A structural equation modeling to understand the determinants of employee turnover: An empirical study

1. Introduction

One of the biggest challenges for the human resource professional is to retain its employees. Employee turnover has grown in complexity and many new theories and concepts have evolved over a period of time, beginning from March & Simon (1958), who believed that “under nearly all conditions the most accurate single predictor of labor turnover is the state of economy” (March & Simon, 1958. P. 100; Hom & Griffeth, 1995, P. 53). They also believed that enticements provided through an employer could influence employee job satisfaction and the desire to remain with the present employer as turnover theory and practice progressed. Price (1977) linked structural or organizational determinants to the turnover process. He suggested that employees develop activities to enhance job satisfaction rather than be dissatisfied, as employees are more likely to stay when job satisfaction outweighs dissatisfaction. Structural determinants play a vital role in creating job satisfaction and organizational commitment in employees. The author would like to study few co-relates such as Age, Cost to Company, Marital Status, Number of Companies Worked for, Years of Experience, and Number of Years in the same company and understand the impact of the same on structural determinants and process variables. In this paper we intend to study the moderating effect of six correlates on structural and process determinants in the Indian context.

2. Literature review

Employee turnover in organizations is a very serious issue; it is costly for organizations to search, select, train and replace leavers (Mobley, 1982; Price 1977; Staw, 1980). When low or average performers leave an organization it doesn’t create much of impact, whereas when high performers leave an organization, (especially those who are managers and professionals), this leaves a negative impact on the overall organizational effectiveness and firm success (Holtom, Mitchell, Lee & Inderrieden, 2005; Mitchell, Holtom, Lee, Sablynski & Erez, 2001). However literature review and analysis of the effects of employee turnover on companies is quite limited; most research on employee turnover in the past focuses on understanding and explaining employee turnover at individual levels (Griffeth, Hom & Gaertner, 2000; Hom & Griffeth, 2000; Hom & Griffeth, 1995; Mowday, Porter & Steers, 1982; Peterson 2004). Barrick & Zimmerman (2005) researched 1500 studies in the past 50 years on employee turnover. Most studies focused on understanding reasons for employee departure; few focused on what employers should do to hold people back, in order to increase stickiness in their organizations. Terborg and Lee (1984) were the first ones to stress that without the study of organizational determinants, the concepts of employee turnover would reduce understanding. They also questioned the existence of homology between functional relations found at the individual level of analysis and those that might exist at the organizational level of analysis. Among the most frequent causes of turnover in the European context is the status of employees in the typical organization. Turnover is negatively correlated & commitment is positively correlated to age, seniority (tenure), skill, job prestige, earnings, and chances of promotion. Women have higher turnover than men. Other determinants, which may themselves be a result of status in an organization, include job satisfaction, job challenge, job achievement, and cohesiveness with fellow employees. These determinants are again negatively correlated to turnover and positively related to commitment to an organization (Kerr 9147; Smith and Kerr, 1953; Silcock, 1954; Herzberg et al., 1957; Hedberg 1960; Hall and Schneider, 1972; Hrebiniak and Alutto, 1972; Buchanan, 1974). Although the relationship between pay and employee turnover has generated a tremendous amount of interest and research over the years, it has not been able to produce much interest in this area as most researchers have downplayed the importance of pay to turnover. Hom & Griffeth (1995) maintain that both employers and employees perceive pay playing a central role in turnover. Prevailing motivational theories have tended to emphasize intrinsic motivation, maintaining that lower needs are of lesser importance in modern society (Brief & Aldag, 1989). Research in management literature has generally underscored the limited role of pay, with findings indicating only modest associations between compensation and employee departure. Age has been found to be positively correlated with what has been defined as commitment, but its effect on structural determinants and individual determinants are not clearly mentioned (Hackett et al., 1994; Hrebiniak and Alutto, 1972, Meyer Allen and Smith 1993). With the Indian economy growing rapidly, the rate of employment has seen a tremendous upward rise. The expansion of boundaries and the credible usage of internet have heightened the demands for highly skilled managers and professionals. An opinion poll of HR professionals from various countries reveals a unanimous view that rampant job hopping has become a culture across industries (Khatr, Chong & Budhwar, 2001: 54). A number of earlier studies suggest that the length of service in a job could be used to estimate the levels of job satisfaction of workers. The assumption is that less satisfied workers tend to resign while more satisfied workers tend to remain in a job. Consistent with this thinking, a negative relationship between job satisfaction and turnover has been reported by several researchers (Atchinson and Lefferts, 1975; Karp et al., 1973; Locke, 1976; Mobley et al., 1979). This situation should result in a higher average level of satisfaction reported by employees whose have been in a given organization for a greater period of time.

