1.

2 REVIEW OF LITERATURE
1.2.1REVIEW OF CONCEPTS AND THEORIES
EMPLOYEE TURNOVER
Employee turnover is a ratio comparison of the number of employees a company
must replace in a given time period to the average number of total employees. A huge concern to
most companies, employee turnover is a costly expense especially in lower paying job roles, for
which the employee turnover rate is highest.
CAUSES OF EMPLOYEE TURNOVER
Salary Scale
This is the most common cause of the employee turnover rate being so high.
Employees are in search of jobs which pay well. If the companies which they are working in
don't offer good salaries, they tend to hunt for jobs that pay them considerably well.
Benefits
Employees always flock to companies who offer more benefits. There are many
employees who are not aware of the benefits that are provided to them in their compensation
package. The employers need to reduce their bureaucratic procedures in order for the employees
to receive the best available benefits without any difficulty. They should make a note of what all
benefits other organizations are providing, which may attract their current employees.
Advancements and Promotion Policies
This is the prime reason why many mid-level executives leave the company. Due
to no potential opportunity for advancements or promotions, they prefer other companies which
may provide them with higher posts and increased compensation packages. The companies need
to evaluate and modify their promotion policies in a fair way which would enable promotions for
candidates only on the basis of employee performance.
Working Environment
Employees prefer to work in an environment which is suitable for them. This is
the most common reason why they jump from company to company in just a few months. If they
find an appropriate work environment in a specific company, they may work in the same
organization for several years.

Working Procedures
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 The companies should analyze and alter their work procedures and policies in a
way which would enable employees to use their full potential and even gain significant work
experience. There are many cases where employees have left the company due to no projects or
assignments which do not require their full potential.
These are some of the principal causes of employee turnover which can surely be
avoided by the organizations after taking some necessary steps to better their in-house services
towards employees. However, there are many more causes which contribute to employee
turnover; such as lack of employee motivation, work pressure, job stress, partiality and
favoritism, employee egos and attitudes, poor employee management, etc
IMPORTANCE OF EMPLOYEE TURNOVER
• If all employees stay in the same organization for a very long time, most of them will be
at the top of their pay scale which will result in excessive manpower costs.
• When certain employees leave, whose continuation of service would have negatively
impacted productivity and profitability of the company, the company is benefited.
• New employees bring new ideas, approaches, abilities & attitudes which can keep the
organization from becoming stagnant.
• There are also some people in the organization who have a negative and demoralizing
influence on the work culture and team spirit. This, in the long-term, is detrimental to
organizational health.
• Desirable attrition also includes termination of employees with whom the organization
does not want to continue a relationship. It benefits the organization in the following
ways:
 It removes bottleneck in the progress of the company
 It creates space for the entry of new talents
 It assists in evolving high performance teams
There are people who are not able to balance their performance as per
expectations, lack potential for future or need disciplinary action. Furthermore, as the rewards
are limited, business pressures do not allow the management to over-reward the performers, but
when undesirable employees leave the company, the good employees can be given the share that
they deserve.
TIPS FOR REDUCING EMPLOYEE TURNOVER
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 • Select the right people in the first place through behavior-based testing and competency
screening.
• At the same time, don't neglect to hire people with the innate talent, ability, and smarts to
work in almost any position even if you don't currently have the "best" match available. Hire
the smartest people you can find to reduce employee turnover.
• Offer an attractive, competitive, benefits package with components such as life insurance,
disability insurance and flexible hours. Better benefits = reduced employee turnover.
• Provide opportunities for people to share their knowledge via training sessions,
presentations, mentoring others and team assignments. Employees like to share what they
know; the act of teaching others ensures the employee's own learning.
• Demonstrate respect for employees at all times. Listen to them deeply; use their ideas;
never ridicule or shame them. Via your communication, share that you value them.
• Offer performance feedback and praise good efforts and results to reduce employee
turnover.
• People want to enjoy their work. Make work fun. Engage and employ the special talents
of each individual.
• Enable employees to balance work and life. Allow flexible starting times, core business
hours and flexible ending times.
• Involve employees in decisions that affect their jobs and the overall direction of the
company whenever possible. Involve them in the discussion about company vision, mission,
values, and goals. This strategic framework will never "live" for them or become "owned" by
them if they merely read it in email or hanging on the wall.
• Recognize excellent performance, and especially, link pay to performance to reduce
employee turnover.
• Base the upside of bonus potential on the success of both the employee and the company
and make it limitless within company parameters.
• Recognize and celebrate success. Mark their passage as important goals are achieved.
• Staff adequately so overtime is minimized for those who don't want it and people don't
wear themselves out.

