PANG KOK SHENG, ADVANCE HRM, ASSIGNMENT 1

FACULTY OF BUSINESS AND ACCOUNTING

PMG 5094 Advanced Human Resources Management

Assignment 1
“The 3 Essential Jobs That Most Retention Programs Ignore”

PANG KOK SHENG

(Matrix No: DRBA4-07/20-00016)

(I/C No:861117-59-5015)

Doctor of Business Administration

23th August 2020

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ASSIGNMENT 1

Introduction
As we may know, company always put the best talent in positions that most important to their
business. Among these probably are indispensable senior leaders, connectors in the middle, and
high-potential future leaders. Doubtlessly, the talents in these roles are well-valued and highly-
regarded in an organization.

However, according to the main article in this assignment “The 3 Essential Jobs That Most
Retention Programs Ignore” written by Lynn Cowart, Cile Johnson and Beverly Caye (2018) have
pointed out another 3 roles that are less-valued by the employer but driving competitive advantage
of the organization. They are essential experts, customer experience creators & critical contractors.

In this assignment, we will critically discuss why the compensation to key employees is an area of
concern, and then what are the possible costs & benefits of employee turnover to a company. Lastly,
we will comment on the proposed suggestion as mentioned in this article.

Question No. 1
Compensation is an area of concern to key employees

Some articles have been referred in this section to prove that compensation is a positive factor to
retain employee to stay in organization. Candra, Lely Hana & Wulandari (2018) have tested the
relationship between compensation and retention in 60 coal mining firms in South Kalimantan.

They have divided the compensation into two categories: Financial & Non-financial compensation.
And they also further divided financial compensation into direct way such as salaries, bonuses and
commissions and indirect way covers social security, health insurance and family benefits. The
Non-financial compensation mentioned by the researchers are working place environment &
personal development. As a results, they found that both of the financial (direct and indirect) &
non-financial compensation have a significant positive effect on employee retention.

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Not only we want to prove the compensation is an area of concerns to employee but also the degree
compensation fairness is important. Pfeffer & Davis-Blake (1992) have concluded that the
dispersion of salary distribution will affect the employee turnover rate of a company. They found
that the dispersion of salary distribution is negatively affected the turnover of employees with
higher salary but positively affected the turnover of employees with lower salary.

The impact of compensation to organization

There was a group of researchers named Ahmed A, Mohamad Saad & Ahmed E (2017) have tested
the relationship between compensation and employee retention in Egypt. Unsurprisingly, the
relationship is positive and concluded that compensation is not only affects the employee (job
satisfaction, turnover intention & work performance) but also the company (organizational
performance & market competitiveness). Therefore, we believe that better compensation plan has
played an indirect role to improve the company performance.

Another research has been conducted by Silaban & Syah (2018) have further explained the
company performance is depends on the employee’s organizational commitment, which means the
commitment of the employee toward the company. There are THREE elements in organizational
commitment which are: 1) Affective commitment, 2) Continue commitment & 3) Normative
commitment. All these elements has a positive relationship to company performance. Hence, if the
compensation package is satisfied will cause higher level of employee organizational commitment,
in which will results better company performance.

This relationship has been further proven in another research works by Hayati, Charkhabi,
Kalantari & De Paola (2015). They have concluded the 1) pay satisfaction is directly and
negatively related to employee turnover intention & 2) Although inserted the organizational
commitment as mediating role in between pay satisfaction and turnover intention, but the
relationship is still remains significant negative.

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Why key employees and who are they?

According to Investopedia (2020) a key employee is refer to those with major responsibility in
decision-making process of the organization. For example, chief officers (CEO, CFO&COO), top-
performing salesperson, chief scientist in R&D & head of crucial department of an organization.
Key employee can be highly influential to the future of the company via their skills, experiences
or connections. That is why the key employee are often compensated with highly competitive
salaries, attractive monetary bonuses and also other benefits because employer want to retain them
to stay in the organization and provide their tremendous contribution continuously.

Based on the research works by Clayton, Hartzell & Rosenberg (2005) have stated that a change
in CEO is an important incident for an organization because the executive capability, leadership
philosophy, administration preferences and operating policies of CEO can alter the organization
performance and its market competitiveness. These are the possible consequences that generally
shareholders & stakeholders believes in if CEO turnover event happens. Therefore, company
stock-price volatility is expected.

