IMPERIAL INSTITUTE OF HIGHER EDUCATION
Table of Content
Introduction .......................................................................................................................... 6 Problem Area ....................................................................................................................... 7 How to Measure The Employee Turnover........................................................................... 8 Factors Affecting Employee Turnover ................................................................................ 9 Literature Review on Employee Turnover ........................................................................ 10 Theories Addressing Employee Turnover ......................................................................... 13 Applicability of Theories in organization Context ............................................................ 15 Conclusion ......................................................................................................................... 17 Reference ........................................................................................................................... 19
Appendix I ........................................................................................................................ 21 Appendix II ....................................................................................................................... 22 Appendix III ...................................................................................................................... 23 Appendix IV...................................................................................................................... 24 Appendix V ....................................................................................................................... 25
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Introduction
Assignment Objectives Collect the Factors Affecting Employee Turnover in organizations. Present a Literature Review on employee turnover, related Theories, Models and Frameworks. Identify the Applicability of related Theories, Models and Frameworks on the employee turnover in the selected organization context. Identify the issues that the research papers have not addressed yet, which may need to research more in the future and Drawbacks on those research approaches. Draw a Conclusion by evaluating the applicability of the literature review.
Organization Background The selected organization belongs to Information Technology / Software industry. The company locates in Colombo district. It consists of nearly 100+ employees. The organization mostly carried out the projects given by foreign clients. The available positions are Project Manager, Software Architects, Software Engineers, Developers, Quality Assurance Engineers, Business Analysis, System Engineers, Technical Writers…etc. The organization provides both products and services for their clients and they have the experience over a decade in the software industry.
Methodology The data has been collected through number of sources such as Text Books, Journals, Articles, Websites, Research Papers…etc. No field visits has been done in order to collect data. A project manager of the selected organization has been interviewed over the phone to gather data regarding the employee turnover in order to find out the applicability.
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Problem Area What is Employee Turnover? “Employee turnover is a ratio comparison of the number of employees a company must replace in a given time period to the average number of total employees. A huge concern to most companies, employee turnover is a costly expense especially in lower paying job roles, for which the employee turnover rate is highest.� (Beam, 2009) Types of Employee Turnover Literature has discussed several types of employee turnover. Based on (Lee et al., 2008) employee turnover can be categorized as follows: 1. Involuntary Turnover: Termination due to poor performance or organization rule violation. Employees leaving the organization without choosing to do so. (Ex: being fired or laid off).
2. Voluntary Turnover: Employee leaves the organization deliberately. (Ex: quitting)
However there are some other categorizations as well. Based on (Mitchell & Lee, 2001) employee turnover can be categorized as follows: 1. Controllable Turnover: This kind of employee turnover can be controlled by the organization. Majority of the employee turnover factors falls under this category.
2. Uncontrollable Turnover: Usual causes of deaths, illnesses, family problems, spouse relocation falls under this category. Organization cannot do much to prevent those problems. Mitchell and Lee (2001) also discusses about another categorization method of employee turnover as well. It is based on the functional capability of the employees.
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1. Functional Turnover: This category refers to the occasions that the low performing employees leave the organization.
2. Dysfunctional Turnover: This term refers to explain the cases when the high performing employees leave the organizations.
How Employee Turnover Become a Problem
According to the (Encina, 2003), employee turnover is not always bad. Even though Encina is talking about agriculture industry, the fact is common to all industries. According to the organization context that this report is addressing, sometimes positions are no longer essential. Those who leave are not replaced. An industry like software is highly dynamic and growing rapidly. Therefore lots of jobs are available in the industry. Therefore the employee turnover is also high. A research done in India clearly shows the rapid growth in the IT job market. (Roy, 2004). Software industry in Sri Lanka is also behaves in the same manner. The employee turnover does not create any problem (Mushrush, 2002) for an organization unless it goes over the industry employee turnover ratio.
However, when employees leave the organizations, it always affect to the efficiency (Mobley, 1982) of the overall performance as well as individuals, because it disturbs the normal workflow. The employee turnover cost a lot as well (Mushrush, 2002) in term of training and development, recruitment and efficiency.
