Employee retention methods in fast food

This paper discusses employee retention methods that are used in the fast food industry, where the majority of employees are under 21 and in full time education. There are several large players that compete for these potential employees, this paper focuses on McDonalds.

This paper concludes that McDonald’s retention strategies are successful in some of their branches, although this level of retention is not uniform across the whole organisation. Therefore their strategies require closer monitoring, to successfully implement them.

2.0 Introduction

The human resource is increasingly viewed as being the most important resource in contributing to an organisation’s overall success in achieving corporate goals. Therefore human resource management is a vital component of the strategic decision making. Managing human resources comprises a range of issues such as recruitment and retention, employee development, reward schemes and promoting good relations. The first process is recruitment, to employ suitably qualified employees to contribute to the achievement of the corporate goals, in an efficient and cost-effective manner.

The important factor after recruitment is ensuring the right employees are trained and retained. This has both external and internal forces which can affect the retention rate of an organisation. There is a direct link between corporate strategy and people management, and the policy of strategic recruitment and retention. The fast food industry has historically been viewed as low-skilled and low paid work leading to a high rate of employee turnover.

The fast food giant Mc Donald’s has improved their pay and career prospects, this policy is aimed at both recruitment and retention of employees. The changing UK labour market has seen a higher educated workforce with individuals concerns of career development. Fast food organisations have had to adapt their HR strategies in order to compete in new global and national contexts effectively. This paper will investigate the features of recruitment and retention strategies by McDonalds; as a response to the new challenges.

Globalisation has led to the rapid expansion of multinational fast food companies, for example McDonald’s and KFC have entered the UK market. The integrated and interdependent global marketplace has led to fierce competition between fast food firms. Therefore multinational fast food companies should balance the various interests, needs, preferences and external conditions when implementing their HR strategies. Identifying these relevant factors is an important element of assessing the effectiveness of retention strategies.

McDonalds has expanded rapidly into new markets, these have challenged the organisations HR strategies. Each new country brings cultural and employment legislation differences from the home country. All these issues must be addressed before the expansion takes place.

The organisation trades on standardisation of their products. Whichever restaurant anywhere in the world that a customer visits the product and the service will be uniform. This has been referred to as McDonaldlisation; therefore all employees are trained to give the expected service no matter what the location. This training is a vital component of McDonalds global HR Strategy.

This is used as a tool for employee retention; although other methods such as reward and recognition are used. This paper will discuss all the relevant issues surrounding the topic of employee retention in the fast food industry, focusing on McDonalds.

2.1 Aims and objectives

This research aims to examine and evaluate McDonalds’ employee retention policies such as employee development programs and reward schemes. It will discuss how the organisation has responded to the challenges.

• The first objective of this work is to identify and explore the main challenges faced by retention strategies for employees in general, and focus on the fast food industry.

• The second objective of this work is to examine specific retention strategies exploited by a fast food company This will examined how they compete for staff within the UK labour market with other fast food companies.

The principal outcomes of this research will be an assessment of the effectiveness of McDonald’s employee retention schemes from the perspectives of those directly involved in the implementation of these schemes. Additional outcomes of the research include a detailed overview of general trends within the industry in relation to employee retention and development and a comparative analysis of McDonald’s policies in relation.

3.0 Methodology

This chapter discusses the research methods used for the project and the rationale for their choice. It discusses methods that were not used, with justification of why they were not included. Included is a critique of methods selected, and with hindsight identifies any changes that would have enhanced the research.

This paper critically evaluates the retention methods used by McDonald’s in their restaurants. McDonalds was selected as being the industry leader in its strategies for both marketing and the attracting and retaining of staff. A case study approach was chosen to link the theory with research; this can generate rich amounts of data relevant to particular organisational contexts. From the case study questions were generated to be used in further primary research (Yin, R 1994).

Selection of the topic was stimulated and formed out of increased publicity on the practices of HR that McDonalds utilise. The nature of the research was discussed with colleagues and fellow students this not only added practical ideas and suggestions, it opened new avenues of thought. This was the discussed with lecturers sounding out ideas, gauging opinions and clarifying the question. Focusing in on the question was obtained by employing relevance trees, narrowing the research area. This gave direction to the research, although with reviewing the literature this changed several times (Buzan, J. 1995).

