Organizations worldwide in today’s industries face challenges with the globalization of the economy and the growing marketplace. Investments in technological advantages are also crucial as it is to retain the best employees in order to stay competitive in the market and create sustained competitive advantage.
High turnover rates indicate that employee retention is not an easy task. But what is the reason for employee turnover? Is it the fault of a company’s management or the attitude of the employees?
This work analyzes the current situation on employee turnover and retention in Malaysia and gives implications about the reasons for Malaysian employees to leave or have the intention to leave their organization.
Furthermore the impact and consequences for the organizations is discussed with valuable recommendations how to reduce employee turnover.
TABLE OF CONTENTS
1.0Current situation on employee turnover in Malaysia 5
1.2 Forms of Employee Turnover 5
2.0 Analysis of employee turnover and employee retention in Malaysia 6
2.1 Controllable Factors on Employee Turnover 6
2.2 Uncontrollable Factors on Employee Turnover 7
2.3 Why employees leave their company – Malaysian case studies 8
2.4 Malaysian Managers perspective on Employee Retention 9
3.0 Critic of problem: Employee Turnover 10
3.1 Costs of Employee Turnover to the Management of an Organization 10
4.0 Recommendation and Solution 11
4.1 Management Strategies: Employee Retention Program 12
4.2 Management Strategies: Employee Motivating 14
4.3 Management Strategies: Employee Engagement 14
5.0 Conclusion 16
6.0 References 17
Current situation on employee turnover in Malaysia
The Malaysian labour market is characterized by continues growth. Favourable economic conditions contributed to an increase in domestic and foreign investments. In this situation the competition for hiring and retaining talented workers has increased among Malaysian industries.
In 2009 the voluntary employee turnover rate  in Malaysia was 10.1%, an increase to the rate of 9.3% analyzed in 2008 (Hewitt Asia Pacific 2009). The average voluntary turnover rate for the Asian-pacific countries is 10% (2009). Japan reported the lowest with 5% and India the highest with 13.8% (Hewitt Asia Pacific 2009). The costs for companies caused by employee turnover are high, considering advertising, recruitment, selection, hiring and training. Besides the costs there is also a loss of productivity and valuable knowledge. Depending on the position the costs range from one and a half to five times of an employee’s annual wage. Insights into the factors that contribute to an employee’s decision to leave or stay within the company are provided in Chapter 2 of this work.
1.2 Forms of Employee Turnover
Before analyzing the problem on employee turnover and retention, three common differentiations of employee turnover are described briefly.
The first form is internal and external employee turnover. Internal turnover means that employees taking over a new task in the same organization whereas in external turnover employees leaving the organization for another job outside the company. Internal turnover are less harmful for the organization since the already gained company specific knowledge might also be useful for the employees new position. In other words the Human Capital for example skills, knowledge and training stay within the company.
Another differentiation is between skilled and unskilled employees. As already pointed out the turnover rates for unskilled employees is much higher. But it is also easier for a company to replace unskilled employees with the result of minor loss of performance compared to skilled workers. The third differentiation is voluntary turnover and involuntary employee turnover. In case of voluntary turnover the employee decides to leave the organization and in the form of involuntary employee turnover the employee has to leave the organization due to e.g. long-term sickness or employer initiated termination.
Compared to the voluntary turnover rate stated above, the involuntary turnover rate is quite higher with 18.6% in 2009. (Hewitt Asia Pacific, 2009)
This study concentrates on voluntary turnover and mainly on external turnover (more common form and more impact on the organizational performance).
2.0 Analysis of employee turnover and employee retention in Malaysia
Besides the factors that can be positively influenced, there are also forms of employee turnover that cannot be controlled. These forms are going to be defined first, before we analyse the factors that have a positive impact on turnover or turnover intention. In order to capture the current situation in Malaysia on this topic, recent publications have been reviewed. Following, the perspectives of Human Resource Managers in Malaysia are presented.
2.1 Controllable Factors on Employee Turnover
Job satisfaction and organizational commitment is considered as the main factors for the employees to stay within their companies. An employee is satisfied with his work, if it fulfils the respective desires and needs. Important factors that contribute to this status are employee motivation, employee goal achievement and positive morale in the workplace. These factors are dependable on demographic factors. Due to limitation of this work the different demographic factors for example age, gender and education level are not examined in detail. Nevertheless the most important demographic factor for this work the cultural aspects and influences are considered.
Commitment to the organization included three components: acceptance of organizational values and goals, extra effort on behalf of the organization, and the desire to remain with the company (Mowday, R., Porter, L. & Steers, R. 1982). Committed employees feel “connected” and can identify with the company. This positive feeling makes employees to stay.