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 • Provide opportunities within the company for cross-training and career progression.
People like to know that they have room for career movement. This is a serious deterrent to
employee turnover.
• Provide the opportunity for career and personal growth through training and education,
challenging assignments and more responsibility.
• Communicate goals, roles and responsibilities so people know what is expected and feel
like part of the in-crowd.
EMPLOYEE RETENTION
According to Get Les McKeon’s “Effective employee retention is a systematic
effort by employers to create and foster an environment that encourages current employees to
remain employed by having policies and practices in place that address their diverse needs. Also
of concern are the costs of employee turnover (including hiring costs, training costs, productivity
loss). Replacement costs usually are 2.5 times the salary of the individual. The costs associated
with turnover may include lost customers, business and damaged morale. In addition there are
the hard costs of time spent in screening, verifying credentials, references, interviewing, hiring,
and training the new employee just to get back to where you started.” (Workforce Planning for
Wisconsin State Government, 2005)

The picture states the latest statement that corporate believes in “Love them or
Lose them”
Four basic factors that play an important role in increasing employee retention include
salary and remuneration, providing recognition, benefits and opportunities for individual growth.

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Retention involves five major things
1. Compensation
Compensation constitutes the largest part of the employee retention process. The
employees always have high expectations regarding their compensation packages. Compensation
packages vary from industry to industry. So an attractive compensation package plays a critical
role in retaining the employees.
Compensation includes salary and wages, bonuses, benefits, prerequisites, stock
options, bonuses, vacations, etc. While setting up the packages, the following components should
be kept in mind:
a. Salary and monthly wage: It is the biggest component of the compensation
package. It is also the most common factor of comparison among employees. It includes
• Basic wage
• House rent allowance
• Dearness allowance
• City compensatory allowance
Salary and wages represent the level of skill and experience an individual has. Time to
time increase in the salaries and wages of employees should be done. And this increase
should be based on the employee’s performance and his contribution to the organization.

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 b. Bonus: Bonuses are usually given to the employees at the end of the year or on a
festival.
c. Economic benefits: It includes paid holidays, leave travel concession, etc.
d. Long-term incentives: Long term incentives include stock options or stock
grants. These incentives help retain employees in the organization's startup stage.
e. Health insurance: Health insurance is a great benefit to the employees. It saves
employees money as well as gives them a peace of mind that they have somebody to take
care of them in bad times. It also shows the employee that the organization cares about
the employee and its family.
f. After retirement: It includes payments that an Employee gets after he retires like
EPF (Employee Provident Fund) etc.
g. Miscellaneous compensation: It may include employee assistance programs (like
psychological counseling, legal assistance etc), discounts on company products, use of a
company cars, etc.
2. Environment
It is not about managing retention. It is about managing people. If an organization
manages people well, employee retention will take care of itself. Organizations should focus on
managing the work environment to make better use of the available human assets.
People want to work for an organization which provides
 Appreciation for the work done
 Ample opportunities to grow
 A friendly and cooperative environment
 A feeling that the organization is second home to the employee
Organization environment includes
• Culture
• Values
• Company reputation
• Quality of people in the organization
• Employee development and career growth
• Risk taking
• Leading technologies
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Types of environment the employee needs in an organization
• Learning environment: It includes continuous learning and improvement of the
individual, certifications and provision for higher studies, etc.
• Support environment: Organization can provide support in the form of work-life
balance. Work life balance includes:
 Flexible hours
 Telecommuting
 Dependent care
 Alternate work schedules
 Vacations
 Wellness
• Work environment: It includes efficient managers, supportive co-workers, challenging
work, involvement in decision-making, clarity of work and responsibilities, and recognition.
Lack or absence of such environment pushes employees to look for new opportunities. The
environment should be such that the employee feels connected to the organization in every
respect.
3. Growth