The structural determinants under study have been taken from the Price and Mueller model (Kim, Price Mueller & Watson, 1996). In this model, Kim differentiated three types of determinants named as individual determinants, structural determinants, and environmental determinants. These in turn affect process variable, and correlates influences the determinants. The author in this study would like to understand the moderating effects of correlates (Age, Cost to Company, and Marital Status). A brief definition of structural determinants, process variable, and correlates are mentioned below.

Structural Determinants: Structural determinants are also termed as organizational determinants; the factors which are under the control of an organization (Mueller and Price, 1990). Mueller and Price defined structural determinants of employee turnover as the relationship of structural attributes of the work environment as well as the pattern of social relations within the work environment. Such structural determinants find their roots in internal causes such as characteristics of the work performed, the reward system, the promotion system, and the interaction of organizational members. There are eight determinants of structural determinants as follows: autonomy, distributive justice, job stress, pay, professional growth, promotional chances, routinization, and social support.

Autonomy: Autonomy is one of the most important determinants that influences turnover. Autonomy plays a major role in employee growth and development. Autonomy also increases the risk-taking ability of an employee. Price and Mueller (1981 & 1986) defined autonomy as the degree to which an employee exercises power relative to his/her job, and found it negatively correlated to turnover through job satisfaction and organizational commitment.

Distributive Justice: Distributive Justice is the perception of employees towards their organization(s). It covers all aspects such as promotion, rewards, salary hikes, fringe benefits, etc. It is also used to compare employees within in the system. Price & Mueller (1986) & Mueller et al. (1994) define distributive justice as the degree to which rewards and punishments are related to the amount of an employee’s input into an organization. They also found that distributive justice is negatively correlated to turnover through job satisfaction and organizational commitment.

Job Stress: Job stress is one of the most critical determinants to be studied. A key point is whether an employee has the sufficient skill set to execute a job, or is in an organization that expects more from an employee than his/her abilities can permit for a given job profile. The basic definition of job stress is the extent to which job duties cannot be fulfilled. Job stress is positively correlated to turnover via job satisfaction and organizational commitment (Price & Mueller, 1981 & 1986 & Mueller et al., 1994).

Pay: With the Indian economy in a vibrant state there is a demand and supply mismatch within professionals. Many instances about job hopping are quoted in literature. Literature review has shown that pay has been neglected while distributive justice has been given greater importance. The definition of pay is money and its equivalent which employees receive for their services to an employer. Price and Mueller (1990) argue that distributive justice, as opposed to pay, affects an employee’s attitude and ultimately turnover.

Professional Growth: How do employees see themselves in a defined span of time? Is there enough growth opportunity? March and Simon (1958) argued that if an organization is large enough then employees will continue to stay. The definition of professional growth is chances provided by an employer to increase job-related knowledge and skills. Kim et al. (1996) however found a negative relationship between turnover via job satisfaction and organizational commitment.

Promotional Chances: An employee’s perception of his or her career growth in an organization; how fast an employee can grow in an organization. Promotional chances are defined as the degree of potential vertical occupational mobility within an organization. Price & Mueller (1981), Price & Mueller (1986), and Kim et al. (1996) found a negative relationship to turnover via job satisfaction and organizational commitment.

Routinization: Repetitive jobs coupled with a good educational background can increase the chances of an employee quitting a job. Organizations normally hire overqualified personnel for doing repetitive work. Mueller et al. (1994), Kim et al. (1996) found that routinization is positively related to turnover via job satisfaction and organizational commitment.

Social Support: Social support has three aspects: social support from coworkers, family, & supervisors. All three support systems are very important for an employee. If an employee is deprived of assistance on job related problems, then this acts as a catalyst for quitting. Mueller et al. (1994) and Kim et al. (1996) found that social support is negatively related to turnover via job satisfaction and organizational commitment.

