“Constructing Factors Related to Worker Retention”

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Table of Contents

Description of the article
Article evaluation
Wage effects
Firm-specific human capital
Firm-based factors
Economic cycles
Conclusion
References

The journal article “constructing factors related to worker retention” authored by Huang, Lin and Chuang (2006) examines effects that firm, individual and market factors have on an organisation’s capacity to retain competent employees. The article was chosen for review because it relates to chapter 6 of the “Managing human resources through strategic partnerships” book, written by Jackson, Schuler and Werner (2009).

The article expounds on the different reasons why employers find it hard to retain competent staff in the contemporary job market, and also recommends some practices that they (employers) can use to ensure that human resource turnover is minimal in their firms. Overall, the research-based article adds value to existing literature regarding employee retention, and would thus be a valuable resource to any contemporary employer.

Description of the article

Huang, Lin and Chuang’s (2006) article is based on empirical research, which they conducted on 180 sampled employees who had at some point in their careers changed jobs. By interviewing the employees, the authors intended to find out factors that led to people’s decisions to either stay in one job, or move to another.

The authors also interviewed human resource managers at different firms in order to establish hiring and motivation practices adopted in an attempt to obtain and retain skilled workers. In their research findings, Huang, Lin and Chuang (2006) indicate that “marriage, gender, honoured employee status, relative pay, speed of promotion, and economic cycles” (p. 491) affected employees’ job retention period.

The authors further found out that individual performance and education level of employees did not have significant effect on the length that employees stayed in one job.

Admittedly, the authors state that the article only examines job retention from the employee’s mobility perspective, but ignores the sociological and psychological factors that may also affect an employee’s willingness to continue working in a specific organisation.

Article evaluation

Huang, Lin and Chuang (2006) begins their work by acknowledging that downsizing and recruiting contingent employees has made contemporary organisations loose the long-term commitments that existed between employees and the employer.

As has been defined by Jackson, Schuler and Werner (2009), contingent workers “are people hired with no implicit or explicit contract for long-term employment, including “free agents”, independent contractors, and temporally workers.” (p. 207).

Contingent workers are therefore fully aware that entering and exiting employment relationships are a frequent occurrence in life. This means that the contemporary employee is far less secure in his job, than was the case in the past. This lack of job security means that employees are less-likely to commit to their employers on a long-term basis since they are continually nurturing connections with potential future employers.

Even in situations where employers would like to retain some of the qualified workers, they are fully aware that the contemporary employee can always make the decision to “stay or go”. This in turn affects the firm’s turnover or retention abilities.

As Huang, Lin and Chuang (2006) note, the complex situation presents a balanced situation for both the employer and the employee, because both need to continually consider each other’s needs. More so, worker mobility makes the employee as well as the employer more aware of market trends. Such include employee compensation and the demand for specific skills amongst other things.

Huang, Lin and Chuang (2006) have examined firm-based factors, employees’ job performance, and employee-specific characteristics to determine their respective effects on the length that employees stay in a job. The authors have also considered how economic cycles and market factors influence employee’s decision to leave or stay in a specific job.

They however observe that whatever the cause, turnover is always costly to both the employer and the employee. The employer has to incur the cost of replacing an employee who decides to quit, and this involves time spent recruiting new workers. During such times, productivity hours are lost because of the vacant job positions, but also by recruiters who have to spend time interviewing and later training new workers.

This observation is echoed by Jackson, Schuler and Werner (2009) who state that employee turnover creates unexpected labour shortages in an organisation, creates instability within the workforce and brings inexperienced workers in to the firm. Combined, these factors can affect the organisation’s competency in the market.

On the employee’s side, Huang, Lin and Chuang (2006) observe that there are psychological and monetary costs that are borne. Basing their argument on the human capital theory, the authors observes that even in cases where the employee voluntarily leaves one job for another, an earlier investment must have been made by the employee for the sake of obtaining returns in future.

The authors further state that employees’ decision to ‘stay or go’ is usually made after a careful evaluation of benefits and costs of leaving the job versus getting into another one. Citing Ehrenberg and Smith (1994), Huang, Lin and Chuang (2006) observe that employees not only consider the monetary cost needed to move from one job to another, but also the psychological costs.

