Unpredictable and uncontrollable, but normal, reduction of work force due to resignations, retirement, sickness, or death.
Organizations invest a lot on their employees in terms of induction and training, developing, maintaining and retaining them in their organization.
Employee turnoverâ as a term is widely used in business circles. Although several studies have been conducted on this topic, most of the researchers focus on the causes of employee turnover but little has been done on the examining the sources of employee turnover, effects and advising various strategies which can be used by managers in various organisations to ensure that there is employee continuity in their organisations to enhance organizational competitiveness.
ANALYZING CAUSES OF ATTRITION USING A MULTILEVEL APPROACH
Attrition inÂ industry needs to be tackled using a multi-level approach. Maslow’s Hierarchy of Needs is a multilevel model which primarily identifies the needs which are likely to act as factors of motivation for any human behaviour. We now analyze the current circumstances in Telecommunication sector using Maslow’s Hierarchy of Needs to develop a better understanding of what are the expectations of any person from the industry at each level and how is it being fulfilled presently. During this process the framework would also be used to identify gaps which when handled appropriately can act as motivators for a person to carry on in this industry, thus bringing the present attrition rate under control.
Physiological needs include:
The employees at any level (i.e. Top level, middle level or Low level) basically need this requirement. From Clerks to M.Dâs this need is required.
So an organization should take necessary steps to check that the basic need(physiological need) of the employees are reduced.
Ways & means to fulfill Physiological needs of the employees
1>Â Â Â Â Create comfortable, safe and pleasant environment for employees. Show them they donât need to park their personality outside the door.
2>Â Â Â Â Pay competitive salaries so that employees can comfortably provide themselves and their families.
3>Â Â Â Â Good working condition
By this the physiological needs of the employees can be fulfilled and this can help to reduce the attrition rate.
When all physiological needs are satisfied and are no longer controlling thoughts and behaviors, the needs for security becomes active. Adults have little awareness of their security needs except in times of emergency or periods of disorganization in the social structure (such as widespread rioting). Children often display the signs of insecurity and the need to be safe.
There are two aspects of the security which would concern a person. One is the physical security of the employee and their family. This need becomes particularly important for the weaker sex who sometimes avoids jobs because of the late night timings. The other aspect is the psychological fear of job security. At the moment since the industry is growing and there is ample abundance of jobs, this is not an issue. Also the Indian laws are not favorable to retrenchment. Hence the later is not an issue although physical security is.
GAP: The companies presently provide the best of available security but with the industry growing rapidly there is a need to maintain the same standards if we don’t want this need to be a cause of attrition.
Ways & means to fulfill Safety needs of the employees
1>Â Â Â Â Protect the employees with safety rules and policies.
2>Â Â Â Â Take care of workers against crimes.
Unlike physiological needs, every employees want safety and when an employee feels that he and his family are safe he will freely work. Fulfilling the Safety needs will help an organisation to reduce Attrition and it will act as a motivating factor.
Needs of Love, Affection and Belongingness
The next higher class of needs which emerge is the need for love, affection and belongingness. Maslow states that people seek to overcome feelings of loneliness and alienation. This involves both giving and receiving love, affection and the sense of belonging.
His need of an individual gets highly affected by the industry predominantly for people working in the night shift. Night Shift causes separation from ones family, friends and relatives. Employees have been found complaining about not being able to spend ample time with their family after working in night shift. The companies try to compensate for this by creating a fun-filled working environment and much stress is laid down on developing friends and relationships inside the company. But there is a huge gap in expectation and fulfilment which needs to be satisfied.
GAP: Lack of family and social interactions is one of the major concerns for the employees which needs to be dealt by the companies. This issue needs to be dealt with the importance and sensitivity which it deserves.
Ways & means to fulfill Social needs of the employees
1>Give opportunity to employees to work in group and other departments.
2>Create opportunities for employees to develop relationship and become accepted
among the group.
3>Show your concern for team members and encourage them to do likewise.
People want to be recognised by the society. This is a human habit. Organisation to take the above steps which will help to motivate the employees and in turn will reduce attrition.
Needs for Esteem
As per Maslow, after the first three classes of needs are satisfied, the need for esteem becomes dominant. These involve needs for both self-esteem and for the esteem a person gets from others. Humans have a need for a stable, firmly based, high level of self-respect, and respect from others. When these needs are satisfied, the person feels self-confident and valuable. When these needs are left unfulfilled, the person feels inferior, weak, helpless and worthless.
After a person feelsÂ that theyÂ ”belong”, theÂ urge to attain a degree of importance emerges. Esteem needs can be categorizedÂ as external motivators and internal motivators.
Internally motivatingÂ esteem needs are thoseÂ such asÂ self-esteem, accomplishment, and self respect.Â External esteem needs are those such as reputation and recognition.
Some examples of esteem needs are:
- Recognition (external motivator)
- AttentionÂ (external motivator)
- Social Status (external motivator)
- Accomplishment (internal motivator)
- Self-respect (internal motivator)
Basically the top level management falls under this category.