Next, a research proposal was compiled, with the benefit of organising ideas and setting a time-scale for research. Theoretically, the proposal would highlight any difficulties with the research question and access to data. Creating a time-scale would focus on targets and meet deadlines in the completion of the paper.

The literature review, discussing theories and ideas that exist on the topic formed the foundation of the paper. The findings from the research are then tested on theories for validity (Saunders, M. et al 1997). The literature review was challenging, there is very little academic research on the topic area. Most of the literature focuses on operational issues, although a few focused on HR policies. There are a lot of articles in the Newspapers on the organisation; these were rejected due to the biased content, they appeared to sensationalised articles. Journal articles discussed the organisation in terms of its strategy and policies in HR practices. These journals articles, together with well documented theory were not only the back bone of the Literature review it constructed a theoretical framework.

Tertiary data sources, such as library catalogues and indexes were used to scan for secondary data. This produced journals and newspaper articles, and Internet addresses. With the amount of literature, it took time to sort out relevant material to the research. Narrowing down the search Bell’s (1993) six point’s parameters was applied. Applying key words that were identified in the first search produced relevant and up-to-date material (Bell, J.1993). A limitation on the literature search was the amount of time to read all articles and books on the subject. Whilst reviewing the literature references to other publications were followed and reviewed. Bells checklist on identifying the relevance of literature found was a practical method to reduce the amount of reading (Bell, J. 1993).

Ethical considerations in research fall into three categories, during design, collection, and reporting of the data. These areas were carefully considered at all stages of the research. The person privacy must not be evaded during interviewing Oppenheim (1996) referred to this stating “respecting the respondent’s right to privacy, as the right to refuse to answer certain or all questions” (Oppenheim, A.1996:84). By participating in the research, no harm should fall on the participant. It was decided not to interview employees, through the logistics of the method. Employees would have to give their time, plus a venue was required of site to maintain privacy (Saunders, M. et al 1997). Consent must be obtained from both the organisation and individuals before commencement of research. The data sought throughout the research should remain within the scope of the project (Saunders et al 1997).

Questionnaires were selected to obtain the overall picture of recruitment, and retention from employees. The results will be compared to the literature review, which will validate the theory and the case study, to form an overall picture retention policy and practices. Before the questionnaires were distributed a letter was delivered given to all employees explaining the purpose of the research, and how the information was to be used. The letter contained a contact number for the researcher, and gave a guarantee of anonymity of the information. An advantage of communicating to respondents before the questionnaire was that it increased the response rate, and addressed ethical concerns (Saunders et al 1997).

Fellow students were used to pilot the questionnaires; to test the information gained from the questions and the time take to complete it. From this, adjustments were made on the wording, removing technical jargon (Bell 1993). From the closeness of the relationship between researcher and the respondent, a problem arose that individuals could be recognised from their handwriting. This was addressed by using a tick box format, with no coding to recognise individual responses, maintaining anonymity of the respondent (Saunders et al 1997). A benefit from using this format was the data collected was quantitative. Closed questions maintained the anonymity of the participants, but had the disadvantage of limiting the data that could be collected (Cresswell 1994).

Other methods of data collection were considered and rejected. Focus groups would have offered free flowing information. This could have been facilitated with discussion led by the researcher. The idea was rejected due to the limited contacts within the organisations. This would also be unethical to place pressure on their goodwill. The methods that were used to collect data followed in a logical order. Each method validated the findings from another method, triangulating the results therefore reducing bias.

4.0 Literature Review

This section of the paper discusses the relevant theory on the topic. Starting with HR and focusing in on retention and the strategies employed to increase the organisation’s level.

4.1 Human Resource Management

The concept of human resource management has emerged from the 1980s into a core consideration of corporate strategy in the 1990s, (Legge, L 1995). There is no single definition of HRM in the literature yet the emphasis has to a large extent been on the strategic role of human resource management in organisations. Some research has identified HRM with strategic aspects of ‘best-fit’ or aligning people to the needs of the organisation as expressed in corporate strategy and others have examined HRM as a means of gaining enhanced organisational performance, (Golding, N (2004) cited in Beardwell, I. et al 2004). However the contribution that human resource may make to an organisation’s performance and effectiveness has been linked closely to the changes in different business environments including macro and micro contexts.

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Recognition of the importance of HR has increased in recent years; this is a result of competition from overseas economies. In countries for example Japan, Germany and Sweden investment in employee development is higher that the UK. This has led to some organisations reviewing their policies on training introducing continuous investment in their employees Although when multinational organisations have entered the UK, they have introduced their global HR policies (Beardwell, I. et al 2004).