Growth and development are the integral part of every individual’s career. If an
employee can not foresee his path of career development in his current organization, there are
chances that he’ll leave the organization as soon as he gets an opportunity.
The important factors in employee growth that an employee looks for himself are:
a. Work profile: The work profile on which the employee is working should be in
sync with his capabilities. The profile should not be too low or too high.
b. Personal growth and dreams: Employees responsibilities in the organization
should help him achieve his personal goals also. Organizations cannot keep aside the
individual goals of employees and foster organizations goals. Employees’ priority is to
work for them and later on comes the organization. If he’s not satisfied with his growth,
he’ll not be able to contribute in organization growth.
c. Training and development: Employees should be trained and given chance to
improve and enhance their skills. Many employers fear that if the employees are well
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 trained, they’ll leave the organization for better jobs. Organization should not limit the
resources on which organization’s success depends. These trainings can be given to
improve many skills like:
• Communications skills
• Technical skills
• In-house processes and procedures improvement related skills
• Customer satisfaction related skills
• Special project related skills
Need for such trainings can be recognized from individual performance reviews,
individual meetings, employee satisfaction surveys and by being in constant touch with the
employees.
4. Relationship
Sometimes the relationship with the management and the peers becomes the
reason for an employee to leave the organization. The management is sometimes not able to
provide an employee a supportive work culture and environment in terms of personal or
professional relationships. There are times when an employee starts feeling bitterness towards
the management or peers. This bitterness could be due to many reasons. This decreases
employee’s interest and he becomes de-motivated. It leads to less satisfaction and eventually
attrition.
A supportive work culture helps grow employee professionally and boosts
employee satisfaction. To enhance good professional relationships at work, the management
should keep the following points in mind.
a. Respect for the individual: Respect for the individual is the most in the organization.
b. Relationship with the immediate manager: A manger plays the role of a mentor and a
coach. He designs and plans work for each employee. It is his duty to involve the
employee in the processes of the organization. So an organization should hire managers
who can make and maintain good relations with their subordinates.
c. Relationship with colleagues: Promote team work, not only among teams but in
different departments as well. This will induce competition as well as improve the
relationships among colleagues.

