Turnover and Retention

Chapter 6: Turnover and Retention

6.1 Chapter Introduction

• Turnover is the proportion of employees leaving an organization over a period.

• Retention is the effort organizations make to keep employees and reduce turnover.

• The chapter will cover:

  • Types of turnover: voluntary, involuntary, avoidable, and unavoidable.

  • Costs and benefits of turnover.

  • Content and process models of turnover.

  • Factors influencing an employee's decision to leave (job embeddedness, shocks).

  • Engagement as a retention mechanism.

6.1.1 Aims of the Chapter

• Introduce students to turnover and retention.

6.1.2 Learning Outcomes

By the end of this chapter, students will be able to:

• Define and compare different kinds of turnover.

• Define retention.

• Discuss the importance of managing turnover.

• Determine relationships between unemployment and turnover.

• Discuss turnover and retention as key HR metrics.

• Discuss theoretical reasons why employees may leave organizations.

• Determine and evaluate strategies for getting employees to stay in organizations.

• Understand new and emerging topics in retention and turnover.

6.1.3 Essential Reading

• Torrington, D. et al. Human resource management. (Harlow: Pearson, 2020) 11th edition. Chapter 14 ‘Engagement and retention’.

• Bolt, E., J. Winterton and K. Cafferkey ‘A century of labour turnover research: A systematic literature review’, International Journal Of Management Reviews 2022, pp.555–76.

• Guest, D. ‘Employee engagement: a sceptical analysis’, Journal of Organizational Effectiveness 1(2) 2014, pp.141–56.

• Holtom, B.C. and E.J. Inderrieden ‘Integrating the unfolding model and job embeddedness model to better understand voluntary turnover’, Journal of Managerial Issues 18 2006, pp.435–52.

• Holtom, B.C., T.R. Mitchell, T.W. Lee and M.B. Eberly ‘Turnover and retention research: a glance at the past, a closer review of the present, and a venture into the future’, Academy of Management Annals 2(1) 2008, pp.231–74.

• Mitchell, T.R., B.C. Holtom and T.W. Lee ‘How to keep your best employees: developing an effective retention policy’, Academy of Management Perspectives 15(4) 2001, pp.96–108.

• Peccei, R. ‘Employee engagement: an evidence-based review’ in Edwards, M.R. and S. Bach (eds) Managing human resources: human resource management in transition. (London: Wiley, 2013).

6.1.4 Further Reading

• Various articles from The Guardian, Harvard Business Review, World Economic Forum, CNN, NPR, businessleader.co.uk, and other sources, focusing on the "Great Resignation," NHS staffing crises, employee experience, and labor market trends.

6.1.5 References Cited

• A list of academic articles and books, including:

  • Barrick, M.R. and R.D. Zimmerman (2005).

  • Beach, L.R. (1997).

  • Carsten, J.M. and P.E. Spector (1987).

  • CIPD reports (2022, 2023).

  • Deloitte (2022).

  • Donegan, M. (2021).

  • Guest, D. (2014).

  • Hirschman, A.O. (1970).

  • Holtom, B.C. and E.J. Inderrieden (2006).

  • Hom, P.W., R.W. Griffeth and C.L. Sellaro (1984).

  • Hulin, C.L. (1985, 1991).

  • Lee, T.W. and R.T. Mowday (1987).

  • March, J.G. and H.A. Simon (1958).

  • Mitchell, T.R., B.C. Holtom and T.W. Lee (2001).

  • Mobley, W.H. (1977, 1979).

  • Porter, L.W. and R.M. Steers (1973).

  • Price, J.L. (1977).

  • Saks, A.M. (2006).

  • Schaufeli, W.B., A.B. Bakker and M. Salanova (2006).

  • Steers, R.M. and R.T. Mowday (1981).

  • Torrington, D., et al. (2020).

  • Vu, U. (2008).

6.2 Turnover and Retention: Introduction to the Topic

6.2.1 Understanding Key Terms – Turnover

• Employee turnover: The proportion of employees who leave an organization in a set period (typically a year).

• Turnover includes voluntary and involuntary departures, resignations, retirements, and redundancies.

• Understanding turnover drivers helps organizations reduce it and assess people management practices.