For HR to succeed it must take on a proactive role within the organisation. Strategic HR creates value by providing opportunities for organic learning, development of intellectual capital and enhances core competencies. This value is crucial to the organisation’s future success (Treen, D. 2000). Employers are increasing extorting the best possible performance from employees. Best practice will increase the skills of the current workforce, and with recruiting it will reinforce the culture of a highly skilled work force (Mullins, L. 2005). Strategic HRM has gained both credibility and popularity over the past decade, specifically with respect to its impact on organisational performance (Paauwe, J & Boselie P. 2003).

4.2 Human Resource Strategy

To fully exploit the wealth of knowledge contained within an organisation, it must be realised that it is in human resource management that the most significant advances will be made. As a result, the human resource department must be made a central figure in an organisation’s strategy to establish a knowledge basis for its operations (Mullins, L. 2005).

There are fundamental differences in the approach to HR. Storey (1987) discussed these as ‘hard’ and `soft’ versions of HRM. The ‘hard’ version places little emphasis on workers’ concerns and, therefore, within its concept, any judgments of the effectiveness of HRM would be based on business performance criteria only. In contrast, ‘soft’ HRM, while also having business performance as its primary concern, would be more likely to advocate a parallel concern for workers’ outcomes (Storey cited in Guest, D. 1999).

These models of HR theory, will justify why there has been an increase in this management practice. Walton (1985) defined HR as “mutual goals, mutual influence, mutual respect, mutual rewards, and mutual responsibility” Walton further added that the ‘psychological contract’ under this unitarist, high commitment model is one of mutuality, but it is a mutuality strictly bounded by the need to operate within an essentially unitary framework (Walton cited in Beardwell, l. et al 2004)

The image of training and development has changed and can be used a key driver for delivering shareholder value (Rogers 2004:25). This increase in training priority has been supported by a rise in Human Resource Management. This practice emphasises that increased growth can only be maintained in the long run; by equipping the work force with the skills they need to complete their tasks (Mullins, L. 2005).

4.3 Human resource as a Control System

There is a need for a higher value to be placed on employees. And therefore get the best performance from the employees. According to Delany (2001) “successful organisations keep people issues at the fore front of their thinking and at the core of their decision making and planning”. Delany adds “organisations that get the people things right are the organisations likely to be around in the future” (Delany (2001) cited in Mullins, L. 2005:748).

Although some commentators have argued that the role of human resource explicitly views employees as another resource for managers to exploit. In the past, managements had failed to align their human resource systems with business strategy and therefore failed to exploit or utilise their human resources to the full. The force to take on HRM is therefore, based on the business case of a need to respond to an external threat from increasing competition (Guest, D 1999).

This view reflects a longstanding capitalist tradition in which the worker is viewed as a commodity. The consequential exploitation may be paternalist and benevolent; but, equally, it may operate against the interests of workers. Essentially, workers are simply resources to be squeezed and disposed of as business requirements dictate. More importantly, the interests of workers and their well-being are of no significance in themselves. As John Monks (1998) stated “In the wrong hands HRM becomes both a sharp weapon to prise workers apart from their union and a blunt instrument to bully workers” (Monks (1998) cited in Guest, D 1999:258).

There are conflicting views on the justification behind implementing HR practices; one extreme views the practice as a control mechanism. The employee is central to any strategy, and should feel a valued part of the organisation.

4.4 Human Resource Function

The role of HR should not be administrative based; it should be a part of the long term strategy of the organisation. Appointed an HR manager to the board is the only way this can happen (Beardwell et al 2004).Rogers (2004) discussed the “role of developing human capital strategies that HR has a real opportunity to shine”. There are numerous HR departments are failing to deliver the goods (Rogers 2004:25).

4.5 Retention

There are hidden costs involved when there is a high turnover of employees, but each organisation deferrers in what is the normal level of retention. It is not just a low retention rate that can cause problems to an organisation, if this is too high it can lead to a “stagnant” workforce.

There is no overall “right” level, and this is dependent on a number of factors, both internal and external. Pizza Hut has a staff turnover of more than 50% per year; this figure takes into account the vast number of casual and student workers the company employs. The technology company, 3M, whose has a wide range of career opportunities for employees, retains a high proportion of its staff (Rigby, R. 2003).

