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Determinants of employee retention in the private education industry in Malaysia

Research Paper (postgraduate) 2019 30 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of contents

ABSTRACT

INTRODUCTION

LITERATURE REVIEW
THE NEED TO RETAIN CRITICAL EMPLOYEES
THEORETICAL BACKGROUND
ORGANIZATIONAL COMMITMENT
HERZBERG’S MOTIVATOR-HYGIENE THEORY
EQUITY THEORY
EXPECTANCY THEORY
SIDE-BET THEORY
INTRINSIC AND EXTRINSIC FACTORS ON ORGANIZATIONAL COMMITMENT
Employee Rewards: The Importance of Perceived Fairness
Promotion
Working Conditions
Employee Training & Development
Career Advancement Opportunities
Respect and Recognition
Organizational Empowerment
Job Security
Pay Satisfaction
Organization’s Reputation
EMPLOYEE RETENTION
PRIVATE EDUCATION INDUSTRY AND EMPLOYEE TURNOVER RATE IN MALAYSIA

THEORETICAL FRAMEWORK

THE MEASUREMENT MODEL

RESEARCH POPULATION AND INSTRUMENTATION

DATA ANALYSIS

RESULTS

SUMMARY AND CONCLUSIONS

RECOMMENDATIONS FOR FUTURE RESEARCH

REFERENCES

ABSTRACT

This study aims (1) to investigate the intrinsic and extrinsic factors that contribute to organizational commitment in the private education industry in Malaysia; (2) to identify how employee retention programs can be effectively implemented in this industry; and (3) to develop and empirically test a model of organizational commitment towards employee retention in the private education industry in Malaysia. Based on the author identification of intrinsic and extrinsic factors in the private education industry in Malaysia, this research used a questionnaire to assess (1) the Malaysian private education industry in terms of its cognition and perspective with regard to intrinsic and extrinsic factors that lead to organizational commitment, and (2) its organizational commitment toward achieving an effective employee retention program. A questionnaire survey method was used to collect primary data from emails that were sent to participants. The survey yielded 182 usable questionnaires, with a response rate of 35%. The author used statistical analysis methods and structural equation modeling with IBM AMOS version 19.0 to analyze the data. The research findings revealed that intrinsic and extrinsic factors as identified by the author and organization commitment were significantly and positively related to employee retention. Based on the research results, the author discusses managerial implications of the findings and opportunities for future research.

Keywords: Intrinsic factors, extrinsic factors, employee retention, private education, organization commitment, side-bet theory, equity theory, motivator-hygiene theory, expectancy theory.

INTRODUCTION

In today’s highly competitive business environment, organizations regardless of their sizes are facing employee retention challenges. Human resources are directly or indirectly related to all organizational processes and thus are important in allowing an organization to gain and sustain a competitive advantage. However, just to ensure employees stays on a payroll is meaningless, the company must also find out why employees stay. Organization must have a balance level of employee turnover, that is to mean that turnover must exist and the unwanted voluntary turnover should be reduced or avoided. This is because in today’s competitive environment, organization needs to have access to new ideas, change, dynamism and creativity. Losing talented employees results in a loss of investment since new employees will have to be recruited and trained along with the loss of intellectual capital and the risk of potential loss of confidential information to competitors (Frank, Finnegan, & Taylor, 2004; Walker, 2001). Hale (1998) stated that 86% of employers were experiencing difficulty attracting new employees and 58% of organizations claim that they are experiencing difficulty retaining their employees. Even when unemployment is high, organizations are particularly concerned about retaining their best employees.

To address these issues, this study builds a theoretical model with the help of intrinsic and extrinsic factors which lead to organizational commitment and its effect on employee retention with special focus on the private education industry in Malaysia. The author has identified the intrinsic and extrinsic factors that contribute to organizational commitment which in turns towards effective employee retention with special focus on the private education industry in Malaysia using expectancy theory, equity theory, the motivator-hygiene theory, and side-bet theory for the reason there were strong relationship between these theories and employee retention. Intrinsic factors such as respect and recognition, organizational empowerment, opportunity for training and development, organization’s reputation, and perceived fairness, whereas extrinsic factors such as job security, Career Advancement Opportunities, reward and fringe benefits, working condition, pay satisfaction, performance appraisal, and flexible work schedule.

LITERATURE REVIEW

THE NEED TO RETAIN CRITICAL EMPLOYEES

Employee retention is the overall ability of an organization to retain its best employees and hence maintain a lower turnover. An organization is able to achieve this by adopting various employee retention programs. An employee retention program involves steps starting from identifying the major contributors in the organization, and designing schemes to involve them with the organization to ensure that they do not leave. Matthew, Andrew & Mohsen (1991) stated that if a firm wants to keep its employees, it should study the reasons for retention and continuation, and work to reinforce them while employees are in their jobs and not when they are leaving. Presently, employees have become opportunistic which means they are not confined to work with a single employer, due to a wide range of employment options available to them for switching their jobs, which is a challenge for the employers in the context of retention of the current workforce (Singh and Rokade 2014).