• Labor turnover can be costly due to recruitment, selection, and (re)training expenses.

Forms of Turnover

• Voluntary turnover: Employee-initiated departure (quitting/resigning).

  • Connects employee experiences to organizational success.

  • Low turnover helps retain talent and lower recruitment/training costs.

• Involuntary turnover: Employer-initiated departure due to organizational need, poor performance, or bad behavior (terminations, firing, layoffs).

  • Driven by financial circumstances or economic pressures.

• Avoidable turnover: Turnover due to push factors, e.g., job dissatisfaction, poor work conditions.

  • Could have been prevented by offering better pay or favorable conditions.

  • Examples: poor employee involvement, lack of trust, breakdown in working relationships, limited professional development opportunities.

• Unavoidable turnover: Turnover due to non-organizational reasons (retirement, relocation, personal circumstances).

  • Not necessarily preventable, and not due to job dissatisfaction.

6.2.2 Factors That Affect Turnover Levels

• The level at which turnover becomes problematic varies by industry, culture and geographical region.

• High turnover is normal in retail, hospitality, and call centers, but can be problematic in professional service firms.

• Turnover rates are higher when unemployment is low and alternative employment is available.

• Perceived ease of moving jobs and alternative job options are positively linked with turnover intention.

6.2.3 Retention

• Retention is the ability of an organization to hold on to valuable employees and reduce turnover.

• Often measured by the number of employees who stay longer than a set period (e.g., 12 months).

• High turnover typically implies low retention, and vice versa.

• Concerns over retention are greater for skilled employees who are difficult to replace.

• Organizations desire retention to minimize recruitment, retraining costs, and loss of knowledge/skills.

• Losing employees to competitors damages the organization due to loss of knowledge and potential client loss.

• Tight labor markets and shortages of skilled individuals drive organizational desire for retention.

6.2.4 The Costs and Benefits of Turnover

• Turnover harms organizational performance when valuable, skilled employees leave.

• Losing high-value employees to competitors results in a loss of competitive advantage.

• High turnover can be symptomatic of poor management and damages employer brand.

The Costs of Turnover

• Includes costs to the individual (adjusting to a new workplace) and to the organization.

  • Increased recruitment, selection, and training costs:

    • Estimated cost = one-year salary of the departing employee.

    • Replacement cost = 0.5 times the salary for an hourly worker; 1.5 times salary for a manager.

  • Relative poor performance of new employees: Takes time to become productive.

  • Loss of knowledge and expertise: Loss of tacit and firm-specific knowledge.

  • Loss of relationships: Loss of clients/customers and disruption of workgroups.

• These costs are magnified in sectors with shortages of qualified staff (e.g., science, technology, engineering, health, social care).

The Benefits of Turnover

• Turnover can be positive, especially if poor performers leave.

• New people bring new ideas and innovation.

• Turnover can help organizations control labor costs during cyclical changes in business levels.

6.2.5 The Relationship Between Turnover and Outcomes

• Labor market conditions impact aggregate turnover rates.

• High unemployment = lower voluntary turnover.

• Strong economy/scarce skills = higher turnover.

• Turnover rates vary widely even within the same industry.

Individual-Level Turnover Decisions

• Job satisfaction and perceived alternatives influence individual-level turnover decisions.

• During periods of job abundance, satisfaction is more salient.

• During shortages, job security, future opportunities, and pay levels guide decisions.

• Labor market conditions can change how (not if) employees change jobs.

‘Pent-Up’ Turnover

• After periods of high unemployment, there can be 'pent-up' turnover.

• Employees may have been reluctant to leave during unfavorable conditions.

• Organizations need to monitor their workforce to avoid mass exodus when conditions improve.

• The COVID-19 pandemic led to 'pent-up' turnover, contributing to 'the great resignation.'

• In 2021, nearly 47.8 million workers in the United States left their jobs voluntarily.

• Reasons: low pay, lack of advancement, feeling undervalued, childcare, work-life issues.

6.3 Understanding Employment-Related Statistics on Turnover and Retention

6.3.1 Statistics – Turnover and Retention in the National Workforce

• ONS (Office for National Statistics) data provide analysis of the UK labor market and turnover statistics.

