FACULTY OF BUSSINESS ADMINISTRATION

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RESEARCH REPORT
A REVIEW ON EMPLOYEE TURNOVER

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SUBMITTED BY:

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SHAHBAZ AHMED MALIK (3007)

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SHOAIB TARIQ (3003)

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HAFIZ BILAL (2964)

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ADNAN HANIF (2927)

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SUBMITTED TO: PROF. Ms. NASEEM BUKHARI

SUBMISSION DATE: JAN 29TH 2009

Contact: Malik Shahbaz Ahmad

(0300-6957234, 0333-4094882)
 Table of Contents

Acknowledgement……………………………………………… i

Introduction……………………………………………………... 1

Definition……………………………………………………….. 2

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Measurement Techniques for Turnover………………………… 3

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Turnover Rate……………………………………… 3

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Cost of Turnover…………………………………… 3-4

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Sources of Employee Turnover…………………………………. 5

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Job Related Factors………………………………… 5-6

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Voluntary and Involuntary…………………………. 6

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Organizational Factors……………………………… 6-7

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Effects of Employee Turnover…………………………………… 7

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Strategies to Minimize Turnover………………………………… 8-9

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Conclusion……………………………………………………….. 10

References…………………………………………………...…… 11-12
 ACKNOWLEDGEMENTS

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First of all we are happy to complete the task which we were given with

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blessing of God and also we are grateful to all the people in our life who

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have, supported us, advised us, taught us and who have always encouraged

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us to follow our dreams and ambitions. Our dearest friends and our tutors

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who have taught us that no dream is unachievable. As in the words of Walt

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Disney “If you can dream it, you can do it.”

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We wish to thank our Professor Ms. Naseem Bukhari, for intellectual

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support, encouragement, and enthusiasm, which made this research

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assignment possible, and his patience for correcting both our stylistic and

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grammatical errors.

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And above all, we thank God for giving us stamina and courage to

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achieve our objectives.
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A review on employee turnover

Employees’ turn over is the term used widely in businesses though many
studies and articles have been written upon this topic, most of the research
has been forced on courses of employee turnover. None or little work has

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been done upon how to minimize the employee turnover rate.

Introduction

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Organizations invest a lot n their employees in term of induction and

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training, developing, maintaining and retaining them in their organization so

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managers must minimize employee’s turnover al all cost. However there sis

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no standard frame work or procedure for knowing the employees turnover

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process, but number of factors are helpful in interpreting in employee

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turnover Kevin et al (2004). Therefore it is necessary to understand what is

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employee turnover, its sources, effects and strategies which managers can

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opt to minimize turnover. The strategies, which are made after the mutual
consent of the management and employees, are better in eliminating

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employee turnover rather than the one’s made only be the managerial staff.
The employees are very vital to an organization, since there value to the
organization is importantly intangible and cannot be easily replicated
Meaghan et al (2002). Hence managers must consider the employees as
major contributors in the organization’s success Abbasi et al (2000). The
managers should control employee turnover for the benefits and betterment
of the organization.
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Definition: -

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Employees’ turnover is mush-studied phenomenon Shaw (1998), yet

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there is no solid reason why people leave organizations. Employee turnover

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is the rotation of workers around the labor market, between firms, jobs and

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occupations or between the states of employed and unemployed Abbasi et al

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(2000). Turnover is the ratio of the number of employees who have left

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during a said period divided by the average number of people during that

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period Price et al (1997). Normally managers refer turnover as the entire

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process affiliated with filling a vacancy, each time when a position/slot is

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vacated, no matter if its voluntary or involuntary a new employee must be

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haired and trained for the said so vacancy. This replacement cycle is known

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as employee turnover Woods et al (1995). People leave the organization

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after they analyze the reason for quitting. Beach et al (1990) argue that
individuals knows the resources to systematically evaluate all incoming

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information and then they quickly compare incoming information for
making alternative decisions.
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Measurement Technique for Turnover: -

If an average employee leaves an organization it costs the

organization between 33% to 50% of that employee’s total payment but for

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executives this cost can go as high as 100% - 200%. Therefore employee
turnover has significant affect on the financial performance of an

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organization Audie McCarthy et al.

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According to Audie McCarthy there are two parts, which should be

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considered while measuring the turnover ratio, one part is the “rate” and

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other is the “cost” of turnover.