The extend of controllable turnover is rated much higher than uncontrollable turnover, due to poor management or less importance given to this issues among the management in general. How employee turnover can be positively influenced by management strategies, this is elaborated in chapter 4 of this work.
2.2 Uncontrollable Factors on Employee Turnover
There are two common forms of employee turnover that cannot be controlled. First “Job-hopping” and second a perceived alternative employment opportunity. Ghiselli (1974) defined job-hopping as “the periodic itch to move from a job in one place to some other job in some other place”. He described that this phenomena is driven by instinctive impulses rather than based on a logical thought of individuals. The other influence on job-hopping is the culture. Malaysia can be categorized as a culture where job-hopping is a very common practice. Abelson (2003) states that within a turnover culture it is an acceptable behaviour to hoop from one job to another. Furthermore he describes that an employee may feel an increased pressure to change a job after staying with a company for a long time because of social influences.
That commitment to the company is dependent on the culture; this can be seen for example in Japan and China.
In Japan, “lifetime employment” was a common practice. Students got recruited from companies during their final year, and would stay within the company until retirement. The employee benefits from the received “lifetime” security. The employer benefits from the loyal and committed worker, training and career opportunities can be planned very well.
China is defined as a very relationship oriented culture; the loyalty to the supervisor is very high. This behaviour has its roots in Confucianism (Farh & Cheng, 2000). It means that individuals who occupy an inferior role in a dyadic relationship (in this case supervisor and subordinate) are obliged to be obedient and loyal to their respective superiors. This results in the identification with the supervisor and internalization of supervisor’s values. But also in Chinese culture where “loyalty” used to be height was recently reported that the employee turnover increased and to one of the highest in the world. (Chinahourly, 2010). This trend is caused by salary increases and shortage of qualified personnel. It is reported that job-hopping has become a “workplace culture”. Latest survey shows that a Chinese junior employee stays an average of 2.3 years in a company, a mid-level employee 4.2years and a senior employee 5.8 years. In European countries and the United States employees stay an average of 3 to 4 years longer.
2.3 Why employees leave their company – Malaysian case studies
In order to gain an insight regarding the turnover intention of Malaysian employees, following three case studies are examined.
The first study is conducted among employees in Penang, Bayan Lepas and Prai Free Trade Zone, Malaysia (Ramayah, T., Jantan, M. & Tradisina, S.). Companies in these areas are distinguished by a high employee turnover. The labour costs increased instantly in the past decade due to a lack of skilled workers and professionals. The study was conducted using questionnaires targeting 50 managers, 100 supervisors and 200 operations employed in manufacturing companies in Penang. An increase in job satisfaction is stated as the main challenge for managers in order to keep employees in the company. The result shows that job satisfaction is mainly dependent on the nature of work followed by supervision and promotion. Among co-workers the job satisfaction increases with optimal complexity of the job. Payment was ranked as less important in the contribution to job satisfaction. The results differ among genders.
Second study examines the private company sector in Petaling, Malaysia (Yeoh, S., Lim, C.S. & Osman, S.). 120 employees were selected in the study, in order to gain an insight into organizational commitments, job stress, job satisfaction and the likeability to change the current job. Employee satisfaction and job stress experienced by employees are pointed out as the main influence factors on organizational commitment and the employee’s decision to stay or leave the organization. A general moderate (67.5%) to high (22.5%) job satisfaction could be identified. The turnover intentions are on a moderate (42.5%) low level (30.8%) and high level (26.7%). Younger employees are more likely to leave the organizations, but it could also be distinguished that this group has lesser job stress than older workers. Half of the workers stated to have a high level of stress in conduction their assigned jobs. Turnover intention is caused by lower job satisfaction (20%), lack of organizational commitment (13%) and (0.9%) high level of stress. A raise in salary (rewards on individual performance) increases the organizational commitment as well as job satisfaction.
The third study examines the organizational commitment as well as the employee’s intention to leave the organization in Malaysia (Juean, W. & Kaur, S). The survey, where 181 Malaysian workers (among multiple industries and job levels) contributed, provides the information that organizational commitment has the most positive implication on an employee’s decision to stay in a company. Affective commitment resulted as the most impact on an employee’s turnover intention, followed by continuance and normative commitment. It could be established that the turnover intention decreases by high participation and influence on decisions that affect the job or the team. Scott-Ladd (2006) indicates that in order to give high job participation sufficient knowledge and skills are required. The management is advised to provide respective training and support.
The increase of workload leads to higher job dissatisfaction. Job security is considered as important factor to stay within an organization, the importance of this factor might be increased during the global financial crisis in 2007 – 2010. (This study has been conducted during this period).
2.4 Malaysian Managers perspective on Employee Retention
Malaysians Human Resource Managers state employee engagement as a crucial factor in employee retention (The Edge Financial Daily, 10.04.2010). Get Les Mckeown defines employee retention as “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 divers needs.”