How to Measure the Employee Turn Over Employee turnover ratio can be calculated as follows (Morrell et al., 2001):
(
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Factors Affecting Employee Turnover The previous chapter introduced number of categorization methods of employee turnover. However, from here onwards this report is going to concentrates only on ‘Voluntary Employee Turnover’ related to IT/Software Industry in the Sri Lankan context.
During the research period, large numbers of factor that affect employee turnover were found. Many people have done various kinds of research to gather data. They have presented their collected information according to their own ways. Therefore is hard to list down all the factors related to employee turnover. After considering number of alternatives, following ten topics were selected in order to present the literature review.
The following topics were selected by giving the priority to the factors which is highly related to software industry. Number of interrelated factors will be addressed within the related main topic, because all the topics are interrelated. It is not possible to explain the factor individually as they connected to each other. However, the detailed information related to this factor will be discussed in the next chapter. 1. Job Satisfaction 2. The Economy 3. Characteristics of The Job 4. Characteristics of The Employees 5. Employee's Skills and The Job 6. Equipment, Tools and Facilities 7. Career Advancement and Growth 8. Rewards, Motivation and Appreciation 9. Training and Development 10. Other Factors PPMG100
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Literature Review on Employee Turnover This chapter describes the each point listed on the above chapter with more details.
1. Job Satisfaction Job satisfaction plays a big role in employee turnover. These two are very much interrelated. (Lum et al., 1998). Overall job satisfaction relates to the employee turnover negatively. (Mobley et al., 1979). That means if the employees are satisfy with their job, chance for a turnover is less. However, if the employees are dissatisfied with their job, probability for a turnover is high. At the same time, if the employee likes to work in a different company other than the current one, again the chance for employee turnover is high. (Boxall et al., 2003)
2. The Economy Different research sources present different ideas regarding this factor. Researchers like Mobley (1979) say that there are no connection between wages and the employee turnover. However some other research sources deny that idea. They argue that wages is the most critical factor which affect the employee turnover. (Shamsuzzoha & Shumon, 2009). According to the gathered data, interviewee of the selected organization also accepts the strong relationship between the wages and turnover.
3. Characteristics of The Job This includes working condition, challenge level, required competency level and many more (Shamsuzzoha & Shumon, 2009). Job security also falls under this topic. The sustainability of the organization directly impact on the employee turnover, because employees very much concern with their job security (Brand, 1997). Lack of work life balance is also one of the main reasons to raise the employee turnover. (Roy, 2004). Night shifts, lack of holidays can be used as examples. Other than that, there could be travelling requirement on behalf of the organization as well.
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4. Characteristics of The Employees Number of research done by various people has confirmed the fact that demographic and biographical characteristics of the employee directly affect to the employee turnover. (Shamsuzzoha & Shumon, 2009) The recommendation given by the researchers is to find out the employees’ background deeply to figure out the related issued. For example this could be lifestyle behaviour like smoking or behaviour like frequently changing jobs. Unrealistic expectations also cause the employee turnover. (Shamsuzzoha & Shumon, 2009). Mobley (1979) try to highlight the relationship between the service duration with employee turnover. According to the research, it was found that the longer person is more likely to be stay in the organization than the new comers.
