HRM Project And Employee Attrition

Employee attrition is one of the most researched areas in HR practices. This report endeavors to review the available literature and develop a clear understanding regarding the possible reasons behind attrition. We first look at the IT industry in India which reflects high attrition rates despite an impressive growth rate. As the cost of turnover starts rising in terms of employing and training new staff, the profitability of the organization also declines. The major causes for change are better monetary attractiveness of another job, or dissatisfaction with the current job in terms of supervisor, appraisals etc.

We conducted a survey among the existing as well as previous employees of Wipro and tried to find out the major reasons behind the increasing trend in the employee attrition. Though the analysis showed that Wipro had a very competent pay structure, but the major factor affecting the turnover was policies and practices.

EMPLOYEE ATTRITION:

Employee attrition is the rate at which organizations and/or company’s hiring and fire employees to either represent their firm or leave their firms. It is also referred to the employee turnover rate.

This rate shows how often the employees at a place of business change over the course of a month. Usually companies prefer a low attrition rate, but the rates differ based on the industry. For example, a fast food restaurant will have a higher employee turnover compared to a law firm. A lower employee turnover rate allows a company to keep coherence over the year.

The attrition rate has always been a sensitive issue for all organizations. Calculating employee turnover rate is not that simple as it seems to be. No common formula can be used by all the organizations. A formula had to be devised keeping in view the nature of the business and different job functions. Moreover, calculating attrition rate is not only about devising a mathematical formula. It also has to take into account the root of the problem by going back to the hiring stage. Most organisations do not evolve robust measurements for calculating the cost of labour turnover or a bad hire. The details of information required and the measurement metrics are not common formulae, but have to be designed in keeping with the nature of the business and different job functions. As a result, most organizations do not intend to mislead by disclosing statistics which may not be true; it is just that perhaps they believe those to be true. It is imperative to evolve the science of measurement before the measure itself.

Factors affecting employee attrition

Compensation

Compensation constitutes the major part of the employee retention process. The employees mostly always have high hopes regarding their compensation packages. Compensation varies with the industry. So, an attractive compensation package mostly plays a critical role in the turnover of employees.

Environment

For an organization that does not manage its people well, employee attrition is a major problem. Organizations that focus on managing the work environment tend 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

Employee Growth

Growth is an integral part of every individual’s career. If an employee can’t foresee his path of career development in the current organization, chances are that he’ll leave the organization as soon as an opportunity is made available.

Management Support

Lack of support from management can many times serve as a reason for employee turnover. Management should focus on its employees and support them not only in their difficult professional times but also in the times of personal crisis. This can be done by providing them recognition and appreciation.

Employers can provide valuable feedback to all employees and make them feel valued to the organization.

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 environment in terms of personal and/or professional relationships. There are times when an employee starts feeling resentment towards the management or peers due to one or more of many reasons. This decreases employee’s interest and he becomes demotivated. It leads to less satisfaction and eventually attrition.

Methods to calculate attrition:

The following are the three common methods companies use in calculating employee attrition:

Method 1:

While there are many techniques for calculating the cost of turnover, the following is one of the best. It takes into account expenses involved to replace an employee leaving an organization.

Recruitment cost

The cost to your business when hiring new employees includes the following six factors plus 10 percent for incidentals such as background screening:

Time spent on sourcing replacement

Time spent on recruitment and selection

Travel expenses, if any

Re-location costs, if any n Training/ramp-up time

Background/reference screening.

Additionally, for the positions that are billable, there is a lost opportunity cost. This can be done using the revenue factor.

Training and development cost

To estimate the cost of training and developing new employees, start off by looking at the cost of new hire orientation. This will mean direct and indirect costs, and can be largely classified under the following heads:

Training materials

Technology

Employee benefits

Trainers’ time.

Administration cost

Additionally, you may want to measure the per-employee cost to:

Set up communication systems

Add employees to the HR system

Set up the new hire’s workspace

Set up ID-cards, access cards, etc.

On the softer side, to estimate the learning curve or productivity cost, estimate the average amount of time it takes an employee in a new position to get up to speed and produce at the average rate for the organisation. If it takes a new employee six months to reach average productivity, the average productivity loss is 50 percent. Use your annual revenue factor result and multiply it by the productivity loss.

The result of these costs (and an additional 10 percent to cover other hiring costs such as background checks, credit checks, drug screening, and other administrative costs) can give you fairly accurate calculation of turnover cost.