  • ONS monthly reports provide data analysis from the Labour Force Survey (LFS), Pay As You Earn real-time information system, and other data sources.

• The Institute for Employment Studies (IES) provides monthly briefings on the state of the labor market.

• Nomis provides statistics related to population, society, and the labor market at national, regional, and local levels.

• XpertHR provides UK labor turnover data.

6.3.2 Tracking Turnover and Retention

• Organizations track turnover levels and costs to build a business case and inform retention practices.

• Turnover is a key HR metric.

• Overall turnover rates are tracked monthly or yearly as a percentage of employees overall. Calculated as follows:

  • Turnover Rate = \frac{\text{Total number of leavers over period}}{\text{Average total number employed over period}} \times 100

• Calculating voluntary turnover is beneficial to track

• Organizations may want to consider more complex employee turnover indices.

• Only 20% of organizations calculate the cost of labor turnover.

• Retention can be measured as a stability index. Calculated as follows:

  • Retention Rate = \frac{\text{Number of staff with service of one year or more}}{\text{Total number of staff in post one year ago}} \times 100

• Turnover and retention rates complement one another.

6.4 Quiz – Turnover and Retention – Key Terms and Concepts

A series of multiple-choice questions to test understanding of key concepts.

6.5 Why Do Employees Leave? Models of Turnover

6.5.1 Factors Which Influence Employees to Leave Their Organizations

• Push factors: Reasons leading employees to resign due to dissatisfaction.

  • Examples: insufficient development, boredom, poor supervision, poor involvement, personality clashes, lack of trust, bullying, discrimination, harassment.

  • Employee voice can help identify dissatisfaction.

  • Flexible working, health policies, and inclusivity can reduce turnover.

• Pull factors: Attractiveness of alternative employers.

  • Better salary and benefits.

  • Opportunities for personal and career development.

  • Quality of life improvements and work-life balance.

  • Mitigated by competitive reward packages and strong employer brand.

• Push factors are commonly thought to be more prevalent in causing voluntary turnover.

6.5.2 Scholarly Models of Turnover

• Research into turnover began in the 1980s with the development of scholarly models.

• Two main theoretical perspectives:

  • Content models: Emphasize factors predicting 'why' employees leave (e.g., Price, 1977).

    • Factors: Job and organizational characteristics, employee attitudes, alignment, opportunities.

    • March and Simon (1958): Perceived desirability and ease of leaving.

    • Porter and Steers (1973): Meeting employee expectations.

    • Price (1977): Structural determinants, job satisfaction, intentions.

  • Process models: Explain 'how' employees arrive at the decision to leave (e.g., Mobley, 1977).

    • Mobley (1977): Intermediate linkages model, linking job dissatisfaction and turnover.

    • Hom et al. (1984): Two distinct turnover decision routes.

    • Steers and Mowday (1981): Comprehensive and complex turnover process model.

6.5.3 The Unfolding Model of Voluntary Turnover

• Developed based on Beach’s image theory (Beach, 1997).

• Beyond accumulated dissatisfaction, employees leave due to shocks.

  • Examples: unsolicited job offers, arguments, being passed over for promotion, family issues, returning to education, partner relocation.

• When shocks occur, individuals compare the circumstances to their values and goals.

Important aspects include:

• Script: Predetermined plan for leaving.

• Image violations: Realization of incompatibility with the organization.

• Emergence of dissatisfaction: Job dissatisfaction may emerge due to a shock.

• Searching for alternatives: Evaluating job alternatives.

• Paths involved in the unfolding model:

  • Path one: Shock + predetermined plan = quick resignation.

  • Path two: Negative shock + no plan + violated values = quick departure.

  • Path three: Unexpected job offer = comparison and evaluation of alternatives.

  • Path four: Job dissatisfaction = longer process.

6.5.4 Empirical Findings – Evidence Regarding the Unfolding Model

• Holtom et al. (2005) review six datasets and find the majority left due to shocks, with path three being most frequent.

  • Holtom et al.’s (2005) data based in North America Context

• Morrell et al.’s 2008 study examined the unfolding model with UK nurse leavers and found partial support.

  • Morrell et al.’s findings may imply that the theory may not be generalizable outside the United States.