5. Employee's Skills and The Job The employee turnover takes place when the employee’s skill does not match to the job. (Shamsuzzoha & Shumon, 2009). Usually, lack of skills also leads to the dissatisfaction as well. When the skill level does not match it will affect to the moral of the employee. (Reed, 2005)
6. Equipment, Tools and Facilities This factor plays a big role in software industry. It will be discussed later in a chapter as well. However, this is all about the working environment (Heathfield, 2008). Lack of proper lighting, lack of necessary equipment, lack of furniture and lack of safety measures will increase the employee turnover. (Shamsuzzoha & Shumon, 2009)
7. Career Advancement and Growth Career advancement is one of the most necessary activities to conduct in an organization. This includes proper mechanism for promotions, career commitment and many more. Many research sources highlight the importance of career advancement in order to reduce the employee turnover (Pires, 2009). PPMG100
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8. Rewards, Motivation and Appreciation Most of the time employees try to do well for the organization. However, they expect appreciation and rewards as a return. Appreciation is very much important for new employees as well as seasoned employees (Shamsuzzoha & Shumon, 2009). Rewards are also important to keep their employee motivated in long term (Roy, 2004). Intrinsic rewards are critical to reduce the employee turnover. (Mushrush, 2002). However, inefficient rewards for high performing employees could increase the employee turnover (Griffeth et al., 2000). 9. Training and Development There is clear relationship between training and development. Spending on training and development will help to reduce the employee turnover (Martin, 2003). At the same time, if the employees are not trained well, then it will affect to the entire performance of the organization as well. Training can make a long term relationship between the employee and the organization by also ensuring employee loyalty and retention. (Mushrush, 2002) “Employees need guidance and direction. New employees may need extra help in learning an unfamiliar job”
(Shamsuzzoha & Shumon, 2009)
10. Other Factors Empowerment and Influence of co-workers are found as key drivers for “Intent to Leave" in a research. (Sanjay, 2006) Management Leadership: Mobley (1979) has found a relationship between supervisor behaviour with employee turnover. If the there is a conflict between the employees and the supervisor, the turnover can be increased.
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Theories Addressing Employee Turnover Most of the theories that address the employee turnover are related to motivation theories. Even though there are large number of motivation theories, this report has been selected the most essential ones to discuss. Equity Theory (Process Theory) “Concept that people derives job satisfaction and motivation by comparing their efforts (inputs) and income (outputs) with those of the other people in the same or other firms.” (BusinessDictionary.com, 2009) If the employees feel that they are not equally rewards, it increases the chance of turnover. This theory reminds the organization to treat all their employees equally. Equity theory addresses the following turnover factors: Job Satisfaction, The Economy, Equipment, Tools and Facilities, Career Advancement and Growth, Rewards, Motivation and Appreciation, Training and Development.
Expectancy Theory (Process Theory) “Motivational theory based on cognitive psychology. It proposes that people are motivated by their conscious expectations of what will happen if they do certain things, and are more productive when they believe their expectations will be realized.” (BusinessDictionary.com, 2009) This is simply about showing something desirable to the employees and convinces them that they can get there. This theory discusses about the (Vroom, 1964) relationship between effort, performance, rewards and personal goals. It address the following turnover factors: Job Satisfaction, Rewards, Motivation and Appreciation, Career Advancement and Growth, Training and Development.
Reinforcement Theory According to B.F. Skinner, designing a proper environment will make the individuals motivated. It emphasize the need of considering external environmental facotrs of the
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organization rather internal factors like impressions, feelings, attitudes and other cognitive behaviour. (Laynetworks.com, 2009). This theory addresses the following turnover factors: Characteristics of The Job, Equipment, Tools and Facilities, Employee's Skills and The Job, Job Satisfaction.
Hierarchy of Needs Theory (Content Theory) This is one of the most widely used motivation theory. Maslow identifies a hierarchy of needs that people looking for. First employees try to satisfy the lowest level needs. Then start to go behind the next level of needs. (Maslow, 1943). He identifies the following needs. Physiological needs, Security or Safety needs, Social needs, esteem needs, Need for self-actualization. This theory addresses the following turnover factors: Job Satisfaction, The Economy, Equipment, Tools and Facilities, Career Advancement and Growth, Rewards, Motivation and Appreciation.
ERG Theory (Content Theory) This theory simplified and modifies the Maslow’s Hierarchy of Needs Theory (Alderfer, 1972). ERG Theory does not identify a hierarchy; instead it identifies the three factors, Existence, Relatedness and Growth. This theory addresses the following turnover factors: Job Satisfaction, The Economy, Career Advancement and Growth, Rewards, Motivation and Appreciation.