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Audie used some formulas for calculating the both parts in order to

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measure the organization’s employee turnover these are:

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Turnover Rate:

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In a twelve month period, divide the “Average Number of Employees
on Payroll” by the “Number of Employees that left the Company” in order to

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get the turnover rate. Turnover rates vary by industry however a good rule of
thumb is to be under 15%.

Cost of Turnover:

Hard costs + Soft Costs = Turnover Costs, where hard cost included
separation costs, vacancy costs, replacement costs and training costs.

While calculating the hard costs organization should know employees

rate of pay, supervisor’s rate of pay and corporate/admin office staff rate of
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pay and then multiple that by the number of hours required for the
following.

Separation Costs = Processing costs, exit interviews separation

Pay.

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Vacancy Costs = Overtime, added shifts or temp help required to

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cover hours.

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Replacement Costs = Cost of hiring, developing and placing on line or

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newspaper ads, job fairs, hiring search firms,

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interviewing, reference checking, testing,

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orientation.

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Training Costs = on the job training, classroom training, training

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materials, instructor fees.

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Soft Costs = loss of productivity of both the departing

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employee and the coworkers, impact on morale,
supervisor’s time spent dealing with employees

Lastly, multiply the number of employees by the costs in order to see how
much is coming right out of the bottom line of an organization each year due
to employee turnover Audie McCarthy et al.
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Sources of employee turnover: -

Many researchers e.g. Bluedorn et al (1982), Kalliath and Beck et

al (2001), Kramer et al (1995), Peters et al (1981), Saks et al (1996), have
attempted to answer the question of why people quit from the organization

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and what makes people to think to quit from the current job or organization.

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After investigating the possibilities that makes people think to quit from the

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organization, we find that there are several reasons why people quit from

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one organization to another or why people leave the organization.

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Job related factors: -

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The employees with monotonous nature of jobs makes him quit or

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leave the job. The lack of commitment in the organization and job

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dissatisfaction make employees to quit Firth et al (2004). Employees who

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hold a powerless job descriptions tend to quit their jobs more frequently than

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those who have a power and influential job designation Firth et al (2004).
Employees quit from organization due economic reasons Manu et al

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(2004). Using economic model they showed that people quit from
organization due to economic reasons and these can be used to predict the
labour turnover in the market. Insufficient information on how to perform
the job adequately, unclear expectations of peers and supervisors,
ambiguity of performance evaluation methods, extensive job pressures, and
lack of consensus on job functions or duties may cause employees to feel
less involved and less satisfied with their jobs and careers, less committed to
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their organizations, and eventually display a propensity to leave the

organization Tor et al (1997).
If roles of employees are not clearly spelled out by management/
supervisors, this would accelerate the degree of employees quitting their jobs
due to lack of role clarity.

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Voluntary and In-voluntary Turnover: -

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There are some factors that are beyond the control of management,

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such as the death or incapacity of a member of staff. Other factors have

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been classed as involuntary turnover in the past such as the need to provide

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care for children or aged relatives. Today such factors should not be seen as

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involuntary turnover as both government regulation and company policies

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create the chance for such staff to come back to work or to continue to work

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on a more flexible basis Simon et al (2007).

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Organizational Factors: -

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Organization stability also leads to high rate of turnover in the

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organization. In situation where organizations are not stable the employees
tend to quit and look for stable organization. This is because, with stable
organization the employees are able to predict their job certainty and career
advancement. Employees feel comfortable to stay longer in organization
where they are involved in some level of decision making process. High
labour turnover may mean poor personal policies, poor recruitment policies,
poor supervisory practice and lack of motivation. All these factors contribute
to a high level of employee turnover. If there are no proper management
practices and policies on personal matters so employees are not recruited
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scientifically, promotion of employees are not based on spelled out policies

and so employee decide to quit from the organization. If the employees are
not paid according to their skills and abilities, they leave the job for a better
paid one. By this we can also say that, pay roll of an employee also effects
upon his job continuity. There are also other factors which makes employee

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to quit from organization and these are poor hiring practices, managerial

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style, lack of recognition, lack of competitive compensation system in the

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organization and bad work place environment Abassi et al (2000).

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Effects of Employee Turnover: -

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Employee turnover is expensive from the view of the organization.