The ideal methodology is:

Cost of hiring employees (hard and soft costs) + Cost of training and developing new employees (hard and soft costs) = Total Cost of Voluntary Turnover

Method 2:

Some organizations calculate it at 150 percent of the yearly salary of the exiting employee. For managerial and sales positions, the cost can go up to 200-250 percent of the yearly salary of the employee.

Method 3:

Another way to estimate the cost impact of turnover on companies is to look at the total compensation costs as a proportion of a firm’s revenue. According to one study, corporate on an average spend 36 percent of their revenue on human capital expenses.

Again, using conservative estimates, for a company with the total compensation costs at this average, an average rate of employee turnover of 25 percent and the cost associated with turnover equivalent to one-time salary.

INDIAN IT INDUSTRY:

Globalization, customization of services for the clients, timely delivery of services, rapid innovation and embracing of technology to keep cutting costs in order to remain competitive in the global market are some of the challenges faced by the Indian IT industry. All these tasks have one thing in common- a resource which when not managed well, would lead to the derailment of the fast moving IT express. The resource is nothing but the manpower employed in the IT firms.

The IT industry is not all about fat pay packages, foreign tours, prestigious training programs and coding on computers. It is also about working long hours, sleepless nights, monotonous work, stressing deadlines and of course attrition. The young programmers and managers, who join the hallowed portals of the most prestigious IT companies in India, are often disgruntled and leave.

Attrition is taken as a measure of the maturity of an industry and it helps avoid the unpleasantness of laying off people, but the figure should be around 4-5 percent. However, in the Indian IT industry, the attrition has far overshot the mark.

The retention policies employed by the companies leave a lot to be desired and a proper grievance handling and suggestion system is often found lacking in many companies.

The concept of knowledge workers is fast catching up in the Indian IT industry. The employers are realizing that there are many variables that determine an employee’s stay at a company. They are not just motivated by hygiene factors like salary alone but also look for softer rewards like a challenging job, clarity of work, catering to training needs etc.

In the recent decades the whole industry has changed its outlook. The employment scene has changed its appearance. The factors like skill sets, job satisfaction drive the employment and not just the money. The employer hence faces the heat of continuous employee turnover. Continuous efforts are made by organizations to control the employee turnover rate as it directly affects the performance of the organisation as many key people leave the organisations for various reasons at crucial points.

Attrition rate in Indian IT industry had gone down in the past few years. This dip in attrition rate was not sudden. It had happened to recent slowdown in world market. However, the main reasons of the downfall of attrition rate were lesser number of new jobs in industry and companies preferring cheaper freshers over experienced employees. Looking at the current attrition rate of the big 3 of Indian IT industry in 2009, we find that, for the last quarter, attrition rate for TCS, Wipro and Infosys were 11.9%, 11.9% and 11.8 % respectively. One year back, the rate was 11.5%, 20.10% and 13.7 % respectively for the three IT majors.

But high attrition rates return to plague Indian IT industry in the year 2010. The attrition rate is growing alarmingly at the rate of 18-25% at present.

The requirement for manpower has increased manifold with the growing demand for IT and ITES services worldwide. This has virtually created a big challenge for the HR managers in the IT industry. It is suggested that in such a situation the IT and ITeS firms ought to take on fresher graduates from technical institutes and train them to fulfill the void due to attrition. Such an approach will help the tech firms in meeting their manpower requirements in the long run.

Now the IT professionals do not have much choice. Earlier IT companies were fighting for people who were good in different IT technologies. Now the scenario has changed, now they are fighting for their survival and new businesses. However the attrition rate is still in double digit as IT companies have been quietly laying off employees due to performance issues, back ground checks and not clearing the tests after training.

About Wipro

Literature Review:

Attrition is becoming a big problem in IT industry. Companies spend a lot in employee training and development but they leave soon. There are lots of researches going on to find out the exact parameters that affect attrition in today’s global and diverse business world. As per some of the existing literatures, we found out :

Another look at payroll savings incentive plan as an aid in curbing employee attrition ~ John L Hunsucker :

As per the research, introducing a well structured payroll plan will help in curbing employee turnover. However, if attrition does not reduce then the company gains on the monetary end. In introducing any such plan one should take great care in studying the feasibility of the plan, educating the employees regarding the plan, running the plan for a trial period and convincing the employees that the plan is a privilege not a plan.

Does employee training lead to attrition? ~ R Palan:

“Training does not necessarily lead to employee attrition when it is implemented well. When it is done solely for the sake of training, however, it contributes to employee attrition because there is no plan to optimize this organizational investment. To protect the training investment, HPT professionals should work out a comprehensive plan to link learning to career progress. The plan starts with the selection and recruitment of employees and ensures that training is a process, not an event. Engagement of the employee by the line manager and a competency-based learning culture go a long way to strengthen employee retention.”