Hughes and Rog (2008) stated that while the direct costs associated with the loss of an investment in hiring and training new employees are a problem, the indirect costs associated with the loss of organizational memory and knowhow, and the tacit knowledge that employees take with them upon departure are the organizations’ most crucial concerns.

Fitz-enz (1997) stated that the average company loses approximately $1 million with every 10 managerial and professional employees who leave the organization. Combined with direct and indirect costs, the total cost of an exempt employee turnover is a minimum of one year's pay and benefits, or a maximum of two years' pay and benefits. Therefore, organizations must develop strategies on how to retain their employees.

THEORETICAL BACKGROUND

ORGANIZATIONAL COMMITMENT

Organizational commitment may be viewed as an organizational member's psychological attachment to the organization. Mathieu and Zajac [1990] found organizational commitment to be strongly related to the intention to leave one’s job and to the intention to search for job alternatives. They also found a positive relationship between organizational commitment and lateness (tardiness) as well as organizational commitment and turnover. A better understanding of the behavior and a better knowledge of the antecedents of organizational commitment will therefore enable organizations to manage these withdrawal behaviors.

Organizational commitment increases employee job commitment which in turn influences employee retention in a positive way (Nawab & Bhatti, 2011). Enhance this commitment in initial stages will have strong influence in making the employee stay while in latter stages it will cause high performance (Bashir & Ramay, 2008).

Allen and Meyer (1990) divided organizational commitment into three components namely– affective, continuance, and normative. The affective component refers to the employee’s emotional attachment to, identification with and involvement in, the organization. In other words it is an employee’s want or desire to stay at an organization. The continuance component refers to commitment based on the costs that the employee associates with leaving the organization or it can be described as an individual’s need to stay at an organization.. The normative component refers to the employee’s feeling of obligation to remain with the organization. Hence, a commitment profile is the interaction between these three components. A low affective, continuance, and normative commitment increases the likelihood that a member will leave the organization, while high levels of affective, continuance, and normative commitment are related to high retention rates.

Barling & Cooper (2008) agreed that where employees’ organizational commitment is high, the likelihood of retention is high. On the other hand, if the employees’ organizational commitment is low, the likelihood of retention is low. Mowday, Porter, and Steers (1982) defined organizational commitment as a strong belief in and acceptance of the organization’s goals and values, a willing to exert considerable effort on behalf of the organization along with a strong desire to maintain membership in the organization. Employees with strong commitment continue employment with the organization because they want to do so.

HERZBERG’S MOTIVATOR-HYGIENE THEORY

Herzberg (1959) discovered that employees tended to describe satisfying experiences in terms of factors that were intrinsic to the content of the job itself. These factors were called "motivators" which includes achievement, recognition, the work itself, responsibility, advancement, and growth. Conversely, dissatisfying experiences, called "hygiene" factors, largely resulted from extrinsic, non-job-related factors, such as salary, coworker relations, supervisory styles and company policies (Steers, 1983). Herzberg (1959) further argued that eliminating the causes of dissatisfaction (through hygiene factors) would not result in a state of satisfaction and that satisfaction (and motivation) would occur only as a result of the use of motivators. The implications of this model of employee motivation are that motivation can be increased through jobs redesigned to allow for increased challenge and responsibility, opportunities for advancement, and personal growth, and recognition (Steers, 1983).

Therefore, there are more to a manager's role in motivating employees other than compensation, good working conditions, and similar factors.

EQUITY THEORY

Equity theory is concerned with people’s perception on how they are being treated (Adams, 1963). In other words it recognizes that individuals are concerned not only with the absolute amount of rewards they receive for their efforts, but also with the relationship of this amount to what others receive. When people perceive an imbalance in their outcome-input ratio relative to others, tension is created. This tension provides the basis for motivation, as people strive for what they perceive as equity and fairness (Robbins, 1993)

The concept of equity is most often interpreted in work organizations as a positive association between an employee's effort or performance on the job and the pay she or he receives. Pinder (1984) stated that feelings of inequitable treatment tend to occur when people believe they are not receiving fair returns for their efforts and other contributions. The consequences of employees perceiving they are not being treated fairly create a variety of options for the employees such as reducing their input through directly restricting their work output, attempting to increase their output by seeking salary increases or seeking a more enjoyable assignment (Champagne, 1989). Additionally, the employee could simply withdraw from the situation entirely, that is, quit the job and seek employment elsewhere.

