Chapter 15 | Managing Employee Withdrawal and Retention

Introduction

There are different conditions in which employees are separated from employment or from an organization. These may be due to retirement, resignation, layoff, and death. This chapter focuses on separation due to retirement and resignation.

Turnover

• Turnover refers to the number of individuals who leave an organization and must be replaced.

• Viewed as the dissolution of a job match between the employee and organization (Anderson et al., 1994; Dess & Shaw, 2001).

• Two types of turnover:

  • Involuntary turnover – initiated by the organization.

  • Voluntary turnover – initiated by the employee.

• The focus of this chapter is on voluntary turnover.

• Organizations aim to retain talented individuals and manage the exit of nonperformers or disruptive employees.

Impact of Turnover

• Negative effects:

  • Increased recruitment and training costs.

  • Loss of productivity as new hires adjust.

  • Negative impact on remaining employees, including morale and loss of social capital (Anderson et al., 1994; Royalty, 1996; Ton & Huckman, 2008).

• Positive effects (depending on who leaves):

  • Can lead to increased productivity and morale.

  • May decrease workplace conflict (Staw, 1980; Mobley, 1982; Wright & Bonett, 1992).

Turnover Rate Measurement

• Formula:
  Turnover rate = (Separations / Average number of employees during a period) × 100

• Example:
  If 5 out of 100 employees leave in a year, turnover rate = 5%.

  • Turnover can be analyzed:

    • Over different time periods.

    • By type, department, or demographic group.

Involuntary Turnover

• Organizations aim to prevent involuntary turnover through:

  • Stringent recruitment and selection processes.

  • Training, coaching, and counseling for underperforming employees.

• When corrective efforts fail, organizations follow disciplinary policies.

Voluntary Turnover

• Employees leave due to personal or organizational reasons:

  • Personal reasons: Health issues, caregiving responsibilities, relocation.

  • Organizational reasons: Job dissatisfaction, poor supervision, or better compensation elsewhere.

• Subsequent sections will discuss organizational factors influencing voluntary turnover.

Models of Turnover

1. March and Simon Model (1958)

• Decision to stay or leave depends on:

  • What the employee receives (salary, benefits – both monetary and non-monetary).

  • What the employee must provide in terms of work/services.

• Leaving an organization depends on how attractive it is to end the relationship.

• Factors influencing the attractiveness of quitting:

  • Job satisfaction (lower satisfaction increases desire to leave).

  • Perceived internal mobility (can I move up within this organization?).

  • Ease of external movement (availability of outside job opportunities).

  • The easier it is to move externally, the more attractive quitting becomes.

2. Mobley Model (1977)

• Turnover starts with an evaluation of the current job.

• Dissatisfaction leads to:

  • Thoughts of quitting.

  • Evaluation of costs and benefits of quitting.

• If benefits of leaving are high, the employee forms an intention to quit.

• Not immediate: The employee may:

  • Search for alternative jobs.

  • Compare alternatives to current job.

  • Act on a plan to quit based on evaluation.

Key Points Across Both Models

• Job dissatisfaction and the availability of alternatives are central to both models.

• Mobley (1977) emphasizes a direct link between intention to quit and actual turnover behavior.

• March and Simon (1958) emphasize how ease of external job movement increases the likelihood of quitting.

Theoretical Explanations of Why Employees Leave Organizations

1. Social Exchange Theory

• Core idea: People follow a norm of reciprocity – good treatment is returned with good behavior (Gouldner 1960; Blau 1964).

• Social exchanges differ from economic ones:

  • Intangible, long-term, and unspecified conditions.

• Implication for turnover:

  • Positive experiences → higher loyalty.

  • Negative experiences → higher turnover.

🔹 Key Concepts:

• Supervisory Support:

  • Seen as support from the organization itself (Eisenberger et al. 1986).

  • High supervisory support → lower turnover intention (Maertz et al. 2007).

  • Exception: In MBA students, no strong link between supervisory support & intention to stay (Supangco 2015).

• Perceived Organizational Support (POS):

  • Feeling cared for by the organization = lower intent to leave.

  • Supported by multiple studies (Rhoades & Eisenberger 2002; Dawley et al. 2010).

  • In the Philippines, POS = higher intention to stay, even after completing an MBA (Supangco 2014).

2. Job Satisfaction

• Strong inverse relationship with turnover intention.

• Supported by multiple studies (Martin 1979; Griffeth et al. 2000; Dole & Schroeder 2001, etc.).

• Higher satisfaction = lower likelihood of quitting.

3. Side Bet Theory (Becker 1960)

• Employees build “side bets”: time, effort, relationships invested in their organization.

• The longer one stays, the more difficult it is to leave due to sunk costs.

• But this commitment weakens if attractive external options arise (Wallace 1997).

4. Human Capital Theory (Becker 1975)

• Employees increase productivity by gaining general or firm-specific skills:

  • General skills: Useful anywhere. Employees bear training costs.

  • Firm-specific skills: Only useful to the current employer. Organization bears the cost.

• To prevent turnover:

  • Employers offer higher post-training wages.

  • Firm-specific skills are mostly gained through “learning by doing.”

5. Tenure & Turnover

• Tenure = how long an employee stays in a company.

• Longer tenure often means:

  • Good job fit (Wilde 1980).

  • More firm-specific skills (Becker 1975).

  • More side bets (investments in time, relationships).