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 d. Recruit whole heartedly: An employee should be recruited if there is a proper place and
duties for him to perform. Otherwise he’ll feel useless and will be dissatisfied.
Employees should know what the organization expects from them and what their
expectation from the organization is. Deliver what is promised.
e. Promote an employee based culture: The employee should know that the organization
is there to support him at the time of need. Show them that the organization cares and
he’ll show the same for the organization. An employee based culture may include
decision making authority, availability of resources, open door policy, etc.
f. Individual development: Taking proper care of employees includes acknowledgement
to the employee’s dreams and personal goals. Create opportunities for their career growth
by providing mentorship programs, certifications, educational courses, etc.
g. Induce loyalty: Organizations should be loyal as well as they should promote loyalty in
the employees too. Try to make the current employees stay instead of recruiting new
ones.
5. Support
Lack of support from management can sometimes serve as a reason for employee
retention. Supervisor should support his subordinates in a way so that each one of them is a
success. Management should try to focus on its employees and support them not only in their
difficult times at work but also through the times of personal crisis. Management can support
employees by providing them recognition and appreciation. Employers can also provide valuable
feedback to employees and make them feel valued to the organization.
The feedback from supervisor helps the employee to feel more responsible,
confident and empowered. Top management can also support its employees in their personal
crisis by providing personal loans during emergencies, childcare services, employee assistance
programs, counseling services, etc.
Employers can also support their employees by creating an environment of trust
and inculcating the organizational values into employees. Thus employers can support their
employees in a number of ways as follows:
• By providing feedback
• By giving recognition and rewards
• By counseling them
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 • By providing emotional support
IMPORTANCE OF EMPLOYEE RETENTION
Why is retention so important? Is it just to reduce the turnover costs? It’s not only
the cost incurred by a company that emphasizes the need of retaining employees but also the
need to retain talented employees from getting poached. The process of employee retention will
benefit an organization in the following ways:
1. The Cost of Turnover: The cost of employee turnover adds hundreds of thousands of
money to a company's expenses. While it is difficult to fully calculate the cost of turnover
(including hiring costs, training costs and productivity loss), industry experts often quote
25% of the average employee salary as a conservative estimate.
2. Loss of Company Knowledge: When an employee leaves, he takes with him valuable
knowledge about the company, customers, current projects and past history (sometimes
to competitors). Often much time and money has been spent on the employee in
expectation of a future return. When the employee leaves, the investment is not realized.
3. Interruption of Customer Service: Customers and clients do business with a company
in part because of the people. Relationships are developed that encourage continued
sponsorship of the business. When an employee leaves, the relationships that employee
built for the company are severed, which could lead to potential customer loss.
4. Turnover leads to more turnovers: When an employee terminates, the effect is felt
throughout the organization. Co-workers are often required to pick up the slack. The
unspoken negativity often intensifies for the remaining staff.
5. Goodwill of the company: The goodwill of a company is maintained when the attrition
rates are low. Higher retention rates motivate potential employees to join the
organization.
6. Regaining efficiency: If an employee resigns, then good amount of time is lost in hiring
a new employee and then training him/her and this goes to the loss of the company
directly which many a times goes unnoticed. And even after this you cannot assure us of
the same efficiency from the new employee.

EMPLOYEE RETENTION STRATEGIES

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 The basic practices which should be kept in mind in the employee retention
strategies are:
1) Hire the right people in the first place.
2) Empower the employees: Give the employees the authority to get things done.
3) Make employees realize that they are the most valuable asset of the organization.
4) Have faith in them, trust them and respect them.
5) Provide them information and knowledge.
6) Keep providing them feedback on their performance.
7) Recognize and appreciate their achievements.
8) Keep their morale high.
9) Create an environment where the employees want to work and have fun.
These practices can be categorized in 3 levels: Low, medium and high level.
LOW LEVEL RETENTION STRATEGIES
• Appreciating and recognizing a well done job
• Personalized well done and thank-you cards from supervisors
• Congratulations e-cards or cards sent to spouses/families
• Voicemails or messages from top management
• Periodic days off for good performance
• Rewards ( gift, certificates, monetary and non monetary rewards)
• Recognizing professional as well as personal significant events
 Wedding gifts
 Scholarships for employee’s children
 Birthday cards, celebrations and gifts
• Providing benefits
 Home insurance plans
 Legal insurance
 Travel insurance
 Disability programs
• Providing perks: It includes coupons, discounts, rebates, etc
 Discounts in cinema halls, museums, restaurants, etc.
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  Retail store discounts
 Computer peripherals purchase discounts
• Providing workplace convenience
• Fun at work
• Employee support in tough time or personal crisis
 Personal loans for emergencies
 Childcare and eldercare services
 Employee Assistance Programs ( Counseling sessions etc)
MEDIUM LEVEL RETENTION STRATEGIES
• Appreciating and recognizing a well done job
• Special bonus for successfully completing firm-sponsored certifications
• Benefit programs for family support
• Child adoption benefits
• Flexible benefits
• Dependents care assistance
• Providing convenience at work place
• Providing training and development and personal growth opportunities
HIGH LEVEL RETENTION STRATEGIES
• Promoting Work/Life balance
• Develop flexible schedules
• Part-time schedules
• Extended leaves of absence
• Develop Support Services
• Listen to the employee and show interest in ideas
 Appreciate new ideas and reward risk-taking
 Show support for individual initiative
 Encourage creativity
• Encouraging professional training and development and/or personal growth
opportunities: It can be done through:
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  Mentoring programs
 Performance feedback programs
 Provide necessary tools to the employees to achieve their professional and
personal goals
 Getting the most out of employee interests and talents
 Higher study opportunities for employees
 Vocational counseling
 Offer personalized career guidance to employees
• Provide an environment of trust: Communication is the most important and effective way
to develop trust.
 Suggestion committees can be created
 Open door communication policy can be followed
 Regular feedbacks on organization’s goals and activities should be taken from the
employees.
• Hire the right people from the beginning.
THE THREE RS OF EMPLOYEE RETENTION
To keep employees and keep satisfaction high, you need to implement each of the three Rs of
employee retention: respect, recognition, and rewards.