6.6 How Can Organizations Get Employees to Stay?

6.6.1 Job and Community Embeddedness as a Retention Mechanism

• People stay due to lack of alternatives, positive attitudes, and emotional responses.

• Non-work factors (family, community) and work-related factors (relationships, programs) can influence retention.

• These factors embed employees in job and community.

Three mechanisms that facilitate embeddedness:

1. Links: Connections to people/groups inside/outside the organization.

   • Example initiatives: mentorship programs, events, community support.

2. Fit: Similarity between job/community and aspects of a person’s life.

   • Example initiatives: hire/promote minority individuals, use realistic job previews, invest in socialization opportunities.

3. Sacrifices: Material and psychological benefits given up if leaving.

   • Example initiatives: childcare, family-friendly work arrangements, competitive compensation, community programs.

6.6.2 Research Evidence of the Relationship Between Job Embeddedness and Voluntary Turnover

• Mitchell et al. (2001): Job embeddedness negatively correlated with intent to leave/turnover.

• Lee et al. (2004): On-the-job embeddedness strongest predictor for job performance; off-the-job for reduced turnover/absences.

• Holtom and Inderrieden (2006): Job embeddedness negatively related to turnover and improved prediction over job satisfaction.

  • Those that left due to experiencing a shock were more embedded than those who would leave for other reasons, such as job dissatisfaction.

• Ng and Feldman (2012): Both forms of embeddedness increase work–family conflict.

6.6.3 Employee Engagement as a Potential Retention Mechanism

• Defined as a positive, fulfilling work-related state characterized by vigor, dedication, and absorption (Schaufeli and Bakker, 2004).

• The right amount of resources drivers engagement.

• Job resources might be feedback, rewards, and job characteristics.

• Engagement is different from job satisfaction/organizational commitment.

• Rich, Lepine and Crawford’s (2010) study with firefighters provides evidence that engagement has greater strength in explaining relationships between value congruence, perceived organisational support, and core self-evaluations and performance outcomes.

• However, some scholars have questioned engagement as a retention mechanism. (Peccei, 2013)

• Saks (2006): Job and organization engagement have different antecedents and consequences.

  • A distinction between job and organisation engagement could be a fruitful way forward in furthering understanding about the link between different types of engagement and retention.

6.7 Current Topics in Turnover and Retention

Activity - Artificial Intelligence to Identify Potential Turnover in the Workforce

IBM is using AI to identify employees likely to quit to manage turnover and retention issues.

6.7.1 Employee Experience (eX)

• Employee experience refers to employee perceptions about their interactions and relationship with the organization.

• Interest in eX is driven by organizations seeking to be employers of choice.

• Younger employees tend have a higher intention to leave for reasons outside of pay.

• Employee engagement measures how connected employees feel to work, while eX is based on the employee's perception of the org.

• By improving employee experiences an organization is likely to achieve highly engaged employees and team engagement.

• Employee experience has a direct impact on engagement levels.

• In order to maximize retention of the employee may be a less productive endeavor to find which concern can be addressed simultaneously

6.7.2 The Great Resignation

• The Covid-19 pandemic caused employees to reconsider their jobs with a fresh perspective.

• Employees were questioning organizational culture, inclusiveness, career opportunities, work meaningfulness.

• Employers needed to rethink what they were offering to retain and attract talent.

• Well-being, family policies, and equality were prominent concerns.

Activity - The Great Resignation

Question the nature and the continuing nature of this global change, where workers are leaving organizations for better opportunities.

6.7.3 Well-Being and the Retention of Talent

• Well-being affects organizations' ability to retain talent.

• Healthcare workers were impacted massively due to long hours and potential loss of colleagues.
  * Organizational Preventative Strategies:
  * Encourage open discussion of health and well-being
  * Provide substantial support for staff and direct them to those resources.

Activity - NHS Staffing Crisis in the UK

Exploration of reasons behind a staffing crisis and the potential causes with the context of well-being.

6.8 Multiple Choice Question Set – Turnover and Retention

Multiple choice questions to test understanding.

6.9 A Reminder of Your Learning Outcomes

Learning outcomes reviewed and defined

6.10 Test Your Knowledge and Understanding

Review of the material, with sample examination questions to prepare and reinforce learning within the chapter.