When there is high retention this introduces new problems for the organisation. High retention levels, rather than being a company-wide problem, will often occur in pockets within businesses. For instance, an employee or a team may have become so good at their job(s), that their boss cannot bear too lose them or even promote them, which can lead to stagnation and de-motivation of their employees (Rigby, R. 2003).

If retention levels are in line with the norm for the type of organisation, then the productive employees should be encouraged to stay and the poor performers encouraged to leave. If this were measurable the then organisations would retain employees whose contribution produces a positive risk adjusted profit for the firm. These employees would have a positive influence on the firm (Sigler, K.1999).

4.6 Cost to the organisation

A major factor of a high level of employee turnover that impinges on an organisation is the cost. The costs can be broken down into the costs of leaving, replacements, transition and indirect. The leaving costs are the payroll and the personnel administration of the employee leaving. The replacement costs are spent on recruitment of potential employees, the money and time spent on interviewing and any placement fees involved. Transition costs for a company include the training costs of new employees the unproductive time while the new employee is learning the skills required and any induction costs for the new employee. The indirect cost to a company is the potential loss of revenue because of decreased levels of customer service

The cost of replacing workers who have left can amount to two and half times a worker’s annual salary. These costs are rarely specifically identified in any accounting records. Therefore turnover cost data should be used to demonstrate the success of retention strategies over time (Risher, H. and Stopper, W. 2002).

Apart from the significant economic impact with an organisation losing any of its critical employees, there is also the knowledge that is lost with the employee’s departure. This is the knowledge that is used to meet the needs and expectations of the customers (Bassi (1997) cited in Ramlall, S. 2004:54). Organisations cannot take a passive attitude toward knowledge management, Instead they should seek to sustain the competitive advantage and develop systems to control the value of knowledge (Stewart, (1997) cited in Ramlall, S. 2004:54).

The Human capital theory suggests that some labour is more productive than other labour simply because more resources have been invested into the training of that labour, in the same manner that a machine that has had more resources invested into it is apt to be more productive (Ramlall, S. 2004).

Employers need to review all the costs involved with employee turnover, not all cost are financial, hidden costs include the reduction in knowledge. These are not tangible, and will not show on the companies accounts, but through a lack of skills this can reduce the long term profit.

4.7 Recruitment

Key to retaining the right employees is recruiting them in the first place. This process must given consideration to their long term value to the organisation. The attraction and retention of key talent, is increasingly pivotal to organisational success. The ability to achieve competitive advantage through people depends in large part on the composition of the work force. This, is the function of who is hired, and how they are developed, these factors will lead to who is retained (Sturman, M 2003).

Retention begins at recruitment time, so it is important to select for organisational and cultural fit, not merely against the technical and skills requirements of a given job. Best practice companies have known this for a long time, and ensure that the selection process allows a full assessment of candidates’ abilities, interests, aspirations, and values, and a deliberate review of how well these match their organisational culture (Risher, H. and Stopper, W. 2002).

Organisations are under increasing pressure to recruit the right people for the right job. The economic cost of getting this wrong can be vast, with the resources that have been ploughed into the process. Numerous factors are to be considered during this process including the culture of the organisation, legal implications, attracting and employing the correct candidate and the cost in time and resources. Therefore it is paramount that the process is fair, reliable and valid (Armstrong, M. 2001).

Hacker, C.A. (1996) discussed the process of recruitment and advises that employers should consider three areas when they are preparing to employee, these are “the cost per hire of an employee; turnover rate; and productivity.” The recruiting of an employee contains hidden costs; these include advertising and the time that is employed on screening and interviewing the prospective employee. Therefore, if the recruitment of people is not cost effective option, then high turnover of employees must be avoided. Retention of the current workforce is the most economic solution to an organisation (Hacker, C.A. 1996).

The employer’s requirements relate to the labour process that is the supply side of the labour market. This is simply employing suitable people for the roles that are required. While this is described as the “human capital”, this is a “sterile and limited interpretation of a variety of personal characteristics and dispositions which employees bring to the workplace” (Alcorso, C. 2003).

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As Beardwell and Holden (1994) emphasise “essential to a good HRM practice is recruitment and selection, which must consider correct “fit” between personnel and job in order to maximise efficiency in terms of retention and HRM strategic planning”. The organisation can use the recruitment process to continue, enhance or even change the organisational culture. When a change of strategic direction is required, recruiting the right candidates is a important factor to increase the chance of success (Beardwell, I. & Holden, L. 1994:225).

