HR department
Background
Some of the key HR functions include recruitment and selection, compensation and rewards, training and development, and performance management. The success of an HR department in performing these roles emphasizes the significance of Human Resource Management as a strategic business partner in the contemporary world. Nonetheless, organizations in the modern business world are facing a huge challenge of employee engagement and retention (Qasim & Rashidi, 2018). According to a CIPD (2017) report, four-fifths of UK-based organisations had challenges in employee engagement and retention in 2016 alone. While many factors underlie these challenges, two key HR practices stand out; these are training and development, and compensation and rewards. The two practices are the main focus of this report.
Aims and Objectives
The report aims to undertake a systematic analysis of qualitative and quantitative information to analyse HR practices and their impact on employee engagement and retention. Therefore, the main objective of this report is as follows:
- To assess the impact of two HR practices (training and development, and compensation and rewards) on employee engagement and retention.
Rationale
Employee engagement and retention are crucial for organisational sustainability due to the increased competition for scarce skills (Alzyoud, 2018). The success of large multi-national companies such as Apple, Google and Oracle can be attributed to their ability to engage and retain key employees (Chang, Wang & Cui, 2019). Moreover, the modern business world is characterised by economic instability and many business hurdles; making it necessary to retain innovativeness and creativity in an organisation. According to Gupta and Shaw (2014), compensation and reward schemes for employees makes them feel valued and appreciated for their efforts in meeting organisational goals. On the other hand, training and development is vital since it not only enhances the skills of employees but also increases their competitiveness in the modern era. Hence, there is a need to conduct more research on how these two critical roles can be effectively applied for the benefit of employees and the organisation at large.
Significance of the study
This report is important to any organisation that has been facing challenges of high employee turnover. The report contributes to many other scholarly materials on the role that training and development, and compensation and rewards play in employee engagement and retention. The fact that the report uses data from reputable sites such as CIPD makes it a good tool for HR professionals who aim to address employee engagement and retention challenges in their organisations. Besides, the report is mainly based on quantitative and qualitative data from the UK labour market; this increases its applicability in the local setting. Despite the report focusing on the two HR roles, it also appreciates that employee engagement and retention is affected by many other factors such as organisational culture and agility. The report will also be useful to HRM students and other professionals as they explore the various key variables in the success of HR as a strategic business partner for any organisation.
Research Outline
The subsequent chapters include a literature review of key themes such as employee engagement, employee retention, training and development, and compensation and rewards. After that, the report includes the methodology used, research and findings, and conclusions and recommendations.
Literature Review
Employee Engagement and Retention
Employee engagement is a concept under work engagement. Alzyoud (2018) describes work engagement as a fulfilling, positive, work-related state of mind that features dedication, vigour and absorption. Vigour involves mental resilience and high-energy levels at the workplace while dedication is characterised by challenge, inspiration, enthusiasm, involvement and pride (Alzyoud, 2018). Similarly, Popli and Rizvi (2016) describe employee engagement as a situation where there is a close connection between employees, their superiors and the organisation as a whole. Consequently, employee engagement plays a critical role in leading to employee retention. Different authors have defined employee retention is numerous ways. Khalid and Nawab (2018) point out that employee retention refers to the various steps adopted by an organisation to motivate or encourage its workforce to remain part of them for a longer duration of time. In a similar study, Lee and Chen (2018) describe employee retention as the efforts of an organisation that are aimed at creating a working environment that can keep employees focused on the company. Hence, employee engagement and retention are interrelated concepts that need to be implemented together for the overall success of the company.
The study by Al Mamun and Hasan (2017) gives several reasons for high employee turnover rates and hence low retention levels. Some of these reasons include low salaries, lack of opportunities for career growth and poor working conditions. Others include lack of workplace safety, job insecurity and poor relationships with colleagues and superiors. Positive relationships in the workplace are essential for employee engagement. Qasim and Rashidi (2018) emphasise on the social exchange theory as a key element of employee engagement. The social exchange theory points out that conscious (or unconscious) decisions are made by considering the costs and rewards of a relationship. The theory, as discussed by Qasim and Rashidi (2018), suggests that an exchange relationship between two groups results in a sense of obligation to meet expectations and fulfil the aims of either group. Hence, this theory leads to positive employer-employee relationships and necessitates the desired employee behaviours and attitudes.
Training and Development
Training and development has been pointed out as a key variable for employee engagement and retention. The contemporary employee is hungry for more skills and knowledge as this enhances his utility to the organisation (Alzyoud, 2018). Training and development is anchored under the AMO theory of performance, as explained by Dechawatanapaisal (2018). The AMO theory states that three independent work system factors play a vital role in organisational success; these are Ability, Motivation and Opportunities. The interests of a company are best addressed in a culture that addresses the abilities, motivation and opportunities of its workforce. Training and development is significant since it not only increases the expertise and ability of employees but is also a key source of intrinsic motivation.