Process variables: Process variables are the intermediary linkages between turnover and the structural, environmental, and individual determinants of turnover. There are primarily two: job satisfaction and organizational commitment. Job satisfaction is defined as the degree to which employees have a positive affective orientation towards employment by the organization (Price 1997). Organizational commitment is defined as loyalty to an organization (Price 1997). These two variables are viewed as essential components of turnover models because their empirical relationships with voluntary turnover have been firmly established through numerous Meta-Analyses (e.g., Cohen, 1993; Cohen & Hudecek, 1993; Cotton & Tuttle, 1986; Hom & Griffeth, 1995; Hom, Caranikas-Walker, Prussia & Griffeth, 1992; Steel & Ovalle, 1984; Tett & Meyer, 1993).

3. Objective of the study

1.

Impact of age on Structural and Process determinants.

2.

Impact of salary on Structural and Process determinants.

3.

Impact of marital status on Structural and Process determinants.

4.

Moderating effect of six correlates on structural and process determinants.

4. Research methodolgy

This research is based on primary and secondary data. Primary data was used in the form of questionnaires along with turnover interviews to understand reasoning. The turnover intentions questionnaire by Kim and Muller was used to collect data from the respondents.

Measurement of Instrument: A total of 149 questionnaires were administered for each participant, of which 10 questionnaires were from the demographic point of view and 10 questions were from the information point of view. A total of 33 questions were administered on Likert scale. Structural determinants have seven variables including Autonomy, Distributive Justice, Job Stress, Professional Growth, Promotional Chances, Routinization and Social Support. A total of 36 questions are administered in these determinants. A process variable has four variables including Job Satisfaction, Organizational Commitment, Search Behaviour and Intention to Quit. Few of the process variables such as Comparison of Alternative with Present Job, Expected Utility of Search, Expected Utility of Quitting, Thinking of Quitting, and Intention to Search the data for these variables were also collected for future analysis.

Descriptive and inferential research was conducted with the help of a structured questionnaire. Employees from different industries were questioned and observed. Questions were framed using Likert Scale (five and seven point). The data is collected from binary solutions. Binary solutions are the biggest distribution of Dell, HP, and Lenovo in India. They also have a back office for client servicing. The survey sampled mainly consists of customer touch point employees. The data was collected from 386 employees.

Data Collection: A total of 1302 participants were surveyed, making this one of the biggest samples size for testing this model to close the literature gap. Data samples were collected from four different companies from four different sectors. The entire sample collected was from customers facing executives who dealt with customer directly. Organisation One is a large and reputed software company in India that deals with software development and has got a Pan India presence. Out of 900 odd customers facing executives, 750 people participated in this survey and filled up 100% of the questionnaire correctly. The questionnaire was administered across all levels in the organisation and across all job designations.

The second company we picked was a large distributor for hardware products specialised in dealing computers and printers and allied hardware products with a national presence. 100% of the staff from the sales and customer service was administered. This company is one of the largest of its kind in the industry and caters to B2B Segment.

The third company we chose is service based. It is one of the world’s largest companies into managing customer Loyalty and Engagement programs. Their business is to manage back end for organisations into technology development and redemption and catalogue management. Their business has a very unique model as they Design, Develop, Co-create and implement Loyalty and Engagement solution to enhance business productivity and create satisfaction. There are more than 90 customers facing staff in the organisation, however, 84 officially participated in the survey with 100% accuracy and completion.

The fourth company is an emerging leader in the Automobile sector and is part of a big automobile giant. It manufactures and sells two wheelers in the Indian Market. Its model consists of a 60 odd dealership across India managed by 100 odd people. The questionnaire was sent to all 103 officials, however only 83 participated and returned 100% completed data.

All four companies were from different sectors and verticals in their industries. They were selected due to ease in assessing the employee data for administration of the questionnaire. The sales and marketing team was very cooperative, and the data was collected from the companies over one and a half years. The questionnaire was administered through pen and paper for the Software Company and for the other three companies; it was administered through survey portal survey monkey.com. The sample selected is convenient sampling.