In this research, they found a long term significant increases in company stock price volatility after
the CEO turnover event. And these stock price volatility are higher if 1) the CEO turnover event
is a forced departures because shareholder feels more uncertainty AND 2) outside successions
following voluntary departures because shareholder are doubtful about the ability of the CEO
successor. Therefore, all these expected stock price volatility should be a crucial factor for the
employer to plan an effective CEO succession strategy.

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Question No. 2

What is employee turnover?

Literally it means replacing the employee who left the organization with newly hired employee.
Usually, the turnover reasons can be categorized as forced departures (layoffs or terminations etc.)
and voluntary departure (retirement or voluntary resignation etc.) Employee turnover can be
measured in term of percentage rate which we called it as Turnover Rate. The below diagram is a
formula created by Stanek (2019) to calculate the Turnover Rate:

Source: Stanek, K. (2019). Starting with the basics: Getting turnover rates right. Industrial and Organizational Psychology

Costs of employee turnover to organization

As mentioned earlier, we already know the negative impacts of employee turnover that probably
brought to the company. Furthermore, the process of replacing the employee who left the
organization is also costly to the company.

Based on the research works by Davidson, Timo & Wang (2010) in examining the employee
turnover costs in 64 Australian 4-5 star hotels. The finding shows that employee turnover impact
negatively and persistently to the operation costs & profitability of Australian hotel industry. In
addition, the authors also stated that the hotel service quality and customer experience may be
impacted. Therefore, the costs incurred in the process of employee turnover is a significant
challenge for HR strategist and employer.

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How employee turnover costs can be calculated? Based on the research works by Pinkovitz,
Moskal & Green (1997) who have divided the turnover costs calculation methods into 5
components: 1) Separation costs, 2) Vacancy costs, 3 Replacement costs, 4) Training costs & 5)
Performance differential.

Firstly, separation costs is the administrative costs involved in conducting the exit interview with
the leaving employee and severance benefits that the leaving employee entitled. Secondly, vacancy
costs is the cost incurred due to overtime salary or hiring temporary employees to finish the job of
the employee who has left the company. Thirdly, replacement costs is the cost of searching for a
new suitable employee to replace the leaving employee. This is more challenging especially for
highly skilled position. Fourth, training costs is the cost incurred to provide trainings such as new
staff orientation, job scope and company SOP briefing etc. to the newly hired employee. Lastly,
the performance differential is the cost incurred because of the difference in productivity between
the former employee and the newly hired replacement.

Benefits of employee turnover to organization

Although there were many research works mentioned earlier in here that concluded the impacts of
employee turnover is a negative factor to organization performance. However, there is no rules of
thumb to indicate a GOOD or BAD turnover rate for any company because employee turnover is
unavoidable anyway. Nobody will stay in the same company permanently as we know people
might leave a company due to some personal reasons no matter how good is the compensation
packages. Furthermore, it is meaningless to retain a low performance employee, so ZERO turnover
rate is never an ideal goal for employer.

In my opinion, workforce optimization should be the goal instead of setting ZERO turnover as we
need the RIGHT number of employee to run the business instead MORE number of employee.
Therefore, wherever there is an employee leaving the organization, employer should not
immediately searching for a replacement without consider the low level of employee turnover rate
could be beneficial to the company operation and performance for some reasons.

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Two is not always better than one, employer should review its employee turnover rate in relation
to work force optimization, which means employer should matching the current number of
employee with the current production workloads, sales revenue and operating costs budget.

The author named Grote (2005) stated the benefits of employee turnover to the company in a case
study based on the 60% of the employer in Fortune 500 companies’ employee turnover situation.
Top 20% of the employees are considered as “A” team players due to their tremendous
contribution to the company performance. The middle 70% of the employees are considered as “B”
team players who perform their jobs meeting the employer expectation. The last bottom 10% of
the employee are those contribute the least to company and encouraged to resign or terminated.

This is how the employer should make sure the top 20% and middle 70% are hired with
competitive compensation, well-trained and highly-motivated to provide their tremendous
contribution continuously to the company. It may looks cruel to the bottom 10% but the authors
argue that it is essential in this perfect competitive modern business world.

This finding is in line with another research works by Lin, Wang & Lin (2008) who have studied
the impact of top manager turnover to the company performance of Taiwanese electronic industry
from year 1996 to 2006. Employer will take it as an opportunity to make a suitably rebalance
portfolio of product and services after different level of top manager turnover.

