynamic commercial work, it is becoming a challenge for job-seekers to find jobs that best fit their personality, and for employers to hire the right people who can do the job and also integrate well into the company culture. Failure to overcome this issue can be resulted in high turnover of employees. Employee turnover is a part of normal business activity; whereby employees come and go as their life situations change. Most employers realize this and, indeed, large firms typically have entire departments devoted to the management of human resources in order to make the transition as easy as possible for both management and employee and to minimize the associated hiring and training costs.

Employee Turnover

Employee turnover is a ratio comparison of the number of employees a company must replace in a given time period to the average number of total employees. A huge concern to most companies, employee turnover is a costly expense especially in lower paying job roles, for which the employee turnover rate is higher. Many factors play a role in the employee turnover rate of any company, and these can shoot from both the employer and the employees.

Causes of Employee Turnover

1. Job Satisfaction

Job satisfaction is described as the positive attitude and emotion towards one’s job and work environment. It reveals their value judgment about their expectations and perceptions of the effort they put in and the outcomes that they receive. One of the reason that caused a highly employee turnover is because of the low job satisfaction offered by an organization. Job satisfaction includes the payroll and financial rewards, work environment, co-workers, supervision, scope of work, amount of work, career future, company identity, and physical working condition.

To ensure an employee’s satisfaction, an organization need to reward fairly for the work they have done by making sure rewards were for genuine contribution to the organization and consistent with reward policies. The reward also includes a variety of benefits other than monetary gains. However, many companies failed to do so. Unsatisfactory performance appraisal is one of the reasons for employees leaving a company. A lack of appreciation, a lack of teamwork and the perception that business owners don’t care about their employees are consistently the highest-rated reasons for low job satisfaction. Many employees choose to leave because they believe their work has been unappreciated by the organization. When employees are committed to their organizations, they accept the corporate goals and values, and will put in extra effort to achieve organizational effectiveness. Nonetheless, many also leave their jobs because they don’t believe their companies value their contribution.

Most environmental contributors to turnover can be directly traced to management practices. Turnover tends to be higher in environments where employees feel they are taken advantage of, where they feel undervalued or ignored, and where they feel helpless or unimportant. Clearly, if managers are impersonal, arbitrary, and demanding, there is greater risk of alienation and turnover. Management policies can also affect the environment in basic ways such as whether employee benefits and incentives appear generous or stingy, or whether the company is responsive to employees’ needs and wants. Management’s handling of major corporate events such as mergers or layoffs is also an important influence on the work environment afterwards.

Salary Scale is also known for the most common cause of the employee turnover rate being so high. Employees are in search of jobs, which pay well. If the company, which they are working in, does not offer good and reasonable salary, they tend to hunt for jobs that pay them considerably well. The prospect of getting higher pay elsewhere is one of the most obvious contributors to turnover. This practice can be regularly observed at all levels of the economic ladder, from executives and generously paid professionals in high-stress positions to entry-level workers in relatively undemanding jobs.

Employees always flock to companies who offer more benefits. There are many employees who are not aware of the benefits that are provided to them in their compensation package. The employers need to reduce their bureaucratic procedures in order for the employees to receive the best available benefits without any difficulty. They should make a note of what all benefits other organizations are providing, which may attract their current employees.

Employees that contain negative relationship with its supervisor are likely to have lower job satisfaction, which could also lead to employee turnover. According to experts, while most managers believe employees leave due to money issues, in actuality it is an employee’s relationship with their supervisor that has the greatest impact on whether they stay or go, because a supervisor has control over the compensation, opportunity, recognition, and environment that create job satisfaction. And that is why it is important to hold supervisors accountable for retaining a thriving workforce.

Advancement and promotion policies are the prime reason why many mid-level executives leave the company. Due to no potential opportunity for advancements or promotions, they prefer other companies, which may provide them with higher posts and increased compensation packages. The companies need to evaluate and modify their promotion policies in a fair way, which would enable promotions for candidates.

The condition of the organization could also be a factor. If it is unstable, the employees will surely look for a more stable organization. They would not want to stay long in an organization that could close any time. Employees will not exert as much effort in achieving organizational objectives if there are not reassured that their jobs are secure.

2. Organizational Commitment

Organizational commitment is the relative strength of an employee’s attachment or involvement with the organization where he or she is employed, in this case the dairy business. Organizational commitment is important because committed employees are less likely to leave for another job and are more likely to perform at higher levels. An organization would have a higher productivity by creating a higher job satisfaction for the employees. By this, they would believe that the organization would be a career path and a tremendous future in the long run, which would make them concern about the quality of their work. Hence, they would be more committed to the organization, and the organization would have higher retention rates and lower employee turnover. With this, organization commitment also includes as a cause of employee turnover. Organizational commitment is when individuals who were highly committed to their organization would be less likely to think about leaving the organization. When an employee’s need and desires has been satisfied and their skill has been utilized, an organizational commitment of an employee has been developed. It has become a very strong negative effect on turnover, which means, the lower the organizational commitment, the higher the tendency for an employee to leave. Throughout the workplace employees must be given numerous opportunities to feel committed to the organization. Overall management culture and style driven by the top management actions are strongly related to the degree of employee commitment. These correlations bring to light the importance of having strong managers and their roles in the overall organization. If employees are directly committed to their group, their commitment to the overall organization will be higher.

