CHAPTER 3

Organization/Individual Relations and Retention

2008 Thomson/South-Western All rights reserved. PowerPoint Presentation by Charlie Cook The University of West Alabama

Chapter Objectives
After you have read this chapter, you should be able to: Identify the changing nature of the psychological contract. Discuss how motivation is linked to individual performance. List the five major drivers of retention and activities related to them. Describe different kinds of absenteeism and turnover. Explain two ways to measure absenteeism and turnover. Outline the steps in managing retention.

2008 Thomson/South-Western. All rights reserved.

32

Individual/Organizational Relationships
The Psychological Contract: refers to the unwritten expectations employees and employers have about the nature of their work relationships.
Affected by age of employee and changes in

economic conditions. Focuses on expectations about fairness that may not be defined clearly by employees.

Psychological Ownership
When individuals feel that they have some control and

perceived rights in the organization, they are more likely to be committed to the organization.
2008 Thomson/South-Western. All rights reserved. 33

Individual/Organizational Relationships contd

A psychological contract that can help achieve those ends recognizes the following components: components
Employers Provide:
Competitive compensation and

Employees Contribute:
Continuous skill improvement and

benefits Flexibility to balance work and home life Career development opportunities

increased productivity Reasonable time with the organization Extra effort when needed

Psychological contracts can be violated not only in reaction to personal mistreatment but from a perception that the organization has abandoned an important principle or cause.
2008 Thomson/South-Western. All rights reserved. 34

Job Satisfaction, Loyalty, and Commitment

Job Satisfaction
A positive emotional state resulting from

evaluating ones job experience. Job dissatisfaction occurs when ones expectations are not met. Dimensions of job satisfaction frequently mentioned include work, pay, promotion opportunities, supervision, and co-workers. Job satisfaction appears to have declined somewhat in recent years, and elements of the employee/ employer relationship have been cited.
2008 Thomson/South-Western. All rights reserved. 35

Job Satisfaction, Loyalty, and Commitment

contd

Even though job satisfaction itself is important, perhaps the bottom line is how job satisfaction influences organizational commitment, which then affects employee turnover. Organization Commitment (Loyalty) The degree to which employees believe in and accept organizational goals and desire to remain with the organization. Employee engagement: is the extent to which an employee is willing and able to contribute. Continuance commitment: is the likelihood that an individual will stay with rather than withdraw from the organization. Individuals who are not as satisfied with their jobs or who are not as committed to the organization are more likely to withdraw from the organization.
2008 Thomson/South-Western. All rights reserved. 36

FIGURE 1

Factors Affecting Job Satisfaction and Organizational Commitment

2008 Thomson/South-Western. All rights reserved.

37

Individual Employee Performance

The HR unit in an organization exists in part to analyze and address the performance of individual employees. Exactly how that should be done depends on what upper management expects. Individual Performance Factors 1. Individual ability to do the work 2. Effort level expended 3. Organizational support

Performance (P) = Ability (A) x Effort (E) x Support (S)

Individual performance is enhanced to the degree that all three components are present with an individual employee, and diminished if any of these factors is reduced or absent.
2008 Thomson/South-Western. All rights reserved. 38

FIGURE 2

Components of Individual Performance

2008 Thomson/South-Western. All rights reserved.

39

Individual Motivation
Motivation
The desire within a person causing that person to act

to reach a goal. Motivation is a goal-directed drive, and it seldom occurs in a void. Understanding motivation is important because performance, reaction to compensation, turnover, and other HR concerns are affected by and influence motivation.

2008 Thomson/South-Western. All rights reserved.

310

Individual Motivation contd

Management Implications for Motivating Individual Performance Motivation is complex and individualized, and managerial strategies and tactics must be broad based to address the motivation concerns of individuals. Broad-based strategies and tactics to address individual employee concerns about:
Consistency

in organizational rewards support for employee efforts

Organizational Accurate

measurement of employee performance of rewards by employees

Desirability

The relationship between individuals and their

employers clearly affects retention of employees.

2008 Thomson/South-Western. All rights reserved. 311

Retention of Human Resources

Myths About Retention
1.

Money is the main reason people leave Money certainly is a powerful recruiting tool, and if people feel they are being paid inadequately, they are clearly more likely to leave. But if they are paid a competitive wage or salary, other parts of the job are more important.
one Im G

2.

Hiring has nothing to do with retention Recruiting and selecting the people who fit the jobs and who are less likely to leave in the first place, and then orienting them to the company, can greatly increase retention.

3.