As such, an employee who thinks that the benefits he or she is likely to receive from a new job are discounted by the psychological or monetary costs needed, will most likely prefer to stay in their current jobs.

Some of the implicit motivators to leaving a job as identified by Huang, Lin and Chuang (2006) include dissatisfaction with the current job, low costs of leaving a job, greater potential utility in a new job, and better compensation package in the new job. The authors also found out that wage effects, firm-specific human capital, and promotion had great effects on employees’ willingness to stay in a specific job.

Wage effects

Noting that the level of wages offered by an employer influence employee’s willingness to stay on, Huang, Lin and Chuang (2006) state that “competitive wages should be considered separately, both within and outside of the firm” (p. 503). Notably, the authors stress the need for employers (through their human resource departments), to ensure that compensation to the employees meet the market-equivalent wages.

They observe that employees who earn less than the market equivalent wages are more likely to leave their current jobs in order to seek employment in firms that can reward them accordingly.

Most notably, Huang, Lin and Chuang (2006) argue that paying employees below the market-equivalent wages may be interpreted to mean that the employer underestimates the employee’s contribution to the firm, or that the firm lacks the resources necessary to compensate them accordingly.

Whatever the case, under-paid employees will keep their eyes on the much hyped ‘greener pastures’, thus meaning that the firm is more likely to loose competent employees.

Gauging Huang, Lin and Chuang’s (2006) observations on wage effects based on Jackson, Schuler and Werner’s (2009) view regarding employee retention, its notable that the former have captured the latter’s analysis of the same subject.

Jackson, Schuler and Werner (2009) holds the view that finding and convincing competent staff to accept job offers in a firm is the easy part of the recruitment and retention process; the hard part is contained in addressing the employees “desire for rewards, work flexibility, career advancement and so on” (p. 196).

More specifically, Jackson, Schuler and Werner (2009) observes that skilled and competent workers are an invaluable asset to any organisation, and would be willingly be accepted in other firms, if their current employer does not satisfy their wage needs or demands.

Elaborating further on wage effects, Huang, Lin and Chuang (2006) note that comparable pay within an organisation can be used by employees to gauge their worth in the firm, or perceive the fairness accorded to them. This in turn determines their job satisfaction, and their willingness to stay on in the job.

Notably, employees who earn higher comparable pay feel much valued and appreciated and hence would be more willing to stay with their current employer. Having a merit-based or skill-based pay system is one of the ways that employers can use as a basis for rewarding their employees. This would enhance the employees’ perception regarding their employer’s fairness.

Firm-specific human capital

The employees’ willingness to invest in specific human capital requirements as stipulated by their employer may also determine the firm’s ability to retain competent staff (Huang, Lin and Chuang, 2006). Notably, an employee who finds the human capital requirements too demanding or unreasonable for his or her preferred lifestyle would be more likely to leave the job, than an employee who fits in.

Huang, Lin and Chuang (2006) use the example of gender to explain how women find it hard to fit human capital requirements into their lifestyles, which usually demand for them to strike a balance between career and family issues.

Interestingly, some gender roles like household responsibilities and child-care have always been vested on women. This is despite the fact that the contemporary woman is better educated than was the case in the past. Incidentally, Huang, Lin and Chuang (2006) note that “those [women] with higher education levels… tend to have shorter careers” (p.493).

Although one may argue about the validity of this observation, its legitimacy is echoed by Jackson, Schuler and Werner (2009). In an observation of Wall Street, the authors note that many women find the 70-hour work week a poor fit for their lifestyles. As such, most of them only work a few years, after which they quit and pursue jobs elsewhere or re-direct their energies to raising families.

According to Jackson, Schuler and Werner (2009), this explains why Wall Street has far less women than would be expected. The proposed recruitment and retention strategy for Wall Street-based firms would therefore be to allow people (men and women) more flexibility, in order to allow them a healthy balance between work and social life.

Another individual-based factor analysed in the article is employees’ education levels in relation to employee retention. Although Huang, Lin and Chuang (2006) had initially hypothesised that highly educated people would pose a major challenge to employers who sought to retain them, their research prove otherwise.

This is possibly explained by the fact that employers reward highly educated employees better, thus making them satisfied, and hence decreasing their likelihood of leaving the job in search of better compensation. In addition, employers are well aware that skilled people are always in high demand in any market, and may therefore engage in deliberate actions intended to retain the skilled employees in their respective workforces.