Two Factor Theories / Motivation-Hygiene Theory (Content Theory) This theory clearly presents satisfiers and dissatisfies of employees. Intrinsic factors are related to job satisfaction, while extrinsic factors are associated with dissatisfaction. (Herzberg et al., 1993). Hygiene factors are: Security, status, personal life, salary, working
conditions‌etc.
Motivational
factors
are:
Growth
prospectus
job
advancement, responsibility, challenges, recognition and achievements. This theory addresses the following turnover factors: Job Satisfaction, The Economy, Career Advancement and Growth, Rewards, Motivation and Appreciation, Equipment, Tools and Facilities, Characteristics of the Job.
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Applicability of Theories in Organization Context This report mainly concentrates about the software industry. Therefore, this chapter will discuss about the applicability of the theories to address the issues in the employee turnover in the organization context. As it was mentioned earlier, there are number of motivation theories available. Each and every motivation theory contributes to reduce the employee turnover in the organizations. Organizations need to understand the employees’ mentality to make them satisfy. Motivation will reduce and demotivation will increase the employee turnover. Therefore by applying the theories in to actions will help to reduce the employee turnover up to considerable level.
Equity Theory It is important to apply the equity theory in the organization context to ensure a fair environment to work. Organization needs to create a proper competitive salary structure for the employee hierarchy. Especially in software industry, salary matters a lot for the employees, because employees are well educated. Therefore they need to be respected equally as well. At the same time large numbers of jobs are available in the software industry as well. Therefore, the organization needs to provide a fair salary for the employees. Salary increments and rewards should be given according to a proper manner. It is important to have a separate organization policy regarding salary, increment, bonuses and rewards in documented format to create the transparency.
Expectancy Theory Organization always needs to respect for effort of their employees. Sometimes jobs in the software industry become very much stressful. Therefore, the mentality of the employees should maintain positively. Organization should use rewards and appreciation to motivate their employees. Organization can collect satisfaction surveys time to time in order to find out the issues of the employees. The organization should let their employees to achieve their personal goals by working hard and earning more rewards.
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Reinforcement Theory Applying this theory will help the organization to ensure a motivational work environment within the organization. Environment always should be clean, harassment free and danger free. Organization should have rules in order to control the performance and the discipline of the employees. However, those rules need to be fair and flexible. The rules should not stress up the employees. Especially in software industry, employees expect to have more freedom in order to reduce their stress in term of decision making.
Hierarchy of Needs Theory The organization should concentrate about all four needs explained under this theory. They need to supply all necessary physiological needs of the employee. Sometimes software companies need to conduct night shifts. At that time company needs to take care of all basic needs of the employees such as food, drinks, air conditioning, confortable furniture, medicine…etc. At the same time organizations need to ensure the safety of the job. The company need to convince their employees about their long term sustainability. Esteem is a very much important factor. In software industry all most all the employees are well educated professionals. Therefore company needs to respect them all the time under any circumstances. Necessary space should be provided to the employees for their individual development, education and personal goals.
ERG Theory and Two Factor Theory According to ERG theory, organization needs to provide safe, comfortable place to work as the primary requirement. Then employees should be able to accomplish their love, belonging, growing and esteem needs. Finally, the employees need to be able to achieve their personal goals. ‘Two Factor Theory’ discusses about two main factors. Absence of these factors will lead the employees for dissatisfaction. At the same time presence of this factor will increase the motivation and retention. The factors are already being discussed in the above chapter. As a conclusion, all the theories elaborate the same kind of facts. Therefore, Organizations should always motivate their employees by providing all the necessary needs in order to reduce the employee turnover.
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Conclusion This report discussed number of related topic on ‘Employee Turnover’. The main objective of the report is to collect and present fine set of literature on theories, models and frameworks related to the topic. The report mainly concentrates on IT/Software industry in Sri Lanka.
The first chapter gives an introduction to the topic. It shows how the employee turnover can be categorized in to different sets, based on different criteria. However, this documentation mainly talks about the ‘Voluntary Turnover’, which is the most avoidable turnover. During the literature review, large number of factor was found related to the turnover. However, the factors are separated into 10 topics considering the relationship to make it more manageable. The literature review was done under each topic.