The understanding of the needs of employees, especially the younger generation is important. It is predicted that an engaged employee turns into a brand ambassador with high company commitment. Therefore it is necessary to build a brand, which the employee can identify and is attracted to.
Besides engagement and company commitment, training and development are recommended by Malaysian Human Resource Managers for retaining employees. “Employees like to fell they’re appreciated. So companies have to invest in these people and it’s basically about development. You have to engage them at different levels and you have to have development plans as well.” Dhirendra Shantilal (Senior Vice-president Kelly Services Asia-Pacific).
A lower intensity of training is generally practiced in developing countries. This is also seen as one of the main differences to developed countries where the turnover rates are lower. A lack of training and career planning is also stated as one of the main factors in the high turnover rates reported in China.
A study among 180 Malaysian manufacturing companies (Jusoh, R. & Parnell J.) provides an insight in the general importance given by the company for employee retention strategies and the efforts to keep the employees satisfied. The company’s competitive strategy and performance measurements are examined. The result shows that there are mainly financial measurements in place. Multiple performance measures including employee satisfaction and training, besides customer satisfaction and loyalty are advisable. This would contribute to a higher grade of importance put on employee satisfaction in the top management.
An employee survey in 2006 by MEF (Malaysian Employers Federation) shows that 90.5% of 306 analyzed Malaysian companies are having a performance based reward system. A reward system based on seniority, which would encourage employees to commit to the company, is not common in Malaysia. Another finding is that there are minimal investigations in job training beyond the required basic skills.
3.0 Critic of problem: Employee Turnover
Employee turnover often gives sleepless nights to human resource managers in the country of Asia and it is known issue in Malaysia. Employee turnover is the difference in the rate of the employees leaving a company and new employees filling up their respective position. This has become a major problem among most of the companies, especially in those that have low paying salary and poor management. There are many factor and aspect that play a significant role in the affecting the employee turnover rate of a particular company, this can be derive from both the company’s management perspective as well as from the employee’s perspective. (Naresh Khatri, Pawan Budhwar, Chong Tze Fern, n.d)
Furthermore, we are going to explore and examine the cost of employee turnover and how it will create an impact to a local company.
3.1 Costs of Employee Turnover to the Management of an Organization
When employees leave a company, the employer has to incur a considerable amount of direct and indirect expenses. These costs normally includes such as advertising cost, time taken to recruit a replacement, headhunting expenses and also opportunity costs such as loss of productivity. According to (Global Business Articles Website, 2010) the cost of a turnover is estimated to cost you 150% of the annual salary for a middle level employee and up to 400% for a specialized high level employee.
As discuss previously, there are indirect and direct cost incurred whenever an employee decide to leave the company. Let us take deeper look at some of the different sources where costs are derived from (Timothy R. Hinkin, & J. Bruce Tracey, 2000).
Recruitment of replacements of the employee. This cost are including the administrative expenses, advertising to job vacancies, screening and interviewing processes, and services associated with selection, such as medical examinations checks.
Lost of productivity associated with the interim period before a replacement can be placed on the job.
Lost productivity due to the time required for a new employee to get up to speed on the job that includes knowing the process, knowing the environment and attaining sufficient trainings.
Lost productivity associated with the time that co-workers must spend away from their work to help a new employee. This is a known issue where co-workers will spend some time helping and guiding the newly hired employee in their assignments and tasks.
The costs of training where a certain skill must be attain for the job that also includes the supervisory and co-worker time spent in training for the new employees, as well as the time that the new employee must spend off the job.
The costs associated with the period prior to voluntary turnover when employee tends to be less productive as they are leaving the job soon.
In some cases costs associated with the communication of proprietary trade secrets, procedures, and skills to competitive organizations. This is likely to be seen when an employee hoops to a competitor.
4.0 Recommendation and Solution
We have discussed and critic some of the possibility and factors that lead to high employee turnover in organization. Furthermore we will provide some recommendation and strategy to help organization in Malaysia to better retain their employees and win in the war for talent.
4.1 Management Strategies: Employee Retention Program
According to (Management Training Systems, 2010) many of the costs of employee turnover are indirect, but the key to minimizing employee turnover, and thereby saving the organization quite a lot of money, is very direct. Employee retention is the key to reducing employee turnover. That might sound obvious, but employee retention is a difficult task.
Definition of employee retention program by (George E. Pataki, George H. Madison, & George C. Sinnott, 2002) states that an effective employee retention program is a systematic effort to create and foster an environment that encourages employees to remain employed by having policies and practices in place that address their diverse needs. Below will be the steps and measure to be taken into consideration when we are looking into employee retention program.