If you train people, you are only training them for another employer Developing skills in employees may indeed make them more marketable, but it also tends to improve retention. When an employer provides employees with training and development assistance, job satisfaction may increase and employees are more likely to stay.

2008 Thomson/South-Western. All rights reserved.

312

Retention of Human Resources contd

Myths About Retention
4.

Do not be concerned about retention during a merger That is exactly the time to worry about retention. Although some peoples jobs may have to be cut after a merger, the employees the company would like to keep may have the most opportunity to leave voluntarily. During a merger, all employees are concerned about job security, and if they do not feel a part of the new organization early on, many will leave. If solid performers want to leave, the company cannot hold them Employees are best viewed as free agents. They can indeed leave when they want. The key to keeping solidly performing employees is to create an environment in which they want to stay and grow.

5.

one Im G

2008 Thomson/South-Western. All rights reserved.

313

Retention of Human Resources

People often leave jobs for reasons that have nothing to do with the jobs themselves. Why People Stay or LeaveLinks, Fit, and Sacrifice
Culture and values

Organizational culture is a pattern of shared values and beliefs of a workforce. Those items provide organizational members with meaning and rules for behavior. Positive, distinctive company that is well-managed, and offers exciting challenges. Management and Retention Organizations that have clearly established goals and hold managers and employees accountable for accomplishing results are viewed as better places to work, especially by individuals wishing to progress both financially and career-wise. Further, effective management provides the resources necessary for employees to perform their jobs well. Job Security Many individuals have seen a decline in job security during the past decade. All the downsizings, layoffs, mergers and acquisitions, and organizational restructurings have affected employee loyalty and retention. Job security is not solely about ones personal security. A major issue in retention is the extent to which high-caliber top performers are retained by the company. Other employees view high turnover in this group and the company as a negative in the retention equation.

2008 Thomson/South-Western. All rights reserved. 314

FIGURE 3

Drivers of Retention

2008 Thomson/South-Western. All rights reserved.

315

Job Design/Work
People vary considerably in their preferences for particular job features. As a result, some people like some kinds of work and others like different kinds of work. It means there are people willing to do most jobs. Job/Person Match Matching people with jobs they like and fit can be a challenge. If people do not fit their jobs well, they are more likely to look for other employment, so retention is affected by the selection process. Physical and environmental factors such as space, lighting, temperature, noise, and layout affect retention of employees. Additionally, workers want a safe work environment, in which risks of accidents and injuries have been addressed.
2008 Thomson/South-Western. All rights reserved. 316

Job Design/Work contd

Time Flexibility Workload pressures have increased because of downsizing. Dual-income couples in the sandwich generation, caring for children and aged parents, may find flexible scheduling options very desirable. Various work scheduling alternatives can be used to improve time flexibility. Options include compressed scheduling, flexplace or telecommuting, flextime, part-time work, job sharing, and phased retirement.
2008 Thomson/South-Western. All rights reserved. 317

Job Design/Work contd

Work Flexibility Balancing the demands of work with the responsibilities of life, including family and personal responsibilities, is a challenge; some may say it is an impossibility. Work/life balancing programs commonly used include:

Different work arrangements Leave for childrens school functions Compressed workweek Job sharing On-site child/adult care Telecommuting Employee assistance plans On-site health services Wellness programs Fitness facility
318

2008 Thomson/South-Western. All rights reserved.

FIGURE 4

Some Characteristics of People and Jobs

2008 Thomson/South-Western. All rights reserved.

319

Career Opportunities
Training/Development and Mentoring Tuition aid programs, typically offered as a benefit by many employers, allow employees to pursue additional educational and training opportunities. Orientation is a type of training offered to new employees to help them adapt to their new jobs and employers. Mentoring can increase retention because it provides both career opportunities and development. Mentoring can be formal or informal.
2008 Thomson/South-Western. All rights reserved. 320

Career Opportunities contd

Career Planning/Advancement Employees discuss with their managers career opportunities within the organization and career development activities that will help the employees grow. Career development and planning efforts may include formal mentoring programs. Also, companies can reduce attrition by showing employees that they are serious about promoting from within. When people have been promoted, they are less likely to leave the organization.
2008 Thomson/South-Western. All rights reserved. 321

Employee Absenteeism
Absenteeism
Any failure to report for work as scheduled

or to stay at work when scheduled.