Needs for Self-Actualization
When all of the foregoing needs are satisfied, then the need for self-actualization gets activated. Maslow describes self-actualization as a person’s need to be and do what the person was “born to do”. These needs make themselves felt in signs of restlessness. The person feels on edge, tense, lacking something, in short, restless.
Self-actualization is the summit of Maslow’s motivation theory. It is about the quest of reaching one’s full potential as a person. Unlike lower level needs, this need is never fully satisfied; as one grows psychologically there are always new opportunities to continue to grow.
Self-actualized people tend to haveÂ motivators such as:
Self-actualized persons have frequent occurrences of peak experiences, which are energized moments of profound happiness and harmony. According to Maslow, only a small percentage of the population reaches the level of self-actualization.
Applying Maslow’s Needs Hierarchy – Business Management Implications
If Maslow’s theory is true, there are some very importantÂ leadership implications toÂ enhance workplace motivation. There areÂ staff motivation opportunitiesÂ by motivating each employee through their style of management, compensation plans, role definition, and company activities.
- Physiological Motivation: Provide ample breaks for lunch andÂ recuperation and payÂ salaries that allow workers toÂ buy life’s essentials.
- Safety Needs: Provide a working environment which is safe, relative job security, and freedom from threats.
- Social Needs:Â Generate a feeling of acceptance, belonging, and community by reinforcing team dynamics.
- Esteem Motivators: Recognize achievements, assign important projects, and provide status to make employees feel valued and appreciated.
- Self-Actualization:Â Offer challenging and meaningful work assignments which enable innovation, creativity, and progress according to long-term goals.
Remember, everyone is not motivated by same needs.Â Â At various points in their lives and careers,Â variousÂ employees will be motivated byÂ completely different needs. It isÂ imperative that youÂ recognize each employee’s needs currently being pursued. In order to motivate their employees,Â leadership must beÂ understand the current level of needs at which the employee finds themselves, and leverage needs for workplace motivation.
CALCULATING EMPLOYEES ATTRITION RATE
The high attrition rate in different industry has always been its greatest concern and a subject of much analysis and debate. Organisations use different methodologies for calculating their turnover rate. It is a known fact that turnover calculation is a grey area which does not always depict the true picture. While a few techniques are common, there are no proven theories. Further, the approach to this calculation might vary from organisation to organisation. Disclosure of the figure not only has a direct impact on the business but also affects employee morale and productivity. Significantly, it might also trigger a chain reactionâa high attrition rate will lead to more people leaving the organisation, while a lower rate will act as a retention strategy. It is therefore not surprising that most industry observers are sceptical when organisations âdiscloseâ their employee turnover.
A high attrition reflects poorly on an organisationâs ability to hold on to its people. Attrition is unfortunately viewed as a management flaw when in fact it could well be a recruitment error. In some cases it can be simply seen as an organisationâs competitor appreciating its quality of hires, and its output, post-trainingâalmost a backhanded compliment.
Ideally, attrition should be calculated on a monthly basis for companies that have over 50 employees for the first five years of its business. Subsequently, a quarterly index should be applied till a companyâs 10th anniversary. After this, annual attrition figures should be measured and accounted for. This is the optimum within the services industry as companies tend to have different challenges at different stages of their business lifecycle; also, maturity achieves stability around a companyâs 10th anniversary.
The attrition rate remains a debatable area as there is no standard formula to calculate it. This can be ascribed to many factors. Below are few of them:
- The employee base changes each month. So if a company has 1,000 employees in April 2004 and 2,000 in March 2005, then they may take their base as 2,000 or as 1,500 (average for the year). If the number of employees who left is 300, then the attrition figure could be 15 percent or 20 percent depending on what base you take.
- Many firms may not include attrition of freshers who leave because of higher studies or within three months of joining.
- In some cases, attrition of poor performers may also not be treated as attrition.
- Essentially, the attrition number is also a PR or stock/analyst statement and is prone to dressing up.
Varied theories are also applied as organisations like to brand themselves differently as far as their HR and recruitment strategies are concerned. Each company positions itself uniquely in a common market place by claiming to have exceptional HR policies, procedures and management styles that directly impact retention or attrition; hence the absence of a homogenous system. Also, in situations where a common attrition measurement formula is applied, companies find a way to justify their results to position their statistics differently from their peers on account of having âdifferentâ operating practices.
The true picture
The attrition rate that is generally disclosed by most organisations does not always show the correct picture. The figure has a direct impact on stock markets, employee morale and customer confidence. There is too much at stake, and neither the US GAAP (Generally Accepted Acounting Principles) or SEBI requires that this be calculated in a particular way.
The attrition rate has always been a sensitive issue for all organisations as it can have a major fallout on the bottomline. Attrition rate is an indicator of many things intrinsic to the organisation, and revealing it may affect it negatively. In fact at times disclosing this data can be like a self-fulfilling prophecyâif you reveal that the attrition is high, it may actually become higher.