Good leadership team and manager
Having a good leader or manager is crucial to the issue of employee retention. A good manager will influence the employee working under his team to either be fully engaged and satisfied or to feel neglected and demotivated. Manager plays a critical role to make sure that his entire team are engaged and motivated. A simply sentence like “You matter so much to me and to this team. I can’t imagine losing you” will make the employee felt valued for the work done.
Opportunity to advance as company grows.
Growing companies can offer ample opportunities to promote existing employees. Make sure to not just offer the opportunity, but the training and development to make such advancement possible.
Positive and healthy work environment.
The positive culture of a business is what draws many employees to work for you in the beginning. The stresses of growth can often change this part of the culture of a business. Measure must be taken to maintain the culture you intended to create in the early days of the business.
Job Satisfaction and Intrinsic Motivation.
Job design and job satisfaction is crucial to keep employees on the top of their performances and to retain them from leaving. This is discussed earlier in the Malaysia Case Study where job satisfaction is a key reason resulting employee turnover in organization. The Management has to make sure that the recruitment of employees fits the job design and goals in order to keep the employees satisfy and intrinsically motivated on the job requirements.
Extrinsic reward like sales incentive, performances bonuses, pay increment and loyalty bonuses based on number of serving years as discussed earlier are important to retain key employees. Besides that, job recognition, competitive wages, status, respect, and so forth, are also important to most employees to feel that they are being valued by the organization.
Create more social community or special interest group where employees of the same interest can get together after work hours. Social group like weekly badminton session, photography session can help employees to stay engaged with each other and be committed toward an organization. Do not underestimate the power of these social bonds to retain employees.
Clear Organizational mission and vision
Share and keep employees informed of where the organization is headed, and keep them updated on the progress. Organizational Mission and Vision can help get everyone focused on the tasks at hand and make them realize the bigger picture of how their contribution and hard work will lead the growth of the organization. And not forgetting to also share the progress with the employees and recognizing the key achievers, thus making them committed to achieve the organization’s mission.
Employee career path and growth.
Many employees leave because they are worried they will not fit in as the business expands. Some employees might felt that they do not have a clear career path as in what can they do next. The management can look into this matter by providing career plans for each employee to help them understand their place in the organization. And when necessary, management offer training and developing programs for them to scale.
Job Stress and Opportunity for work life balances.
Although due to the expanding of organization and business may result in longer working hours and stress on the employees. Job stress must not be overlook as an issue; adequate amount of well managed work stress is healthy to obtain better performance. But extensive and poorly manage stress level will lead to poor job satisfaction and further more contribute to turnover rate. Management must ensure that all their employee have the capability to deal with work stress by occasionally having stress management workshop or having some social group event that help in releasing work stress. Organization must also look into the work life balance issue where employees have sufficient personal and family time.
4.2 Management Strategies: Employee Motivating
Management should also look into the basic of employee motivation concept to where it will influence the turnover rate. As being said earlier, a highly motivated employee will be less likely to leave a job. Organization should provide training in the context of employee motivation to all management and line manager. This is to ensure that they are aware of the needs and requirement to have their employees motivated. Referring Abraham Maslow’s hierarchy of needs that states that, people are motivated by multiple needs in a hierarchical order across different stages. Hence, manager plays a vital role in evaluating these needs and to try to fulfill these needs to keep a highly motivated workforce.
4.3 Management Strategies: Employee Engagement
(Gerard H. Seijts, Dan Crim, 2006) An employee that is engaged will be someone who is fully involved and committed in, and is enthusiastic about this or her work. An engaged employee will also take the work into a personal level and care about the future and growth of the organization where he or she is willing to invest more efforts to see the organization succeeds.
By considering this recommendation, organization will build a workforce that is so emotional attached (by taking work to a personal level), committed to their job and also productive and effective. Thus, the chances of the employee turnover will be minimized as they are highly engaged and driven to be align with the organization goal.
Employee engagement can be achieved in many ways. An example of employee engagement process will be for the management to stay connected with your employees by having breakfast talk, quarterly company meeting to hear and gather feedback from the employee. And by sharing of clear organization vision and having profit-sharing scheme that will benefit every employee for their contribution in the organization will be another example to get employee engaged to an organization.
Employee turnover is a significant problem for the majority of the organization around the world. It is a great lost for an organization to lose a key employee and furthermore losing it to a competitor. We believe that high employee turnover rate will be major organizational liabilities that need to be minimized and it is proven to be costly, and should be closely monitored and certain employee retention program should be continuously improved.
As a conclusion, we think that the culture of job hoping in Malaysia is becoming a serious issue and should be seriously look into by the management of an organization. And by understand the factors and reasons that are influencing this in your organization and why, thus we can develop a retention plan with new strategies to reduce the cost of employee turnover.