Involuntary absenteeism
Unavoidable with understandable cause

(e.g., illness, death in the family)

Voluntary absenteeism
Avoidable without justifiable

cause (e.g., feigning illness)

2008 Thomson/South-Western. All rights reserved.

322

FIGURE 5

Reasons for Unscheduled Absences

Source: Based on data from 2006 CCH Unscheduled Absence Survey, CCH, Inc., October 26, 2006, www.cch.com/press/news/2006. All Rights Reserved. Reprinted with permission. 2008 Thomson/South-Western. All rights reserved.

323

Controlling Absenteeism
Disciplinary approach Positive reinforcement

Controlling Absenteeism
Paid time-off (PTO) Combination approach

No fault policy

2008 Thomson/South-Western. All rights reserved.

324

Controlling Absenteeism contd

Voluntary absenteeism is better controlled if managers understand its causes clearly. Once they do, they can use a variety of approaches to reduce it.
Disciplinary approach: Many employers use a disciplinary
approach. People who are absent the first time receive an oral warning, and subsequent absences bring written warnings, suspension, and finally dismissal.

Positive reinforcement: Positive reinforcement includes such

methods as giving employees cash, recognition, time off, or other rewards for meeting attendance standards. Offering rewards for consistent attendance, giving bonuses for missing fewer than a certain number of days, and buying back unused sick leave are all positive methods of reducing absenteeism.

2008 Thomson/South-Western. All rights reserved.

325

Controlling Absenteeism contd

Combination approach: A combination approach ideally rewards desired

behaviors and punishes undesired behaviors. This carrot and stick approach uses policies and discipline to punish offenders and various programs and rewards to recognize employees with outstanding attendance.

No fault policy: With a no fault policy, the reasons for absences do not

matter, and the employees must manage their own attendance unless they abuse that freedom. Once absenteeism exceeds normal limits, then disciplinary action up to and including termination of employment can occur. The advantages of the no fault approach are that all employees can be covered by it, and supervisors and HR staff do not have to judge whether absences count as excused or unexcused. programs, in which vacation time, holidays, and sick leave for each employee are combined into a PTO account. Employees use days from their accounts at their discretion for illness, personal time, or vacation. If employees run out of days in their accounts, they are not paid for any additional days missed. PTO programs generally have reduced absenteeism, particularly one-day absences, but they often increase overall time away from work because employees use all of their time off by taking unused days as vacation days.
326

Paid-time-off (PTO) programs: Some employers have paid-time-off

2008 Thomson/South-Western. All rights reserved.

FIGURE 6

Employee Absenteeism Control Actions

2008 Thomson/South-Western. All rights reserved.

327

Employee Turnover
Turnover
The process in which employees leave an organization

and have to be replaced.

Impact of Turnover
Inability to achieve business goals Loss of image to attract other individuals High costs of turnover and replacement
Churn is hiring new workers while laying off others.

This practice raises a paradox in which employers complain about not being able to find skilled workers while they are laying people off.
328

2008 Thomson/South-Western. All rights reserved.

Types of Turnover
Involuntary

Controllable

Voluntary

Turnover

Uncontrollable

Functional

Dysfunctional

2008 Thomson/South-Western. All rights reserved.

329

Types of Turnover contd

2008 Thomson/South-Western. All rights reserved.

330

HR Metrics: Measuring Absenteeism

Measuring Absenteeism
U.S. Department of Labor formula:

Number of person-days lost throu gh job absence during period 100 (Average number of employees) (Number of work days)
(This rate also can be based on number of hours instead of number of days.)

Other Measures of Absenteeism:

Incidence rateabsences per 100 employees each day Inactivity ratepercentage of time lost to absenteeism Severity rateaverage time lost per absent employee

during a specified period of time

2008 Thomson/South-Western. All rights reserved. 331

HR Metrics: Measuring Absenteeism (contd)

Calculations of the costs of absenteeism should usually include:
Lost wages Benefits Overtime for replacements Fees for temporary employees, if incurred Supervisors time Substandard production Overstaffing necessary to cover absences
2008 Thomson/South-Western. All rights reserved. 332

HR Metrics: Measuring Turnover

Computing the Turnover Rate:
Number of employee separation s during the month 100 Total number of employees at midmonth

2008 Thomson/South-Western. All rights reserved.

333

HR Metrics: Measuring Turnover (contd)

Costs of Turnover Separation costs: Includes HR staff and supervisor time and salaries to prevent separations, exit interview time, unemployment expenses, legal fees for separations challenged, accrued vacation, continued benefits, etc. Replacement costs: Includes recruiting and advertising expenses, search fees, HR interviewer and staff time and salaries, employee referral fees, relocation and moving costs, supervisor and managerial time and salaries, employment testing costs, reference checking fees, pre-employment medical expenses, etc. time, training staff time and salaries, costs of training materials, supervisors and managers time and salaries, co-worker coaching time and salaries, etc. Hidden costs: Includes costs not obvious but that affect lost productivity, decreased customer service, other unexpected employee turnover, missed project deadlines, etc. 2008 Thomson/South-Western. All rights reserved.
Training costs: Includes paid orientation