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Voluntary quits which represents an exodus of human capital investment

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from organizations and the subsequent replacement process entails manifold

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costs to the organization Fair et al (1992). These replacement costs include

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search of the labour market for a substitute, selection between possible

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substitutes, hiring of the selected substitute and formal or informal training

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of the substitute till he gets to the level of performance of the person who
had quit John et al (2000). Research estimate indicate that hiring and

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training replacement worker for a lost employee costs approximately 50% of
the workers annual salary Johnson at el (2000). The cost does not stop
there, each time an employee leaves the firm it is presume that productivity
drop due to the learning process involve in understand the job and the
organization. If employee turnover is not managed properly it would effect
the organization adversely in terms of personal coasts and in the long run it
would effect its liquidity position.
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Strategies to Minimize Employee Turnover: -

Strategies on how to minimize employee turnover, confronted with

problems of employee turnover, management has several policy options.
Changing policies towards recruitment, selection, induction, training, job

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design and wage payment. Policy choice, however, must be appropriate to

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the precise diagnosis of the problem. Employee turnover attributable to poor

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selection procedures, for example, is unlikely to improve were the policy

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modification to focus exclusively on the induction process. Equally,

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employee turnover attributable to wage rates, which produce earnings that

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are not competitive with other firms in the local labour market, is unlikely to

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decrease were the policy adjustment merely to enhance the organization’s

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provision of on-the-job training opportunities. Given that there is increase in

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direct and indirect costs of labour turnover, therefore, management is

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frequently exhorted to identify the reasons why people leave organizations

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so that appropriate action is taken by the management. Extensive research

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has shown that the following categories of human capital management

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factors provides a core set of measures that senior management can use to
increase the effectiveness of their investment in people and improve overall
corporate performance of business.
Employee engagement: the organization’s capacity to engage, retain, and
optimize the value of its employees hinges on how well jobs are designed,
how employees' time is used, and the commitment and support that is shown
to employees by the management would motivate employees to stay in
organization’s.
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Knowledge accessibility: the extent of the organizations “collaborative

ness” and its capacity for making knowledge and ideas widely available to
employees would make employees to stay in the organization. Sharing of
information should be made at all levels of management. This accessibility
of information would lead to strong performance from the employees and

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creating strong corporate culture Meaghan et al (2002). Therefore

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information accessibility would make employees feel that they are

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appreciated for their effort and chances of leaving the organization are

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minimal.

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Workforce optimization: the organization’s success in optimizing the

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performance of the employees by establishing essential processes for getting

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work done, providing good working conditions, establishing accountability

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and making good hiring choices would retain employees in their

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organization.

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Ask employees why they leave: Consider conducting an exit interview with

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leavers, or giving them a questionnaire to complete. Which ever approach is

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taken, structure it carefully, and do not rely on it as the only way of
collecting data. The trends behind involuntary turnover should not be

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ignored.
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Conclusion: -

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If the said so strategies are considered then the business would be able
to survive in the changing environment by treating its employees as one of

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its assets which need a lot of attention. The basic ingredient in the success of

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any business is its employee. So it is very essential to motivate and maintain

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the corium of the employees. The management should encourage job

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redesign, task autonomy, task significant and task identity for retaining the

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employees.

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Suggestions: Managers must thoroughly examine the basic sources of

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employee turnover in their organization and recommend the best approach to

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eliminate those resources. Managers should understand that the employees

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in their organization must be treated as the most liquid assets of the
organization, who would be helpful in making the organization face the dire

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consequences of the globalization phenomenon, with ease. If not done so,
the organization would come to a screeching halt.
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References: -

• Abassi S.M (2000).

www.allbusiness.com

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• Audie McCarthy

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www.marrek.com

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• Beach LR (1990)

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www.kevinmorrell.org.uk

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• Bluedorn AC (1982)

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hum.sagepub.com

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• Fair (1992)

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www.academicjournals.org

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• Firth L (2007)

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www.academicjournals.org

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• John Sutherland (2000)

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www.ceu.hu

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• Johnson J (2000)
www.emeraldinsight.com

• Kalliath TJ, Beck A (2001)

www.emeraldinsight.com

• Kevin MM (2004)
www.academicjournals.org

• Kramer MW (1995)
mcq.sagepub.com
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• Mano Rita (2004)

www.academicjournals.org

• Meaghan Stovel (2002)

citeseer.ist.psu.edu

• Peters L (1981)

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www.emeraldinsight.com

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• Price JL (1977)

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www.emeraldinsight.com

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• Saks AM (1996)

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www.chass.utoronto.ca

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• Simon (2007)

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www.coachingandmentoring.com

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• Tor Guinmaraes (1997)

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www.academicjournals.org

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• Woods (1995)

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www.emeraldinsight.com

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