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 • Respect is esteem, special regard, or particular consideration given to people. As the
pyramid shows, respect is the foundation of keeping your employees. Recognition and
rewards will have little effect if you don’t respect employees.
• Recognition is defined as “special notice or attention” and “the act of perceiving
clearly.” Many problems with retention and morale occur because management is not
paying attention to people’s needs and reactions.
• Rewards are the extra perks you offer beyond the basics of respect and recognition that
make it worth people’s while to work hard, to care, to go beyond the call of duty. While
rewards represent the smallest portion of the retention equation, they are still an
important one.
You determine the precise methods you choose to implement the three Rs, but in
general, respect should be the largest component of your efforts. Without it, recognition and
rewards seem hollow and have little effect—or they have negative effects. The magic truly is in
the mix of the three.
When you implement the “three Rs” approach, you will reduce turnover and
enjoy the following:
 Increased productivity
 Reduced absenteeism
 A more pleasant work environment (for both employees and employers)
 Improved profits
Furthermore, an employer who implements the three Rs will create a hard-to
leave workplace, one known as having more to offer employees than other employers.
EMPLOYEE RETENTION TOOLS
Hiring individuals who are truly fit to succeed in the position for hire will
dramatically increase the chances of that employee being satisfied with his or her work and
remaining with the company for extended period of time.
 Include employees in decision making: It is incredibly important to include team
members in the decision making process, especially when decision will effect an individual’s
department or work team. This can help to create of employee involvement and will generate
new ideas and perspectives that top management might never have thought of.