334

HR Metrics: Measuring Turnover (contd)

Ways to Measure Turnover:
Job and job levels Department, units, and location Reason for leaving Length of service Demographic characteristics Education and training Knowledge, skills and abilities Performance ratings/levels

2008 Thomson/South-Western. All rights reserved.

335

FIGURE 7

Simplified Turnover Costing Model

Teller 20,000 8,000 28,000 20 3 3,500 70,000

(40%)

2008 Thomson/South-Western. All rights reserved.

336

MANAGING RETENTION
Retention is critical because turnover (and absenteeism) can cause poor performance in otherwise productive units.
Global Retention - the same core elements that help retention

in the United States are important across the globe. Retention Measurement and Assessment - to ensure that appropriate actions are taken to enhance retention, management decisions require data and analyses rather than subjective impressions, anecdotes of selected individual situations, or panic reactions to the loss of key people. Having several absence and turnover measurements to analyze is important. Two other sources of information might be useful before analysis is done: employee surveys (like an attitude survey which focuses on employees feelings and beliefs about their jobs and the organization) and exit interviews (in which individuals are asked to give their reasons for leaving the organization).
2008 Thomson/South-Western. All rights reserved. 337

MANAGING RETENTION contd

Retention Management Interventions Some of the

first areas to consider when analyzing data for retention include the work, pay/benefits, supervision, and management systems. The choice of a particular action depends on the analysis of the turnover and retention problems in a particular organization and should be custom tailored for that organization. Retention Evaluation and Follow-Up Regular review of turnover data can identify when turnover increases or decreases among different employee groups classified by length of service, education, department, and gender, etc. Tracking of intervention results and adjustment of intervention efforts also should be part of evaluation efforts.
2008 Thomson/South-Western. All rights reserved. 338

FIGURE 8 Managing Retention

2008 Thomson/South-Western. All rights reserved.

339

FIGURE 9

Possible Retention Interventions Improved Retention

Spot cash awards for good work Develop profiles of successful employees and hire to the profile Learning bonuses Focus groups on employee issues Voluntary job sharing Realist job avenues Excellent employee development Payback agreement for moving expenses Clear goals Accurate performance appraisals Competitive benefits Career counseling Mentoring Diverse workplace Sabbatical leaves
2008 Thomson/South-Western. All rights reserved.

Facilitate promotion/transfer Reward managers with low turnover Fair pay Fulfilling work Avoid hiring those with a history of turnover Tuition reimbursement and promotion for education Retention bonuses Subsidized child/elder care Retrain for promotion/transfer Pay tied to performance Telecommuting Recognize good work Good working conditions Friendly work culture/co-workers Considerate supervisors
340

SUMMARY
Psychological contracts are unwritten expectations that employees and employers have about the nature of their work relationships. Those contracts are changing along with employee loyalty to their employers. The interaction between individuals and their jobs affects both job satisfaction and organizational commitment. Job satisfaction, commitment, and loyalty relate to turnover and absenteeism. The components of individual performance are individual ability, effort expended, and organizational support. Motivation deals with the needs and desires of human behavior. Various theories of motivation have been developed. Retention of employees is a major focus of HR efforts in organizations, as seen by the use of retention measures and the establishment of retention officers in some firms. The determinants of retention can be divided into five general categories, with key organizational components being characteristics of the employer, job design and work, career opportunities, rewards, and employee relationships.
2008 Thomson/South-Western. All rights reserved. 341

S U M M A R Y contd
The culture and values of the employer, management performance, and job security are employer characteristics that affect retention. The jobs and work done by employees affect retention, particularly if individuals are properly selected, work schedules are flexible, and work/life balancing programs are offered. Organizational career opportunities are frequently cited as crucial to employee retention. To enhance employee retention, rewards must be relatively competitive and tied to performance, and employees must have effective relationships with managers and co-workers. Absenteeism is expensive. It can be controlled by discipline, positive reinforcement, or use of a no fault policy and paid-timeoff programs. Turnover is costly and can be classified in a number of ways, but it should be measured and its costs determined. Retention management should be a process involving measurement and assessment, interventions, and evaluation and follow-up.
2008 Thomson/South-Western. All rights reserved. 342