There are various recruiting sources, but their success rates are not equal. For example, employee referrals will yield higher quality workers than do sources such as newspaper ads or employment agencies. In a survey the top three sources of successful candidates are employee referrals, college recruiting and executive search firms. All these methods should be considered for effective recruitment. Although the best recruiting sources are still dependant on the type of industry and the job skills required by the organisation (Terpstra, D. 1996).

Recruitment of the right candidate is problematic, the skill of the recruiter is vital to appointing a successful candidate. Insufficient information about employees’ performance can result in adverse selection by Managers. This arises from where the manager does not know the information h to ask from the candidate and the candidate does not know what to provide. Therefore, productive workers cannot distinguish themselves from non productive candidates (Sigler, K. 1999).

Reviewing and monitoring recruitment practices can lead to a reduction in key employees leaving. If the first stage of retention is recruitment, then best practice will lead to the correct candidate being selected. In the long term this will increase the retention levels of key employees within the organisation.

4.8 Human Resource Development

The principal function of any organisation is to increase the value of the business and therefore enhance the wealth of its Owner(s). This is obtained by efficient use of the limited “resources” available to them (Blackwood, T 1995). Garrick (1998) discussed that HRD is inextricably linked to market economics, that “knowledge is prized in so far as it can generate a market advantage”(Garrick, J 1998:5). Leading to the assumption that HRD can give the organisation advantage aiding the ability to increase profit.

Therefore using that theory HRD should be viewed as a vital function of all organisations, and not just there to satisfy training issues, a proactive role. Garavan et al (2000) discusses the emergence of strategic HRD practices, which are directly linked to the organisation’s strategies, with profit maximising paramount, HRD is a tool that should be employed to obtain and support this (Garavan et al, 2000).

HR and training literatures highlights the organisational benefits to be gained from adopting a systematic approach to HRD, therefore the ongoing development of employees’ skills underpins the wider business objectives (Keep, E 1989). This systematic approach to training often includes models that identifying needs, planning, delivery and evaluation. Harrison developed an eight stage model to identify monitor and evaluate training. The evaluation stage is possibly the most problematic part of the training process (Reid, M.and Barrington, H. 1997).

4.9 Training

Training can be defined as a planned process to change attitudes, knowledge or skills and behaviour through a range of activities to achieve effective performance. When this training is in the work situation, it develops the employee to satisfy current or future needs of the organisation (Beardwell, I et al 2004)

It is generally accepted that methods of training can usually be separated into two categories: on-the-job, and, off-the-job. On-the-job training is implemented at the trainee’s workplace, while off-the-job training is conducted away from the trainee’s workplace and takes them outside of their work environment (Mullins, L. 2005).

Training can be used as a change agent, to change the culture of an organisation. It is also a tool to improve organisational effectiveness, especially in fiercely competitive markets. All too often organisations that are facing financial problems will cut back the training program, where as they could be used to increase overall performance. The training budget is viewed too often as an expendable, and the first to cut or even go in crises (Rogers 2004).

4.10 Reward systems

Amongst the theorist there a several key areas of management, which affects the retention of key employees, this includes motivation, job satisfaction, reward systems and the psychological contract. The first area reviewed is reward systems; these can be both intrinsic and extrinsic.

Reward systems are one of the four key policies within strategic HR. the organisation can use this tool to raise commitment, competence, and congruence and it is cost effective. With individuals having more control on their reward, at a basic level this can motivate, at a higher level can introduce self esteem and self worth. These values are congruent to the organisations values and principles (Beardwell, I et al 2004). PRP is an individualised form of payment which reflects individual’s performance. These increases may determine the rate of progression through an organisation (Farnham, D. 2002).