At the end of the literature review, related theories were presented. Basically all the theories are motivation theories as it is the main ‘Turnover Prevention Methodology’. Then the applicability of the each theory was discussed while mapping those with the employee turnover factors.
However, during the literature review, it was found that numbers of factors are not addresses in current research papers or journals. However, those factors play a big role in software industry in Sri Lankan context. Those factors can be listed down as follows.
The first factor is a technological factor. Some employees have their own preferences regarding the technology platform they are using. If the company decide to shift their technological platform from one to the other, the chance of turnover becomes high.
Again there are some issues related to brand. Some employees like ‘Open Source’ brands while others like proprietary brands. The company’s decision regarding technology brands can increase the employee turnover.
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Another problem is the geographical time issues. Most of the Sri Lankan software companies do projects with foreign clients. However, it becomes a problem when comes to meetings and schedules. Because foreign companies expected Sri Lankan companies to work according to their geographical time frames. This expectation will create very odd time schedules for the employees in Sri Lanka. This fact affect employee turnover.
Sri Lankan’s always accept that working in foreign company as a pride. This attitude creates the employee turnover as well. It is very much important to do more research on above areas to find out more details about them. Currently no one has done research on above topic extensively.
Finally, the employee turnover is a very important area that every organization should concentrate on, because it can cost lot of money, time and organization reputation. Reduction on employee turnover will help the organization to position themselves in a better place among their competitors.
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Reference Alderfer, C., 1972. Existence, relatedness, & growth. New York: Free Press. Beam, J., 2009. What is Employee Turnover. [Online] Available at: http://www.wisegeek.com/what-is-employee-turnover.htm [Accessed 05 November 2009]. Boxall, P., Macky, K. & Rasmussen, E., 2003. Labour turnover and retention in New Zealand; the causes and consequences of leaving and staying with employers. Asia Pacific Journal of Human Resources, 41(2), pp.196-214. Brand, C., 1997. Driver shortages is really turnover: most vacancies are caused by churning. Transport Topics, 3, p.86. BusinessDictionary.com, 2009. equity theory. [Online] Available at: http://www.businessdictionary.com/definition/equity-theory.html [Accessed 03 November 2009]. BusinessDictionary.com, 2009. expectancy theory. [Online] Available at: http://www.businessdictionary.com/definition/expectancy-theory.html [Accessed 06 November 2009]. Chang, E., 1999. Career commitment as a complex moderator of organizational commitment and turnover intention. Human Relations, 52 (10), pp.1257-78. Encina, G.B., 2003. Labor Management in Agriculture: Cultivating Personnel Productivity. 2nd ed. California: University of California. Griffeth, R.W., Hom, P.W. & Gaertner, S., 2000. A Meta-analysis of antecedents and correlates of employee turnover: Update, moderator tests, and research Implications for the next millennium. Journal of Management, 26(3), pp.463-88. Heathfield, S.M., 2008. More Tips to Reduce Employee Turnove. [Online] Available at: http://humanresources.about.com/od/retention/a/turnover_tips.htm [Accessed 05 November 2009]. Herzberg, F., Mausner, B. & Snyderman , B.B., 1993. The Motivation to Work. 12th ed. New York: Transaction Publishers. Laynetworks.com, 2009. Theories of Motivation. [Online] Available at: http://www.laynetworks.com/Theories-of-Motivation.html [Accessed 05 November 2009]. Lee, T.H., Gerhart, B., Weller, I. & Trevor, C.O., 2008. Understanding voluntary turnover: Path� specific job. Academy of Management Journal, 51 (4), p.651�671. Lum, L. et al., 1998. Explaining nursing turnover intent: job satisfaction, pay satisfaction or organizational commitment? Journal of Organizational Behavior, 19(3), pp.305-20.