If the best talent stays and we keep the employee turnover rate lower as this is unavoidable. Then
the employer should pay more attention to work force optimization. In order to achieve the state
of optimized work force allocation, human resource specialist need to implement strategic human
resource planning by understanding the work force supply and forecasting the work force demand
(Nemfakos, 2013).

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Question No. 3

Come back to the MAIN article in this assignment “The 3 Essential Jobs That Most Retention
Programs Ignore” written by Lynn Cowart, Cile Johnson and Beverly Caye (2018). The 3 above
mentioned roles that always less-valued by employer are Essential experts, Customer experience
creators & Critical contractors.

In my opinion, I am totally agreed with the proposed suggestions as mentioned by the authors that
employer should pay more attention in their talent retention program to retain these 3 type of
employee especially the specific compensable factors that mentioned in the article: 1) Work
environment, 2) Capability Development & 3) Organization Reputation.

Work Environment as Compensable Factor to Retention

Based on the article from Businessinsider.com (2016). Google has the best working environment
for its employee as they covers free meal, laundry service, gymnasium facility and on-site childcare
center. In addition, the Google employee’s work schedule is always flexible and even work-from-
home comes with internet benefits. Therefore, the traditional “9am to 5pm” and “weekly 5 working
days” kind of old work approaches is no longer favorable by the current labor force especially
those have a higher level of individualism sense.

Just like the example mentioned in the main article, the essential experts are not willing to control
others but just themselves. And another example suggested is the employer should prepares the
best material with latest technologies and research facilities to retain the critical contractors. The
suggested “Work Environment” in the main article is not only about the physical environment
(visible & tangible) but also the virtual environment (psychological & spiritual) that keeps
employee to feel comfortable in focusing their works. One more example in the main article,
Google bought over the AI Company “Deep-Mind Technology” and promised its AI experts that
Google will never use the their AI research for military purposes. We can see that the job meaning
is very emphasized by these AI experts. (Lynn, Cile and Beverly, 2018).

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Speak about the virtual environment. Based on Businessinsider.com (2016), most of the Google
employee finds their job is very meaningful because their job is to make the world more
informative and this is why they think arrange the world information and make it accessible
globally is to make the world a better place. And this job meaning nurturing the job satisfaction.

Google and the main article asides, how other researcher thinks? Inda and Mishra (2016) have
conducted a related research on Indian manufacturing firms in private sector which the authors
believes that this sector is well-known for employee turnover in India. The results revealed that
one of the variable – “Working Environment” has a significant positive relationship with the
employee retention.

Capability Development as Compensable Factor to Retention

The main article has related this factor to the essential experts who see themselves as life-long
learner. They hope to gain skills & knowledge along the work process in your organization. Thus,
creating opportunities of capability development should be good retention programme for them to
stay in the organization. After they learns and grows with their works, the organization
performance will be benefited too. (Lynn, Cile and Beverly, 2018).

Otherwise, lacking of training or opportunities to develop capability could makes the employees
looking for other jobs that could provide them with better opportunity to learn new knowledges
and skills. This theory is generally supported by some other researchers as below mentioned.

Memon, Sallaeh, Baharom, Nordin & Ting (2017) has drawn a same conclusion in one of their
research on the employee in Malaysian Oil & Gas sector. Their research highlights the significant
negative impact of training satisfaction on employee turnover intention.

Ju & Li (2019) has collected 1531 samples in Korea from year 2003 to 2014 and concluded that
on-job training, off-job training, distance-job training, education-job training and skills-job
training are effectively reduces the employee turnover intention in Korea.

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Not only job training on worker will reduces their turnover intention. There is another research
works by Malek, Kline & DiPietro (2018) has found that management training had a significant
adverse relationship with worker turnover rate in southeast United States’s hospitality industry. It
means that if the manager training is increased then employee turnover rate will decreases.

Organization Reputations as Compensable Factor to Retention

The main article has mentioned this factor is important to retain customer experiences creator and
critical contractor. For example, the customer experiences creator always want to feel pride on the
products & services that the company offering to customer as this in line with their own personal
aspiration. For critical contractor, they wish to work with the company with strong brands. The
reason is simple, people like to work with winner. (Lynn, Cile and Beverly, 2018).

That’s is why employer must know how to implement organization reputation building strategies.
This theory is also supported by other researchers as shown as below.