The problem of attempting to keep talented members of the work force is further complicated because of bounded rationality. This leaves colleagues who cannot improve their positions within the hierarchy more likely to remain with the organisation. This is often due to inadequate information on outstanding performance, therefore it is not recognises financially. Non-productive and productive workers end up receiving the same or nearly the same compensation and package of perks because of management’s inability to distinguish talented employees from the rest of the labour force in the organisation (Sigler, K. 1999:2)

Incentive pay can be used for employees, setting targets and when they are met rewarding with cash bonuses. Share ownership by the employee is another type of pay incentive. It in essence makes the employee a shareholder of the organisation aligning the interests of the employee with the owners. Employee share ownership can come through restricted share plans where ownership of the share is not transferred to the employee until after a specific period of time has passed or a specific goal has been achieved. This not only provides the employee with the incentive to drive the share price higher through their work effort, but also remain with the organisation until maturity of the plan (Sigler, K. 1999:3)

4.11 Motivation

There are four main categories that the theories of motivation are classified (1) Economic needs of man, money motivates, Taylorism (2) Social concept of motivation, from the Hawthorne studies (3) Self actualisation this took the findings from the Hawthorne studies further, psychological issues were studied (4) the contingency approach, large number of variables that influence a person’s motivation. These theories all have factors that relate to the work place (Mullins L. 2005).

Motivation is an individual’s perception of their worth, role and work environment within an organisation. There are common motivational factors that employees share, although when satisfied will lead to different levels of motivation. Both Intrinsic and extrinsic rewards add to the motivation level of employees, if managed correctly. Although the perceived equitable reward varies amongst employees, those who receive less than their perceived value will feel undervalued, and not motivated. This will impinge on job satisfaction, with employees feeling dissatisfied with their award (Mullins, L. 2005).

Mitchell (1982) described motivation as the “psychological process” that cause the arousal, direction, and persistence of voluntary actions that are goal oriented (Mitchell (1982) cited in Ramlall, S. 2004:55). Motivation defined by Robbins (1993):55) is the “willingness to exert high levels of effort toward organisational goals, conditioned by the effort’s ability to satisfy some individual need.” The need in this framework is an internal state that makes certain outcomes appears attractive. An unsatisfied need creates tension that stimulates drives within the individual. These drives then generate search behaviour to find particular goals that, if attained, will satisfy the need and lead to the reduction of tension (Robbins, (1993) cited in Ramlall, S. 2004:55).

When Maslow’s hierarchy theory is applied to organisations, the implications for managerial actions become obvious. “Managers have the responsibility to create a proper climate in which employees can develop to their fullest potential. Failure to provide such a climate, would increase employee frustration and result in poorer performance, lower job satisfaction, and increased withdrawal from the organisation” (Steers & Porter, (1983) cited in Ramlall, S. 2004:55).

Today’s issues of motivation are intricate and difficult, the closeness of supervision and in depth of the rules are no longer part of the work place. Employees are becoming self managed which requires them to be committed and demonstrate innovation and initiative in the work place. Since these “new” work patterns have emerged, new motivational factors have emerged “intrinsic rewards”, reward from the work. Satisfaction in the employees’ role, pride in the work produced. The work itself fulfils the employees motivation, even with some set backs, they obtain satisfaction from a job well done (Blyton, P & Turnbull, P. 2004).

4.12 Job Satisfaction

Apart from using compensation, an effective component to retaining talented employees can be accomplished through improving their job satisfaction. Employees that are satisfied with their job will have no reason to seek alternative employment.

Management can insure talented employees are given autonomy in their job functions and are given meaningful assignments, allowing them to be involved in the decision making for their area of expertise. Pleasant working conditions can entice productive workers to stay in their organisation and not look elsewhere. In addition, offering these employees training to keep them current on their job functions and allowing them to learn new skills can also be utilised to improve employee satisfaction with the organisation (Sigler, K.1999:3).

4.13 Monitoring Leavers

To help retain current employees it is useful to find out why individuals have left. This can highlight areas within management practice that can be reviewed, to prevent further wastage of employees.

Voluntary employee turnover can be either dysfunctional or functional for the organisation; this is dependent on who leaves. Both low and high performers are generally more likely to leave an organisation than are average performers. Therefore, organisations will often shed poor employees (functional turnover), but will also fail to retain star employees (dysfunctional turnover). Therefore organisations need to monitor their turnover of employees (Sturman, M 2003).

There are various ways in which labour turnover or wastage of employees can be measured. The Labour Turnover Index is the traditional method of measurement this is the most common method of measurement as it is easy to calculate and to understand. This Labour turnover rates provide a valuable means to benchmarking the effectiveness of HR policies and practices in organisations (Armstrong, M. 2001).

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An exit interviews are a wide spread tool for gathering information on reasons that employees leave. There is dispute on how much information can be gathered from exit interviews. Although for the organisation some information is better that none. This information can be reviewed for the interview stage, to reduce further turnover problems (Mullins, L 2005).