If Jackson, Schuler and Werner’s (2009) observation about salary being the main motivator for employee mobility is anything to go by, then the article’s view regarding highly-educated employees hopping between jobs less often, could indeed be true. Admittedly though, this is not a clear cut issue.

This is especially so because as has been noted elsewhere in this essay, highly educated women were found to be quitting their jobs at higher percentages than men. This therefore means that education levels and compensation used to reward the same cannot be used to estimate how well a firm will succeed to retain its skilled workforce in the future.

Firm-based factors

Firm-based factors influencing employee retention are mainly the responsibility of the human resource department. It is the HR department which makes decisions regarding employee remuneration, recognition for their contribution to the organisation, and promotions among other things.

Notably however, Huang, Lin and Chuang (2006) observe that while high wages and employee recognition in the workplace may affect job retention positively, promotion speed may just have the opposite effect.

The authors argue that how fast an employee is promoted in his current job may act as a signal, both to the employee and other people, of his competency and abilities. Generally, other employers who witness such an employee rise through the ranks are more likely to offer him better compensation.

Convinced of his abilities, the employee would also be more likely to use his fast rise in the workplace to secure better opportunities. Incidentally, Jackson, Schuler and Werner (2009) have identified promotions as one of the internal talent pools, where HR managers can effectively recruit people to fill existing job vacancies.

In addition to reducing cost associated with the hiring process, internal recruitment motivates employees, and also enhances the employer’s reputation. Regrettably though, not every employee who feels that he or she deserves a promotion is promoted. This then means that internal recruitment may be a source of infighting among employees, whose epitome of the disappointment would be marked by leaving the job.

Based on the two perspectives- one as advanced by Huang, Lin and Chuang (2006), and the other by Jackson, Schuler and Werner (2009), it seems that more research needs to be done in order to determine the effect that promotions in the workplace have on employer’s ability to retain competent staff.

Economic cycles

Low unemployment rates are often linked to economic prosperity, while massive layoffs are often experienced in recessionary periods thus leading to high unemployment. According to Huang, Lin and Chuang (2006), employers may experience challenges retaining competent staff members when unemployment is low.

This is especially because competing employers have a limited talent pool from where they can recruit from, thus meaning that the possibility of ‘poaching’ talent from other firms is greater during such times. Notably however, HR practices in a given firm can affect the employees’ willingness to be recruited by rival firms.

As noted by Jackson, Schuler and Werner (2009) employees who dislike their current job, stressed and overloaded workers, those with bad relationships with their superiors, and those who lack flexible work schedules are always more willing to take up better opportunities elsewhere.

Those with high job satisfaction in their current workplaces are however more committed to their present employer and are therefore less likely to pose a major challenge to employers seeking to retain them.

Conclusion

The article “Constructing Factors Related to Worker Retention” offers fresh and well-justified perspectives on why employees voluntarily quit work, regardless of their employer’s desire to retain them. The authors conclude the article by re-affirming the role that firm-based factors have on the ‘staying or going’ decisions that employees make. These firm-based factors are better understood as human resource practices.

They include rewarding systems, compensation, benefit packages, flexible work schedules and the management’s relationship with employees. In a nutshell, this article seems to suggest that a satisfied worker is less likely to voluntarily quit or change jobs. This therefore indicates that retention of qualified workers can only succeed if good HRM practices are available.

Such include fair compensation practices, recognition in the workplace, career development opportunities, job security and fairness in how the employer treats the employees. As evident from the authors’ view regarding women and job mobility, HRM practices also need to consider time conflicts created by job-related expectations and social and family commitments that employees may have.

Overall, this article offers valuable lessons to employers. It also admits that there are other factors, which were not addressed in the article, but which employers and as well as researchers need to consider in future. Such include psychological and sociological factors, which employers may need to factor in when designing effective employee retention strategies.

References

Huang, I., Lin, H. & Chuang, C. (2006). Constructing factors related to worker retention. International Journal of Manpower 27(5), 491-508.

Jackson, S.E., Schuler, R. S. & Werner, S. (2009). Managing human resources through strategic partnerships (10/E ed.). Cincinnati, OH: South Western Publishing.

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