The challenge therefore for organizations is to develop reward systems that are perceived to be fair and equitable and distributing the reward in accordance with employee beliefs about their own value to the organization.

EXPECTANCY THEORY

Expectancy theory holds that people are motivated to behave in ways that produce desired combinations of expected outcomes (Kreitner & Kinicki, 1999, p.227). In other words, when employees join the organisation with some expectations, the chances of negative behaviors such as absenteeism or turnover intention will increase if those expectations are not met. If employees perceive that greater effort is likely to lead them to the attainment of goals that are important to them, then they will be motivated to work harder.

Vroom (1964) introduced three variables within the expectancy theory which are valence (V), expectancy (E) and instrumentality (I) and explains that individuals can be motivated towards goals if they believe that there is a positive correlation between efforts and performance, the outcome of a favorable performance will result in a desirable reward, a reward from a performance will satisfy an important need, and/or the outcome satisfies their need enough to make the effort worthwhile.

The implication of expectancy theory is therefore, managers should use systems that tie rewards very closely to performance. Managers also need to ensure that the rewards provided are deserved and wanted by the recipients. In order to improve the effort-performance tie, managers should engage in training to improve their capabilities and improve their belief that added effort will in fact lead to better performance (Montana & Charnov, 2008).

SIDE-BET THEORY

Becker (1960) originally introduced the notion of side-bet investments as social mechanisms that operate in such a manner that they create penalties (e.g., loss of valued investments) which compel an individual to commit to a certain line of behavior. If the individual has few feasible alternatives, in terms of another job or career, their commitment to their current firm and occupation is strengthened. Since these investments would be lost or devalued if the individual were to leave the occupation or organization, the individual becomes committed so as to avoid losing the accumulated investments. Commitment increases as more side-bets are accumulated and if they are contingent upon continued employment in the firm (Becker, 1960; Ritzer & Trice, 1969; Hrebiniak & Alonso, 1973; Meyer & Allen, 1984; Mottaz, 1985, 1988). Investments in the organization may include the development of firm-specific skills or achievement of a high status position within the employing organization, the degree of participation in firm decisions or empowerment and flexible work schedule. Similarly, investments in the occupation may include belonging to occupational specific associations or attending professional meetings, which are most highly rewarded if one continues to be a member of that particular occupation.

Therefore, it is based on the reasoning that the longer an individual remains a member of an organization or occupation, the more she or he has invested in that particular organization or occupation (Ritzer & Trice, 1969; Meyer & Allen, 1984). Choosing to invest time and effort into organizational decision making reflects a side-bet investment because the value of participating in such decisions is largely firm-specific, and likely of little worth to other organizations. Moreover, the individual benefits from such decision making it, and only if, they continue to remain a member so that they are present when these decisions are put into action.

INTRINSIC AND EXTRINSIC FACTORS ON ORGANIZATIONAL COMMITMENT

Based on the theories as described above, the author has identified the intrinsic and extrinsic factors that contribute to organizational commitment which in turns toward effective employee retention program in the context of private education industry in Malaysia.

Intrinsic motivation is defined as an individual willingness to pursue an activity for self-satisfaction (Deci, Koestner, & Ryan, 1999). On the other hand, extrinsic motivation determines a behavior that is the result of the external factors e.g. rewards.

Employee Rewards: The Importance of Perceived Fairness

Research demonstrates that employees’ perception of fairness and equitable treatment is a core driver of retention, engagement and performance. Chris (2013) stated that, it is important to understand that employee reward fairness concerns are typically relative to a benchmark or comparison point, for example, an employee may perceive whether their individual reward

Promotion

Promotion is usually symbolized with a change of job and title. It can be attached with an increase in pay, power, and responsibility. Or, it can also include an increase in freedom or independence, or a decrease in danger or discomfort. With better jobs, employees may decline any opportunities at other organizations. Hence, promotions can increase employees’ loyalty to the company and improve employee retention. An employee’s opportunities for promotion are also likely to exert an influence on job satisfaction (Landy, 1989; Moorhead & Griffen, 1992).

While identifying the causes that why employees stay in the organization, promotion was found as one of the most mentioned reasons of staying (Hausknecht et. al., 2009). Milkovich and Boudreua (1997) found that promotion opportunity as the main predictor of career change.

Working Conditions

A good working condition can be characterized by low levels of stress, employees feeling appreciated by management and not feeling threatened at work. Hence, a good working condition will have a greater impact on employee retention than when the work condition is perceived to be bad. According to Luthans (1998), if people work in a clean, friendly environment, they will find it easier to come to work. If the opposite should happen, they will find it difficult to accomplish tasks. How well employees engage with the workplace of their organization influences to a great extent to their error rate, level of innovation and collaboration with other employees, absenteeism and, ultimately, how long they stay in the job (Heath, 2006). Cohen and Bailey (1997) also demonstrated the importance of pay and work condition in shaping job satisfaction.