• Evidence: Tenure is negatively related to turnover (Shoemaker et al. 1977; Van Breukelen et al. 2004).

• In the Philippines, longer tenure among MBA students = stronger intent to stay (Supangco 2015).

Retirement

• Definition:

  • Retirement is when an employee permanently withdraws from work.

  • It typically marks the end of a person’s career.

• Comparison with Voluntary Turnover:

  • Both involve leaving an organization, but retirement usually signifies career end, while turnover may only end employment with a specific organization.

  • Turnover can lead to another job; retirement usually does not.

• Key Differences in Antecedents:

  • Retirement:

    • Influenced more by individual characteristics, especially:

      • Health: Poor health may lead to early retirement.

      • Income and savings: Higher financial security or sufficient pension benefits encourage retirement.

  • Voluntary Turnover:

    • Influenced more by job and organizational factors, such as:

      • Job satisfaction

      • Organizational support

      • Tenure

Concerns about Retirement

• Organizational Responsibility:

  • Organizations claim that "people are our greatest asset."

  • Therefore, they are expected to support employees from hiring to retirement.

  • While support during peak career years is common, post-peak programs are equally important and beneficial.

• Benefits of Retirement Programs:

  • Financial and psychological preparation for retirement reduces employee stress and anxiety.

  • Reducing stress can improve:

    • Productivity

    • Job satisfaction

    • Attendance (less tardiness and absenteeism)

  • Lower stress contributes to reduced turnover (Elangovan, 2001).

• Attraction and Retention:

  • Employees are attracted to organizations with retirement programs.

  • Retirement support is a key reason employees stay in an organization.

  • These programs become more critical for employees aged 50 and above (Gardner & Nyce, 2014).

• Proactive Talent Utilization:

  • Organizations benefit by engaging retiring employees in:

    • Mentoring

    • Other HR initiatives

  • This approach helps retain:

    • Skills

    • Organizational memory

  • Sends a positive message that retiring employees are still valued and capable (Levinson & Wofford, 2000).

Considerations in Retirement Planning

• Early Retirement Orientation:

  • Ideally, retirement should be discussed as early as employee orientation.

  • Encourages employees to think strategically about career and life goals.

  • Increases awareness of organizational retirement benefits, helping employees align their performance and lifestyle with long-term plans.

• Scope of Preretirement Planning:

  • Should include both financial and lifestyle planning.

  • Financial plans must support the lifestyle employees want post-retirement.

  • Few organizations actively manage comprehensive retirement planning.

• Current Organizational Focus:

  • Most preretirement programs focus only on financial aspects.

  • Some organizations offer retirement benefits in addition to government-mandated social security.

  • Psychological support is often neglected.

• Psychological Challenges of Retirement:

  • Retirement marks a significant life transition and can be emotionally difficult.

  • Common fears for retiring managers (Levinson & Wofford, 2000):

    • Fear of becoming "out of sight" or irrelevant.

    • Loss of social identity tied to job title or position.

    • Fear of disconnection from the profession or organization.

    • Concern over legacy and what is left behind.

  • Especially tough for individuals whose life revolves around work:

    • Lack of external interests or hobbies.

    • Loss of social networks built around the workplace.

Retention

Definition and Measurement

• Retention is the organization's ability to keep employees over a period.

• It is measured as:

  • Retention rate = (number of stayers / total number of employees at the beginning of a period) × 100

• Example:

  • If 100 employees start the period and 95 remain, retention rate = 95%.

• Retention rate is not always the inverse of turnover rate (e.g., replacements who also leave affect turnover but not retention).

• Another measure: average tenure of:

  • Current employees.

  • Those who left.

  • Grouped by department, age, gender, etc.

Retention Challenges

• Retention depends on:

  • Job satisfaction

  • Perceived organizational support

  • Tenure (Supangco, 2014, 2015)

Job Satisfaction

• Defined as a positive emotional attitude toward one's job (Tett & Meyer, 1993).

• Selection should assess:

  • Technical fit

  • Cultural fit

  • Core self-evaluation and affectivity

    • Negative core self-evaluation = higher risk of dissatisfaction (Judge et al., 1998)

Understanding and Improving Satisfaction

• Conduct regular attitude surveys to:

  • Identify what employees value.

  • Improve satisfaction.

• Use exit interviews to:

  • Understand reasons for leaving.

  • Address recurring issues (e.g., dissatisfaction with pay).

Organizational Practices for Retention

• Policies must reflect genuine concern for:

  • Employee welfare

  • Not just productivity

• Supervisor’s role is crucial:

  • Promotions should consider:

    • People management skills

    • Supportive behavior, not just technical ability.

Internal Mobility & Training

• Encourage voluntary transfers to other units:

  • Helps when supervisor-employee relationships are strained.

  • Supported by firm-specific training to enhance internal employability.

• Training should:

  • Focus on skills unique to the organization.

  • Make employees more likely to stay due to accumulated, non-transferable expertise.

Tenure and Retention

• Longer tenure = lower likelihood of leaving.

• Implication: Begin retention strategies as early as hiring.

• Different tenure groups have different needs:

  • Tailor programs based on survey results and employee feedback.

Summary Insight

• Retention improves when:

  • Employees feel supported.

  • Organizations understand and address employee needs.

  • Supervisors and systems foster growth and internal mobility.

  • Early intervention and tailored strategies are implemented.