Hypothesis:

The employee attrition in Wipro is related to the low compensation structure followed.

Methodology:

Sample design:

Two surveys were conducted – one for the existing employees of Wipro and another one for previous employees of Wipro. All the employees had work experience in the range of 0-8 years in Wipro below the manager’s level. The previous employees were surveyed by floating the questionnaire to them via personal contacts.

Survey Analysis:

Based on the survey, on both existing as well as previous employees of Wipro we tried to analyze what employees value the most and whether pay structure is of utmost importance to them.

Q. How satisfied are you with the current appraisal techniques employed in Wipro?

From the survey data analysis we can easily see that more than 50% people are dissatisfied with the appraisal process.

Let us take a sneak peek into the appraisal policy of Wipro.

The Appraisal process is a 3 step process

Goal and Objective setting:

At the beginning of the year the employee and the manager together sets the employee goals and objectives. The objectives are arrived based on business requirements.

Interim appraisal:

It is a mid-year review of the employee performance. It is a stock-taking exercise where the employee receives feedback on his/her performance over the last half year.

Annual Appraisal:

The annual appraisal helps the employees to evaluate the performance and achievements over the last year and to create actions for the future.

Goals and objectives are rated on a five point rating scale as shown in the diagram embedded below.

Reasons of process failure;

As per the employees the ratings are given by the immediate manager/supervisor. The HR managers are few and have a very large number of employees under them. So the HR managers just approve the ratings given by the immediate supervisor which are biased. The ratings mostly follow quota system as per the project funds available. Since Wipro has a policy that each rating is associated with a percentage hike in salary so project funds impact a lot in setting the ratings and employees don’t get the correct ratings.

Other Reasons:

The following figure shows that almost 50% of employees feel that there is no proper communication flow from the managers. For example during the recession, most of the employees were in apprehension with respect to their job security. Also, around 50% of employees think they do not have the necessary resources to perform their job successfully.

Quarterly Performance linked Compensation program

The employees were not very happy about the QPLC payout policy. The multiplying factor is determined by the number of billable days and that is sometimes biased if the project cash flows are not as per expected.

Factor and Regression analysis:

On existing employees

In order to find what attributes affect most on employee satisfaction, we regressed the employee satisfaction with a number of attributes like

Base Pay

Bonus

Career progression at The Company thus far

Future career progression at The Company

The vacation time

The retirement plan

Medical insurance

Other benefits offered by The Company

The process used to determine annual raises

Annual raise

The process used to determine promotions

We found out that the overall satisfaction does not depend significantly on annual raise or the pay structure. Rather, the future career progression and the promotion process play the major role in it. We can summarize our hypothesis with the help of following equation

Overall Satisfaction = Constant + b1 (Future Career Progression) + b2 (Promotion Process)

From previous employees

Similarly, we regressed the data from previous employees to find out what parameters resulted in their new job searches.

Job was challenging

Work load was reasonable

Work environment was safe, comfortable

My supervisor recognized employee contribution

My supervisor was open to suggestion

The department was adequately staffed

The management gave equal and fair treatment

The management maintained consistent policies and practices

The management provided development opportunity

Training was fruitful

My co-workers treated me with respect

Here also we found out that the overall employee dissatisfaction does not depend significantly upon the compensation structure compared to job environment, open culture, consistent policy by management etc.

We can further reinforce our hypothesis with the help of following equation

Overall dissatisfaction = constant + b1(Challenging job) + b2(Reasonable workload) +b3(Open culture) + b4(Consistent policy) + b5(Development opportunity) + b6(Fruitful Training)

Conclusion

From the above analysis, it is clear that employee attrition in Wipro is not significantly dependent on the pay structure. Hence, we can reject our hypothesis that “The employee attrition in Wipro is related to the low compensation structure followed”

Recommendations

We suggest a new appraisal process “3S 3R Model ” or “Three Stage Three Review Model” . In this model we propose to introduce another layer of review by the hiring manager as shown in the diagram embedded below . This will help improve transparency and proper appraisal process.

Hiring Manager

Immediate Supervisor

HR Manager

Performance rating and salary hike should not be tightly tied

Ratings to be given as per performance, pay hike can be as per project funds

More focus should be on employee development , job design, proper recruitment , open culture ,proper communication

QPLC should not be dependent on billed days. It should only depend on company performance

Limitations

Only data pertaining to the employees at engineering level has been analyzed.

Due to lack of sufficient time and proper access, the sample size was small in number

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