Employee Training & Development

According to Guest (1997) mentioned in his study that training and development programs, as one of the vital human resource management practice, positively affects the quality of the workers’ knowledge, skills and capability and thus results in higher employee commitment and performance on job. Messmer (2000) found that one of the important factors in employee retention was investment on employee training and career development. Handy (2008) has mentioned that proper innovation, and assimilation of new knowledge was essential for survival in any work environment. Thus knowledge was the most expensive asset of any firm. Prince (2005), advises that organizations should support employees to make long-term commitment to them through increased training and development programs.

Career Advancement Opportunities

Career plateau is seen as a major contributing factor to employees to quit in organizations. Ongori & Agolla (2009), contend that lack of personal growth in organizations results in career plateau which in turn leads to increased employee intention to quit. Hence, career development opportunities and training have a direct effect on employee retention (Hassan et al., 2013). Research by Meyer et al, (2003) has shown internal career development of employees was often the best predictor of an employee's effective commitment.

Respect and Recognition

Giving special attention to the opinions and the work of employees makes them feel valued. They consider themselves an important part of the firm. When employee recognition becomes an integral part of the company culture, it helps the company on many levels especially proper, timely and fair recognition practices naturally uplift the vibe of the workplace and nurture a positive work environment. According to Walker (2001), recognition from bosses, team members, coworkers and customer enhance loyalty.

Organizational Empowerment

According to Kanter (1977), the mandate of management is to create conditions for work effectiveness by ensuring that employees have access to the information, support, and resources necessary to accomplish work and that they are provided on-going opportunities for employee development. Having access to these structures results in increased levels of organizational commitment, feelings of autonomy, and self-efficacy; consequently, employees are more productive and effective in meeting organizational goals. Employees who have intrinsic reward (Organizational Empowerment) of their job, also have ownership over their tasks. This would make them more committed to management and in return, could reduce their intention to leave the organisation (Galletta, Portoghese, & Battistelli, 2011).

Job Security

Expectations of continuity in a job or employment is known as job security (Akpan, 2013). Abegglen (1958) found that employment features like lifetime employment and seniority system, job security lead to high commitment, job satisfaction as well as retention of employees in an organization. Rosenblatt and Ruvio, (1996) conducted a research on the job insecurity and found that job performance and organizational commitment are negatively correlated with job insecurity.

Pay Satisfaction

Remuneration is considered the most important factor for attracting and retaining the talent (Willis, 2000). Compensation remains a tactic used by many organizations to commit their employees to the organization (Cappelli, 2001; Mitchell et al., 2001). Bogdanowicz and Bailey (2002) noted that organizations try to provide their workforce benefits and a holistic motive to stick to the current organization and making the decision to leave the organization difficult and pointless. Kinnear & Sutherland, (2001) and Maertz & Griffeth, (2004) stated that factors such as competitive salary, good interpersonal relationships, friendly working environment, and job security were reported by employees as key motivational variables that influenced their retention in the organizations.

Organization’s Reputation

Today’s enterprises are investing a generous amount of resources and efforts to achieve the ‘Best Employer’ status due to the increased competition for recruiting and selecting new talented employees alongside competing for new customers and a higher market share (Berthon et al. 2005). Employer branding directs the firm’s operational practices through building a strong corporate image of the firm in the market and transforming it into an attractive workplace (Ahmad and Daud 2016). Organizations with a strong brand image or reputation can acquire employees at comparatively low cost, improve employee relations, and increase employee retention as compared to its rivals (Riston 2002).

EMPLOYEE RETENTION

Employee Retention can be defined as a continuous and carefully planned effort or actions by the organization to retain the talented, skillful and competent employees selected. Organization spent effort to retain the employees because the employees wanted to stay and not because they are forced to stay. Hence, organization interested to know what factors can cause retention. In their study, Matthew, Andrew & Mohsen (1991) found that an average of 75 percent of the respondents identified internal/motivational factors such as achievement, recognition, challenging work, and advancement prospects as the main reasons for staying. Zineldin (2000) defined retention is a difficult concept and there is no single formula to retain employees in the organization.

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Details

Pages
30
Year
2019
ISBN (eBook)
9783346095763
ISBN (Book)
9783346095770
Language
English
Catalog Number
v511366
Grade
Tags
Intrinsic factors extrinsic factors employee retention private education organization commitment side-bet theory equity theory motivator-hygiene theory expectancy theory.

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Title: Determinants of employee retention in the private education industry in Malaysia