Organizational Commitment is highly valuable. Studies have highlighted that commitment has a great impact on the successful performance of an organization. This is because a highly committed employee will identify with the goals and values of the organization, has a stronger desire to belong to the organization and is willing to display greater organizational citizenship behavior i.e., a willingness to go over and beyond their required job duties. And if human resources are said to be an organization’s greatest assets, then committed human resources should be regarded as an organization’s competitive advantage.

Committed employees are more likely to perform beyond the call of duty to meet customers’ needs and organization’s goal. They are highly motivated to work to the best of their ability. These traits are essential for continued customer commitment and ongoing revenue and growth for an organization. Committed employees remained in the employment of the company longer, resisted competitive job offers, did not actively look for other employment and recommend the company to others as a good place to work. The longer the companies kept their employees, there would be no need for additional expenditure to train new employees.

3. Job Hopping

An individual with strong desire to try different jobs for fun or and readily changed their jobs for as little as one dollar is a sign of job hopping behavior. This type of individual also leads to employee turnover. Some with highly educated individuals are more keen to job hop due to the availability of vast options in the job market. Younger generations are thought to be job-hopping to be materialistic, and as a result they tend to hop from one job to another for a better salary and benefit. A huge concern to most companies, employee turnover is a costly expense especially in lower paying job roles, for which the employee turnover rate is highest. Weak company identity tends to face higher employee turnover as the employee worry about their career future.

Impacts and Effects of Employee Turnover

There are many negative impacts to an organization due to employee turnovers compared to positive impacts. However, despite substantial evidence regarding turnover’s negative consequences for firms, several studies including many of those above are noted offsetting positive effects. For example, the economic perspective on turnover suggests that turnover reflects the beneficial aspects of worker mobility, such as the improvement of matches between employees and firms over time. Companies should take a deep interest in their employee turnover rate because it is costly part of doing business. When a company must replace a worker, the company incurs direct and indirect expenses. These expenses include the cost of advertising, headhunting fees, human resources cost, loss of productivity, new hire training, and customer retention.

On the contrary, turnover can adversely affects operational efficiency, especially for complex processes that require close teamwork and high amounts of assumed knowledge. Where there is continuing instability in the workforce, consequences can include increased stress and tension amongst those remaining employees who have to fill the gaps left by departing employees, declining employee morale, and decreased productivity due to loss of work group synergy.

High turnover rate can do a lot of damage to your organization than overworking your employees. One of which is the turnover cost. When you lose an employee, you need to look for someone new to fill the post. Although the person is qualified, you still need to train the person, consider a few errors during the operation, and go through the adjustment period. Apart from the cost you incurred, it will also give you a bad image in the public. They will speculate about the reasons why your employees do not last long in the organization. They will question the management skill of the leaders of the organizations. Consequently, this will also affect the judgment of your potential investors.

Minimizing employee turnover rate is one of the most important tasks of managers. This is because a high turnover rate among others implies that the organizations concerned are probably incurring high costs of operations. The costs of employee turnover are due to the costs of retaining workers, the costs of training and development loss of business, loss of productivity, and also increased in business risks. Therefore, companies that are not able to reduce their employee turnover figure will likely lose their competitiveness in the long run.

High turnover can be a serious obstacle to productivity, quality, and profitability at firms of all sizes. For the smallest of companies, a high turnover rate can mean that simply having enough staff to fulfill daily functions is a challenge, even beyond the issue of how well the work is done when staff is available. Turnover is no less a problem for major companies, which often spend millions of dollars a year on turnover-related costs. When the employee leaves, productivity will usually take a downturn because other workers may have to add the former employee’s duties to their own workload, at least temporarily. For service-oriented professions, such as management consulting or account management, high employee turnover can also lead to customer dissatisfaction and turnover, as clients feel little attachment to a revolving contact. Customers are also likely to experience dips in the quality of service each time their representative changes.

When long-time employees leave, they often take valuable institutional knowledge or intellectual assets with them. It would costs employers a lot of time and money to replace these assets. Many business owners are mistaken that the cost of replacing employees is merely the price of an advertisement and headhunter fees. However, both direct and indirect cost must be taken into consideration. When an employee gives notice (usually two to four weeks), he or she has already mentally “checked out” months prior to the announcement, costing the company significant dollars for a nonproductive employee. The current employees never want to see one of their colleagues leave. The atmosphere in the office takes on a different tone. Current employees question their own career decision. These scenarios slow down the organization’s productivity. And they also cost money. The current employees gain increased workloads to offset the vacant position. This causes burnout, inefficiencies and unproductive workers, which again can be costly. One must realize that it usually takes a new employee approximately six months to get up to speed. Those first six months are a costly investment for the employer without any true benefits for the newly hired talent and the company until six months or more into the future.

Human resource development is less likely to be a priority for management. Companies will be disinclined to invest in training and career development for staff if they believe that they cannot hold staff. In addition, where there is high employee turnover human resource personnel are likely to be pre-occupied with the ‘base level’ tasks of recruiting and training new staff. This, in turn, means that there will be fewer opportunities to implement staff development initiatives and other strategies that could enhance the skills and productivity of existing employees.

Organizational psychologists have also claimed that workers’ efforts may be highest when they first join an organization and may decrease over time. These conflicting views concerning the effects of turnover suggest that one must not view turnover as a monolithic concept, but rather as a contingent phenomenon. The relevant question thus becomes not whether turnover has positive or negative effects on performance, but rather under what conditions it is more harmful or beneficial to the firm.

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