The Pros and Cons of Employee Retention

In today’s highly competitive employment market, employee retention has become an integral part in most of the organizations across all industries. The term “Employee Retention” is not new to today’s fast growing economic world.  It has gained momentum in the last decade. Many organizations today employ various processes and measures to retain employees so as to encourage employees to stay in the organization for a longer period.

There is a possibility that organization’s – small, medium or big; maintain a provisional fund which could be spent on retaining performing employees.  Employee retaining efforts may include benefits such as ESOPS (Employee Stock Options  – issue of shares at less than market rate), yearly bonus, extra pay for additional efforts, paid vacations for the employee and his or her family, awards, rewards, recognition, cultural activities, flexible work hours, work from home facility, perks and host of other benefits.

Companies today are well aware of the fact that there are plenty of opportunities available for the talented people.  Companies are always in search of such people and would ensure to take necessary steps to hire and retain them.

On the other side, talented employees who feel lack of satisfaction level in their current organization may start searching for options. In such cases that company may lose its talent pool to a competitor.

There are a couple of theories on retention and motivation which may be in use or followed at major corporations across the world for e.g. 

http://en.wikipedia.org/wiki/Maslow%27s_hierarchy_of_needs 

(1) by Abraham Maslow and  

http://en.wikipedia.org/wiki/Two-factor_theory 

(2) by Frederick Herzberg.

Now let’s try to understand the other side of retaining employees. Major organizations today, have adopted a strategy of retaining instead of hiring or adding new candidates to their employee strength. They take steps to improve themselves on retaining performing and employees who have been with the company for a longer duration. Organizations off lately have come to realize that the cost involved in pre-screening, interviewing and hiring of candidates was found to be more as compared to amount spent on miscellaneous activities on existing employees.

Moreover, there are other costs involved in hiring a new candidate or candidates which companies have to bear. These expenses may be termed as additional overheads for an organization. These indirect expenses can be classified under - telephone and internet usage, use of electricity, man hours spent by human resources department, admin department, and other related departments. Moreover, there are direct expenses such as advertising and recruiting, orientation and training of the new employee and subsequently decreased productivity till the time the new employee is trained.

As Beverly Kaye and Sharon Jordan Evans stated in Training and Development: "Studies have found that the cost of replacing lost talent is 70 to 200 percent of that employee's annual salary. There are advertising and recruiting expenses, orientation and training of the new employee, decreased productivity until the new employee is up to speed, and loss of customers who were loyal to the departing employee. Finding, recruiting, and training the best employees represents a major investment. Once a company has captured talented people, the return on investment requires closing the back door to prevent them from walking out." http://www.answers.com/topic/employee-retention#ixzz1Zrg1uUP (3)

 

Additionally, many organizations are known to hire consultants to provide them candidates for filling in the vacancies they have. Of course, consultants would never offer their services for free. Companies may or may not form a contract with placement consultants to provide a regular flow of candidates. Companies do have to pay consultants a pre-decided amount also known as percentage of the annual package of the hired individual(s). The percentage ratio ranges from 8% to 30% of the annual package.

It is observed across many industries that corporations have initiated measures to encourage older employees to continue with them for a longer duration. While doing this they have also ensured cutting costs and maintaining employee satisfaction.

It is wide known fact that initiation of any measure or process has its advantages and disadvantages, so does employee retention measures have its own share of positives and negatives.

Now let’s take a look at few of the pros and cons of employee retention.

Advantages:

Ø       Avoids and or reduces hiring costs.

Ø       Retaining employees reduces training costs.

Ø       It builds a team of skilled and experienced employees.

Ø       Retaining experienced staff creates a positive impact on customer services.

Ø       Retention activity fosters loyalty towards the organization amongst employees.

Ø       Encourages friendly environment and fosters bonding amongst employees.

Ø       It facilitates smooth workflow of internal processes.

Ø       It increases the quantity of work delivered.

Ø       It enhances the quality of the work produced.

Ø       It increases revenue for the organization.

Disadvantages:

Ø       It promotes groupism amongst old employees which creates an insecure environment for   

     new employees.

Ø       Improper mixing of staff affects productivity and ensures poor quality of work.

Ø       Excessive liberty to staff just to maintain work flow affects quantity and quality both.

Ø       Flexible work timings rarely justify the work delivered.

Ø       Retaining non-delivering staff kills the productivity and creativity of knowledgeable

     employees.

Ø       Retaining spoon-fed and complaining employees add to the cost of the organization.

Ø       Affluent employees who do not require a job, rarely add value to the employee strength.

These are just a few examples of advantages and disadvantages related to employee retention. There is always a chance there can be more relevant examples.   

Corporations today are working toward increasing their profit margins, reduce costs and are employing latest measures to sustain competition and employee retention is one of the most important tools to ensure stability in the market. Directors, Senior Management, and Consultants would advice or suggest various techniques to reach results but, it is the middle management which is solely responsible to achieve desired goals.

Reference:

(1) and (2) Wikipedia, (3) Answers.com