According to Armstrong (2001) the analysis of the number of leavers and the reasons why they leave provides information which will indicate whether any action is required to improve retention rates Most companies conduct exit interviews. However are they used to their full potential? They could highlight the reasons why existing employees may also leave or why some may be come unmotivated and dissatisfied with their role (Armstrong, M. 2001).

Organisations that run mentoring and induction schemes lose fewer employees shortly after appointment. Employees who have just started can feel alienated from new colleagues, with little work load to occupy their minds. This can lead to the feeling of making a mistake. By inducting the new employee will know about the organisation, structure and goals. Mentoring will introduce the employees to the organisational networks, giving them a point of contact when there is a problem (Mullins, L 2005).

Although there are advantages to monitoring leavers, the information given must be honest and reliable. It is just as important to induct new employees into the organisation, to prevent early turnover of employees.

4.14 Changing nature of work

The rigidity of classical organisations forced employees to look for protection, this came from the unions. The bargaining process concentrated on wages, working hours, benefits, job security, and health and safety. Representatives of management and unions would participate in these discussions (Blyton, P & Turnbull 2004). The union’s powers started to decline in 1979 when conservative leader Margaret Thatcher came to power (Wheen, F 2004).

The unions were replaced with HR practices, the reduction in collective bargaining allowed for individualism to enter the employment relationship. There were no more rigid pay scales to reward employees by. It is argued that this non intervention allowed management to control the reward system, and to gain control over the “effort” side of the wage bargain. (Beardwell, I. et al. 2004).

The changing workforce and the “free agent movement” which accounts for a quarter of the workforce are contract workers. Employee commitment and appointment remain central to building high-performance organisations. Building employment policies and practices around the “free agent” concept alone may undermine whatever chances the organisation has of holding top performers. The top businesses understand the need for differentiated policy frameworks. They understand that commitment and reciprocity are the basis for retaining high-value employees (Risher, H. and Stopper, W. 2002).

4.15 Psychological Contract

Organisations no longer offer “a job for life” there is no longer guaranteed employment, with a pension as a reward for loyalty and compliance. The “psychological contract” between employer and employee has shifted. Employees are increasingly mobile, changing employment for promotion, reward and job satisfaction; top employees have more choice as to where to work. To retain these key employees the organisations culture needs to allow an environment of personal growth (Harrison, R 2002). With less job security, the best reward an organisation can give an employee is transferable skills (Marchington M & Wilkinson, A 1997).

Rousseau, (1989) discussed the psychological contract has being defined as “an individuals’ beliefs regarding the terms and conditions of a reciprocal exchange agreement … key issues here include the belief that a promise is been made and a consideration offered in exchange for it” (Rousseau, (1989) cite in, Pate. J. et al 2003:558). In today’s turbulent climate it is often it unclear to what the employee and employer, actually owe each other, therefore this makes fulfilling the obligations difficult (Pate, J. et al 2003).

>From the turbulent climate there is an increased possibility of misinterpretation and violation of the psychological contract. This violation frequently relates to training and development, compensation and promotion, employees feel that the organisation has gone back on its promises (Pate, J. et al 2003). Robinson and Rousseau, (1994) discussed the psychological contract violation as “a failure of the organisation to fulfil one or more obligations of an individual’s psychological contract” (Robinson and Rousseau, (1994) cited in Pate, J. et al 2003:559).

However Morrison and Robinson (1997) have argued that this definition focuses on the rational, mental calculation of what individuals have or have not received and downplays the emotional aspect of violation, they make the distinction between psychological contract breach and violation. The perceived breach is “the cognition that one’s organisation has failed to meet one or more obligations within one’s psychological contract”. Therefore breach is the identification of perceived unmet obligations; consequently it may be relatively short-term phenomenon and may result in individuals returning to their relatively “stable” psychological contract state, or alternatively it may develop into full violation (Morrison and Robinson (1997) cited in Pate, J. et al 2003:558).

This Psychological contract is multi-faceted, Morrison and Robinson, (1997) believes it incorporates a wide range of responses. At one level, a violation invokes responses of disappointment, frustration and distress. At another level it will arouse more extreme emotional responses include anger, resentment, bitterness and indignation. As a result when an individual’s psychological contract is violated the relationship becomes more calculated and transactional, but how far it moves along the continuum is dependent on the strength of the perceived violation. In addition to the above mentioned, the employee could simply withdraw from the situation entirely, that is, quit the job and seek employment elsewhere (Morrison, E and Robinson, S 1997).