According to the research works by Alniacik, Cigerim, Akcin and Bayram, (2011) defined that
organization reputation is an important concern which may drawing customer attention, affecting
stakeholder evaluation, improves the investor confidence and also attract talented employee want
to work for your company. This research showed that organization reputation is positively related
to employee organizational commitment and job satisfaction and is significantly negatively related
to employee turnover rate in Turkey’s higher education industry.

In the research conducted by Zhang, Ma, Xu B. and Xu F. (2019) about the impacts of
organization’s social media usage to employee turnover event in China. As we may know, social
media is commonly used by organization for business-related purposes and of course one of the
important purpose is to establish the organization popularity & reputation in this highly-digitized
era. The research findings suggest that organization’s social media has played a positive role in
improving the employees’ organisational commitment via the online engagement. Therefore,
improves the employee’s job satisfaction and therefore reduces the turnover rate.

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Helm (2013) has drawn a same conclusion based on the collected 439 samples in German. The
author concluded that corporate reputation as a source of employee’s pride & job satisfaction.
Therefore, the favorable corporate reputation is closely related to employee turnover intention.
Employer should align the corporate reputation and HR management.

Conclusion

Allow me to end this assignment with a real example – Google and its employee retention
programme. Businessinsider.com (2016) Total 86% of the workers agreed that they are extremely
satisfied with their employer – Google. This company was top ranked in the list of the 50 best
companies in United States in 2016 by Business Insider. One of the important remarks here is the
employee claimed their compensation package is the BEST. According to PayScale, the average
salary level for experienced Google employee is USD $140,000 which ranked second position in
the highest pay list. Compensation in monetary value asides, what are the other non-monetary
factors to create such high level of satisfaction?

The friendly supportive working environment included free meal is provided, laundry, health
fitness facility and even childcare center, these all are available on-site. Not only the physical
environment is fantastic but also Google allow employee to arrange their own flexible work
schedule and even work-from-home with internet benefits. Another rare element in job satisfaction
that commonly ignored by the employer is job meaning. Most of the Google employee finds their
job is very meaningful because the globally well-known Google search engine making the world
super informative and this is why they think arrange the world information and make it accessible
globally is to make the world a better place.

As a conclusion, after reviewed the main and other articles. We understand that it is crucial
important for an employer to create a “Market-Competitive Compensation Plan” by identity what
are the most compensable factors that key employees really wished for as to retain them in the
organization. The longer the key employee stays, the longer the tremendous contribution from
them to the company. Therefore, the better the company performance & its market competitiveness.
End of my assignment – 3064 words

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Main Article

Lynn Cowart, Cile Johnson and Beverly Caye (2018). The 3 Essential Jobs That Most Retention
Programs Ignore. Harvard Business Review.

References

Ahmed A., Mohamad Saad and Ahmed E. (2017). The Relationship between Pay Satisfaction and
Turnover Intention in Egypt. Journal of Competitiveness Studies, 25(1).

Alniacik, U., Cigerim, E., Akcin, K. and Bayram, O. (2011). Independent and joint effects of
perceived corporate reputation, affective commitment and job satisfaction on turnover intentions.
Procedia-Social and Behavioral Sciences, 24, pp.1177-1189.

Business Insider. 2020. 5 Reasons Google Is The Best Place To Work In America And No Other
Company Can Touch It. [online] Available at: <https://www.businessinsider.com/google-is-the-
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Candra, D., Lely Hana, S. and Wulandari, D. (2018). Compensation and Turnover Intention in
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Clayton, M.C., Hartzell, J.C. and Rosenberg, J. (2005). The impact of CEO turnover on equity
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Grote, R.C. (2005). Forced ranking: Making performance management work. Boston, MA:
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Hayati, D., Charkhabi, M., Kalantari, D. and De Paola, F. (2015). The Effect of Pay Satisfaction
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Malek, K., Kline, S.F. and DiPietro, R., 2018. The impact of manager training on employee
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Memon, M.A., Sallaeh, R., Baharom, M.N.R., Nordin, S.M. and Ting, H. (2017). The relationship
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of Organizational Effectiveness: People and Performance.

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Nemfakos, C., 2013. Workforce Planning In The Intelligence Community: Strategic Workforce
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Pfeffer, J., & Davis-Blake, A. (1992). Salary Dispersion, Location in the Salary Distribution, and
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Stanek, K. (2019). Starting with the basics: Getting turnover rates right. Industrial and
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Zhang, X., Ma, L., Xu, B. and Xu, F., 2019. How social media usage affects employees’ job
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