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 Allow team members to share their knowledge with others: The highest percentage of
information retention occurs when on shares that information with others. Having team
members share when they have learned at a recent conference or training workshop will not
only increase the amount of information they will retain, but also lets a team member know
that he is a valuable member of the organization.
 Balance work and personal life: Family is incredibly important to team members.
When work begins to put a significant strain on one’s family no amount of money will keep
an employee around. Stress the importance of balancing work and one’s personal life.
 Provide opportunities for growth and development: Offer opportunities for team
members to acquire new skills and knowledge useful to the organization. If an employee
appears to be bored or burned out in a current position offer to train this individual in another
facet of the organization where he or she would be a good fit. Nobody wants to feel stuck in
their position will no possibility for advancement or new opportunities.
 Recognize team members for their hard work and let them know they are
appreciated: This can be one of the single greatest factors affecting employee retention.
Everybody, in the all levels of an organization, wants to know that their efforts are
appreciated and recognized.
 Clearly define what is expected of team members: Nothing can be more frustrating or
discouraging for an employee than the lack of a clear understanding of what is expected of
him on the job. In a performance driven workplace a lack of clarity regarding job duties and
expectations can cause fear and anxiety among employees who are unclear of what is
expected of them. Even worse outright anger can occur when a team member receives a
negative performance evaluation based on expectations and job duties that he or she was
unaware of or unclear about.
 The quality of supervision and mentorship: Supervisors play the largest role in a team
member’s development and ultimate success within an organization. All employees want to
have supervisors who are respectful, courteous, and friendly. But more importantly team
member want supervisors who have clear performance expectations, deliver timely feedback
on performance, live up to their word and promises, and provide an environment where the
employee can grow and succeed. Failure by supervisors and management to provide this can
cause an employee to start looking for greener pastures.
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 Fair and equitable treatment of all employees: One of the surest ways to create
animosity and resentment in an organization is to allow favoritism and preferential treatment
of individual team members.
 Best employee reward programs: If these rewards are in terms of money, by dividing it
into two parts and giving the first half parts with the initial month’s salary and the remaining
after six months helps in retaining the employee for six months.
 Career development program: Conditional assistance for certain courses should be
provided within the company in which the company will bear the expenses only if he/she
scores a certain aggregate of marks.
 Performance based bonus: To get more work out of the employees, remuneration in the
form of bonus helps to retain individuals who are highly productive. It doesn’t add extra –
pressure on the company’s budget. It can be arranged by cutting a part of the salary hikes.
 Employee referral plan: Introducing employee referral plans and giving referral bonus
after six to nine months of continuous working of the new employee as well as existing
employee reduces the hiring cost of new employee as well as helps retention of the existing
ones for a longer period of time.
 Loyalty bonus: After successful completion of a specified period of time in an
organization rewarding employees with money or position gives recognition and satisfaction
to them. It also gives encouragement to the fellow employees.
 Employee recreation: Involvement of top management along with the lower and middle
level management in some recreational activities makes the employees feel that they are very
close to the management and are treated equality.
 Gifts on some occasions: Giving some gifts on festivals and special occasions to the
employees makes them feel good and realize that the management is concerned about them.
 Surveys: Conducting regular surveys, feedbacks from superiors as well as other issues
like morale, development plans, etc. This make them feel important and understand that the
company really cares for them
 Fun and laughter at workplace: Fun and laugher in a workplace lend a competitive
advantage to an organization through its human resources. The presence of humor in a
workplace enables the employees to work with interest and enthusiasm that reduce the work

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 pressure and attrition levels. It instills a sense of joy among the employees that can go a long
way in creating a bond between the employees and the employer and thereby decreasing the
rate of employee attrition.
STEPS TO IMPROVE EMPLOYEE RETENTION
Step 1: Identify what you’re looking for – and be specific. Sure, it sounds basic. Too often,
though, owners are vague on what the most important requirements are for the position.
Differentiate between the skills and qualities you absolutely need for a role, and what would be
nice-to-have but is not essential. Put it down on paper, so everyone is clear about what you’re
looking for and what’s required – right from the start.
Step 2: Take a look at your office culture. This is where many owners fall down on the job.
Someone may have the years of experience you want and still be wrong for your business. Make
an honest appraisal about the intangibles of your culture. Ask current employees how they’d
describe working there. Look for a good fit during the interview process. Remember: it’s fairly
easy to teach a new skill, but a personality clash is next to impossible to remedy.
Step 3: Define a career path. Each employee should be aware of how they can advance in your
company, and what they have to do to get there. If the goals aren’t defined, an employee doesn’t
know if there’s opportunity for advancement – or what’s required to achieve those next steps.
Easily defined goals give each staff member specific objectives to shoot for. When people know
they are part of a team – and how they fit in for the long term – they are much less likely to leave
your business for “greener pastures.”
Step 4: Discover what your staff wants. It could be training opportunities, better
communication, and more participation in decision-making, a better employee benefit plan, or a
different work schedule. When you know what staff wants, you can help to make it happen – and
that leads to long-term employees.
Step 5: Walk the walk – every day. When you model the behavior you want to see, employees
sense that your commitment to them is not just talk. Want your staff to greet customers or empty
trash? Make sure you do it. Want your staff to care about the sales and profit? Take the time to
explain those numbers – and how their performance influences them. Be the kind of leader that
people want to follow – every day.

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