4.16 Career Development

Workers have been forced to take more responsibility for their own careers, going where the work is rewarding and where they can develop skills that will guarantee their employability in whatever organisation. This mobility and “free agency” has created greater competition for skilled workers between organisations. Good workers have more choices than before, and are more liable to use them. With all the costs involved in recruiting and training new employees, organisations need to retain them. And key to this is the intrinsic rewards (Harrison, R 2002).

Career development is important to the individual employee; Harrison (2002) noted this as an organised planned effort comprised of structured activities or processes that result in a mutual career-plotting effort between employees and the organisation. This is a central component of the psychological contract that binds the individual to the organisation (Harrisson, R 2002). This further complicates the role of the HRD practioner, balancing organisational needs with the individual’s expectations. Some employees will develop their career with one employer, while others require transferable skills. The organisation requires employees with the right skills to ensure and sustain competitive advantage (Reid, M,.and Barrington, H. 1997).

4.17 Management

Recent research validates factors such as stimulating and challenging work, career growth, learning, and development are keys to retention. This research challenges conventional HR perception in several aspects. The most notable disparity of views emerges when comparing the importance of “boss reputation,” the perceived quality of the immediate manager. The CLC research concluded that “high-value employees rate this as the single most important consideration in staying with an organisation, that 80 percent of turnover is related to unsatisfactory relationships with their boss (CLC (2001) Report accessed in Risher, H. and Stopper, W. 2002)

Management has a direct effect on retention, the behaviour and their skills all contribute to how an employee feels valued. Buckingham (2000) argued that “employees are more likely to remain with an organisation if they believe that their managers show interest and concern for them” Buckinham added that “They are know what is expected of them, if they are given a role that fits their capabilities and they receive regular positive feedback and recognition” (Buckingham (2000) in Beardwell, I. et al 2004:177).

Over 4,000 studies have been done since 1945 on why people resign; the most common reason is their line managers. The most important factor in retaining key employees is good leadership, if your boss is inspiring; you’re likely to stay (Rigby, R. 2003).

4.18 Graduate Retention

Organisations that have management training schemes retain a higher percentage of graduate recruits, than the average in their industry sector. This process builds ensure mutuality in career development, with both party’s knowing what is expected of them. The most successful of these programs are when the employee plans their own career development (Mullins, L. 2005).

Retention plans are vital for organisations. Kets de Vries stated that “today’s high performers are like frogs in a wheel barrow, they can jump out at any time” (Kets de Vries cited in Beardwell, I. et al 2004:176). It is increasing important that organisations recognise this and react upon it. When formulating a retention plan it should be based on the outcomes of labour turnover analysis and risk assessment. Retention plans can include all or some of the following, pay and benefits, recruitment and selection, training and development, job design and management (Beardwell, I. et al 2004).

Although with uncertain economic prospects it complicates retention strategies. In times of downsizing, the risks of losing top talent are especially high, in the long run intellectual capital remains the key competitive advantage for organisations that want to succeed in a global economy (Risher, H. and Stopper, W. 2002).

When recruiting graduates on fast track schemes a number of them would leave as soon as they qualified. The reason for this is life style change Rigby (2003) discussed this stating ‘By the time they qualified they would be thinking about buying property and settling down. But prices might have boon very high – or long hours might have made it very difficult to actually look for flats or houses’ (Rigby, R. 2003:30)

Another key issue with recruiting graduates is the organisation’s size. In large organisations there are often a number of routes for career progression, but in a small or medium-sized business this may not be the case. There are a lot of organisations with comfortable but somewhat de-motivated employees. They will never get the top job until the boss leaves, but there are several other employees in the same position (Rigby, R. 2003).

Retaining talented productive employees and eliminating poor performing employees is essential to the long run success of an organisation. But there are problems such as adverse selection, costs associated with turnover and skills gap. So many of the costs are hidden, which makes it very easy not to acknowledge poor retention as a problem.

Reward payment, share schemes and increasing employee job satisfaction may be useful in addressing the challenges surrounding employee retention. These if implemented successfully will lead to a motivated workforce that is happy to remain in their current position.

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