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Martin, C., 2003. ‘Explaining labour turnover: Empirical evidence from UK establishments. Labour, 17(3), pp.391-412. Maslow, A., 1943. A theory of human motivation. Psychological Review, 50, pp.370-96. McClelland, D. & Burnham, D.H., 1976. Power is the great motivator. Harvard Business Review, 54(2), pp.100-10. Mitchell, H. & Lee, 2001. How to keep your best employees: Developing and effective retention policy. Academy of Management Executives, 15(4), pp.96-108. Mobley, W.H., 1982. Employee Turnover: Causes, Consequences and Control. Reading: Addison-Wesley. Mobley, W.H., Griffeth, R., Hand, H. & Meglino, B., 1979. A review and conceptual analysis of the employee turnover process. Psychological Bulletin, (86), pp.493-522. Morrell, K., Loan-Clarke, J. & Wilkinson, A., 2001. Unweaving Leaving: The Use of Models in the Management of Employee Turnover. Loughborough University Business School ed. Leicestershire: Business School Research Series. Mushrush, W., 2002. Steps to help reduce employee turnover. [Online] Available at: http://www.missouribusiness.net/sbtdc/docs/reducing_employee_turnover.asp [Accessed 02 November 2009]. Pires, M., 2009. 9 Steps To Reducing Employee Turnover. [Online] Available at: http://www.articlesbase.com/human-resources-articles/9-steps-to-reducing-employee-turnover747936.html [Accessed 02 November 2009]. Price, J.L., 2001. Reflections on the determinants of voluntary turnover. International Journal of Manpower, 22(7), pp.600 - 624. Reed, A., 2005. Software Team Turnover: Why Developers Leave (And What You Can Do About It). [Online] Available at: http://www.developerdotstar.com/mag/articles/software_team_turnover.html [Accessed 02 November 2009]. Roy, S., 2004. HR Challenges in the Indian Software Industry. [Online] Available at: http://www.ircc.iitb.ac.in/~webadm/update/archives/Issue1_2004/hr_management1.html [Accessed 02 November 2009]. Sanjay, A., 2006. Turnover in the IT Industry. The PROJECT PERFECT White Paper Collection. Shamsuzzoha, A. & Shumon, R.H., 2009. Employee Turnover-a Study of its Causes and Effects. Manufacturing Engineering. Taylor, D.M., 1994. Restoring Balance between Canadian Society and the Environment. Ottawa: the International Development Research Centre. Vroom, V.H., 1964. Work and motivation. New York: Wiley, 1964.
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Appendix – I
Figure 1: Model of Employee Turnover [Source: (Price, 2001)]
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Appendix – II
Figure 2: Mobley Griffeth, Hand and Meglino’s 1979 Expanded Model [Source: (Mobley et al., 1979)]
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APPENDIX - III
Causes of Turnover Irregular payment
1%
2%
5%
2%
Less salary
3%
1%
1%
5%
Improper Management Job location
12%
Better job option Noisy work environment
6% 33%
10%
Insufficient medical allowance Leaving tendency of people Job insecurity
7%
10%
Job dissatisfaction Work time Less Increment Behavior of root level Delay of promotion
Figure 3: Causes of Employee Turnover [Sources: (Shamsuzzoha & Shumon, 2009)]
Solution Proposed Standard salary structure
2% 7%
5% 2%
7%
2%
Standard Increment
2%
2%
Medical facilities
14% 80%
Motivating strategy Accommodation facility
45%
Standard Management Good Stream relation
70%
Emergency funds for employees Better work environment Rearranging employees Package offer Suitable Transfer
Figure 4: Solutions Proposed to Reduce Employee Turnover
The above diagram shows the causes of employee turnover in Bangladesh. As a south Asian country, Sri Lanka and Bangladesh has the same kind of Causes. Therefore it is important to look at it.
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APPENDIX – IV
Figure 5: The Equity Theory by J. Stacey Adams [Source: (Laynetworks.com, 2009)]
Figure 6: An Advanced Version Expectancy Theory: The Porter and Lawler Model
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APPENDIX – V
Figure 7: Maslow's Hierarchy of Needs [Source: (Taylor, 1994)]
Figure 8: Frederick Herzberg’s Two-factor Theory (Motivation-Hygiene Theory) [Source: (Laynetworks.com, 2009)]
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