25% of new starters resign within six months of joining an organisation?

50% of new starters leave within two years?

Despite the ever changing economic landscape, the issue of employee retention is remains. The labour shortage that plagues employers at the height of an economic boom will not disappear. It can only be temporarily off the radar now and then, but it will always come back and at times, be even stronger. Regardless of the performance of the economy, the fact is that there are not enough quality people equipped with the right skills to fill all the jobs vacancies and certain industries are badly hit. In other words, the labour pool is drying up. No longer is there a bottomless pit of workers ready to knock on employer's doors! The growth rate of the workforce has been steadily declining since the 1970s. Both the U.S. Census Bureau and a report from Andersen Consulting indicate that the workforce will begin to experience a negative growth rate beginning in the year 2015.

Workers in the 25 to 44 year old age category; traditionally the source of executive talent, are already diminishing. Front-line managers and supervisors are increasingly hard to find. Information technology jobs are going to remain vacant. Unfulfilled job offers in the food industry and healthcare field are driving human resource professionals to distraction. The outlook is an ever increasing competition for fewer qualified workers. This will necessitate an enormous emphasis on the need to retain these workers. Sadly, only a few organizations are ready to meet this challenge.

Incidentally, employers say they want loyal, motivated employees who will stay committed to their organization. However, they threaten these workers with layoffs and insult them with a work environment where people have to work longer hours and in some cases, taking up the slack of two or more people. The emphasis on short-term profits and shareholder return has shattered the concept of the "lifetime job" especially in Japan. As a result, today's workers know that their employers see them as expendable so why should they give their best to an organization that may lay them off when profits go south?

Furthermore, these employers who see workers as expendable and not loyal tie up enormous amounts of time, money, and energy in recruiting and replacing an endless stream of workers due to the continuous turnover of their employees. As the labor pool shrinks, employers must focus on creating a work environment that lets people work productively and effectively and makes them feel good enough to stay.

Employee retention is the key to competitiveness and strategy for any organization. Employees represent investment in hiring and training, and employees have the knowledge and experience to make a business operate. Employees are also part of systems which may be upset by a departure. However, retention is far more complicated than simply trying to keep all employees - indeed very high retention may even be undesirable.

Measurables of Employee Retention.

Consequently, employees need to feel valued and feeling valued appears to influence their intentions to remain with an employer (Scott, 2002). It was also mentioned that while traditionally it has been found that job dissatisfaction is the cause of turnover, the causal process is not well understood. Thus, retention of talented employees can be one of the many sources of advantage for an organization. Sigler (1999) did mention that if it were measurable a company would keep each employee:

1) whose contribution produces a positive risk adjusted profit for the firm.

2) who will also have a more positive influence on the firm than any employee hired to replace him or her (taking into account the cost of hiring the new employee).

Employee retention programs are directed at productive, well-trained and experienced employees who are valued by their employers. Nevertheless, there are also challenges and issues related to retaining employees such as high employee turnover, cost of retention, asymmetric information and agency cost.

High Employee Turnover

In normal circumstances, demand for engineers tends to be reasonably high, thus allowing them to jump from one employer to another relatively easily. Recent figures revealed that engineering departments in the aerospace industry have experienced turnover rates of 15 per cent in 2000 and 2 percent in 2001. In 2001, it was due to the depressed global economy of that year (Applebaum, S.H. et al., 2003). Another industry that is facing similar high percentages of employee turnover is the healthcare industry.

A relatively high turnover has characterized senior posts in the National Health Service (NHS) in the United Kingdom since 1991 (Scott, 2002). As a result, it has been admitted that the strategic stability of the organization was at stake. Thus, the NHS has always had a shortage of well trained and effective managers.

Cost of Employee Retention

Whenever any talented employees leave an organization, it will be detrimental for the company's future. Among some of the reasons given are dissatisfaction, underpaid or unmotivated. On the other hand, while trying to retain talented employees, organizations are faced with demands such as higher wages, poor interaction among coworkers, non compliance to organizational practices and superiors' directions.

Asymmetric Information

The lack of information about the employees' performance may complicate an organization's endeavor to retain productive employees (Sigler, 1999). It was also mentioned that without adequate information an organization may not be able to distinguish productive workers from non productive ones. Thus, employees often may take credit for the successes and finger point failures to other employees. This is known as a moral hazard problem. Incidentally, companies may reward or punish employees for an organization outcome for which they had no impact (Sigler, 1999).

Insufficient information in this area may also lead to poor “performance-based selection.” Better employees may move to other organizations due to better offers thus increasing employee turnover and replacement cost. In most cases, poor performing employees are more likely to stay in their current position. Without adequate information, employees with outstanding performance were not rewarded. As a result, the difference between non productive and productive workers will be too small and they will end up receiving the same or nearly the same compensation and perks. In addition, there is another phenomenon known as bounded rationality which is a type of asymmetric information where both the superior does not know the information for which to ask from the employee and the employee does not know what to provide. Therefore, Sigler (1999) highlighted that productive workers cannot distinguish themselves from non productive coworkers.