It is also not uncommon to find companies proclaiming an attrition rate that is much less than that of others in the industry. Companies must be projecting their attrition rate incorrectly because it tends to affect their brand image both internally and externally. Internally, it sends a wrong signal to their employees and the board of members; externally, it can affect the company in various ways such as developing a bad image or dissuading fresh talent from joining.
While there are many techniques for calculating the cost of turnover, the following is one of the best. It takes into account expenses involved to replace an employee leaving an organisation.
A. Recruitment cost
The cost to your business when hiring new employees includes the following six factors plus 10 percent for incidentals such as background screening:
- Time spent on sourcing replacement
- Time spent on recruitment and selection
- Travel expenses, if any
- Re-location costs, if any n Training/ramp-up time
- Background/reference screening.Additionally, for the positions that are billable, there is a lost opportunity cost. This can be done using the revenue factor.
B. Training and development cost
To estimate the cost of training and developing new employees, start off by looking at the cost of new hire orientation. This will mean direct and indirect costs, and can be largely classified under the following heads:
- Training materials
- Employee benefits
- Trainersâ time.
C. Administration cost
additionally, you may want to measure the per-employee cost to:
- Set up communication systems
- Add employees to the HR system
- Set up the new hireâs workspace
- Set up ID-cards, access cards, etc.
On the softer side, to estimate the learning curve or productivity cost, estimate the average amount of time it takes an employee in a new position to get up to speed and produce at the average rate for the organisation. If it takes a new employee six months to reach average productivity, the average productivity loss is 50 percent. Use your annual revenue factor result and multiply it by the productivity loss.
The result of these costs (and an additional 10 percent to cover other hiring costs such as background checks, credit checks, drug screening, and other administrative costs) can give you fairly accurate calculation of turnover cost.
The ideal methodology is:
Cost of hiring employees (hard and soft costs) + Cost of training and developing new employees (hard and soft costs) = Total Cost of Voluntary Turnover
Source: Bristlecone India
Some organisations calculate it at 150 percent of the yearly salary of the exiting employee. For managerial and sales positions, the cost can go up to 200-250 percent of the yearly salary of the employee.
Another way to estimate the cost impact of turnover on companies is to look at the total compensation costs as a proportion of a firmâs revenue. According to one study, corporate on an average spend 36 percent of their revenue on human capital expenses.
Again, using conservative estimates, for a company with the total compensation costs at this average, an average rate of employee turnover of 25 percent and the cost associated with turnover equivalent to one-time salary.
CAUSES AND ANALYSIS
Calculating employee turnover is not a matter of simple mathematical methods. It is necessary to take into account the root of the problem by going back to the hiring stage. Harish Bhattiprolu, Director, Sales, Kenexa Technologies, points out that most organisations do not evolve robust measurements for calculating the cost of labour turnover or a bad hire. The details of information required and the measurement metrics are not common formulae, but have to be designed in keeping with the nature of the business and different job functions. âAs a result, most organisations do not intend to mislead by disclosing statistics which may not be true; it is just that perhaps they believe those to be true. It is imperative to evolve the science of measurement before the measure itself,â he asserts.
- Attrition: Number of employees who left in the year / average employees in the year x 100. Thus, if the company had 1,000 employees in April 2004, 2,000 in March 2005, and 300 quit in the year, then the average employee strength is 1,500 and attrition is 100 x (300/1500) = 20 percent.
A graded system can probably depict the true picture.
- Fresher attrition: the number of fresherâs who left within one year. It tells you how many are using the company as a springboard.
- Infant mortality: percentage of people who left within one year. This indicates the ease with which people adapt to the company.
- Critical resource attrition: key men exit.
- Low performance attrition: those who left due to poor performance.
Using these formulae, organisations will learn what their real attrition figures are. Like with most data, attrition too can be interpreted in different ways and it is up to each organisation to decide how and what they wish to share. Companies are generally more concerned about regretted voluntary attrition. These are people who leave on their own will and those whom the organisation would have loved to retain. Similarly, organisations measure managed attrition. These are people made redundant, laid-off or exited. Though managed attrition is non-regretted by the organisation, the trend of managed attrition, if on the higher side, may show the company in poor light, and does have an impact on its health.â
Attrition does not only reflect the hiring policies of an organisation, but also induction/retention strategies, training methodologies, work culture and many other factors. It costs the company valuable time, money and often credibility (especially where employees develop relationships with customers). Some companies just look at the employee turnover in terms of the cost (based on the PwC Saratoga Institute theory) involved in the hiring and training of individuals. Others look at the opportunity lost and its cost. Sometimes, companies also use the figure between 50 percent and 200 percent of the annualised salary.
Organisations aim to reduce voluntary attrition of productive employees and encourage unproductive staff to leave its fold. It makes way for career progression, new thinking and innovation. However, what that number should be again differs from industry to industry and from country to country as economies vary. The demand vs supply of talent/resources plays a critical role too. What is considered a healthy attrition number in an industry in India may not be so in a more stagnant economy where no new jobs are being created,â Nevertheless, zero attrition is unimaginable and unhealthy for any organisation.
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