Furthermore, the increased expertise offered by the training and development of employees offers them opportunities to contribute to the growth of the company (Chang, Wang & Cui, 2019). However, Townsend et al. (2019) point out that the AMO model fails to comprehensively cater for the many other factors that influence the abilities and motivations of employees. According to Townsend et al. (2019), the theory only focuses on contextual factors with little regard for personal affinities, individual circumstances and beliefs. For instance, a poor work-life balance or problems at home may affect the abilities and motivations of an employee.
Training and development of employees can also be associated with Hobfall’s (1989) theory of Conservation of Resources (COR), as explained by Dechawatanapaisal (2018). The theory is grounded on psychosocial models of human motivation and elaborates the attempt by employees to acquire, enhance, protect and retain the resources they personally value. Some of these resources include their workplace expertise, skills and knowledge. Besides, Dechawatanapaisal (2018) points out that resources can be tangible or intangible. Furthermore, resources can are inherent in an individual (for example, satisfaction) or can be in a social context (for example HR practices and organisational support). Hence, through training and development, employees can maintain their current resources and pursue new resources. The result is a motivated workforce, better engagement and employee retention.
Compensation and Rewards
Recent studies show that compensation and rewards play a great role in employee retention. Generally speaking, compensation involves monetary awards such as salaries, wages and benefits. Rewards can lead to either intrinsic or extrinsic motivation. For example, when rewards are in monetary terms such as bonuses and salary increments, they lead to extrinsic motivation. Conversely, rewards such as recognition, holiday plans and training lead to intrinsic motivation. Gupta and Shaw (2014) add that rewards are an invaluable source of feedback since they assist in informing employees on their performance at the organisation.
Lawler (2017) identifies two broad ways that can be used to compensate employees; these are the job-based approach and the skills-based approach. The job-based approach is traditionally used to reward people for the performance they have put in their roles. However, Lawler (2017) argues that this approach is more beneficial where jobs are well-defined, for example, a chef, matron or cashier. Additionally, this approach recognises that all jobs are not of equal importance to the firm. The labour market operates in such a way that there is more value on some jobs compared to others. Conroy (2019) holds the view that the job-based approach is based on compensating an employee for the jobs they perform compared to the skills they possess. On the other hand, Darma and Supriyanto (2017) describe it as a pay-for-knowledge approach where employees are compensated for learning certain information.
The skills-based approach holds the assumption that employees should not be compensated for the jobs they perform, but for their capability to perform tasks (Lawler, 2017). The abundant the skills one possesses, the more the compensation and rewards. While comparing the two approaches, Conroy (2019) points out that the job-based approach is mostly used due to its simplicity of administration and understanding. The skills-based approach mostly recognises those employees who are determined to acquire new knowledge and learn new skills. Therefore, its better suited for self-motivated and ambitious employees. According to Darma and Supriyanto (2017), the skills-based approach is better suited for contemporary organisations since employees are ready to go out of their way to meet their compensation targets. However, some studies such as Gupta and Shaw (2014) have raised concerns as to whether the skills-based approach promotes employee retention since such employees are always more open to searching for opportunities elsewhere. On the other hand, the job-based approach is known to recognise loyalty and dedication.
Methodology
The study was based on mixed methods of research where both primary and secondary data were used. The primary data was mainly through the use of survey methods where 100 employees were made to respond to a 5-point Likert scale questionnaire. The advantage of a survey research design is that it is relatively easy to administer and can even be done remotely through online means or mobile services (Lyberg & Weisberg, 2016). Besides, the survey research design enables a researcher to collect first-hand data from respondents compared to secondary methods of data collection. Furthermore, it offers both qualitative and quantitative data, making it suited for many research purposes (Lyberg & Weisberg, 2016).
Similarly, the research was also based on secondary data collection where information was gathered from academic journals, books and reputable HR sites such as CIPD. Secondary data was selected because it offers a wide scope of knowledge enabling the study to analyse the data in wide contexts. The method also provides historical data that can be useful in evaluating patterns of occurrence over the years in matters related to the research theme (Johnston, 2017). The use of secondary data is also more convenient since the researcher can work from any premises with minimal transport and accommodation costs. The use of mixed methods of research was useful since primary and secondary data complement each other and enhance the interpretation of study variables.
The data was analysed using qualitative means where thematic analysis was used. Thematic analysis focuses on unearthing themes that occur repetitively in sets of data and connecting these themes to the research objectives (Johnston, 2017). Besides, the methodology also involved content analysis in assessing the responses given in the survey questionnaire and the information gathered from secondary sources. Data analysis was also based on narrative analysis, where the researcher looked at the content given by respondents. Such a method capitalises on the experiences and stories shared by survey respondents (Lyberg & Weisberg, 2016). The research method was appropriate for the data collected since information gathered from secondary sources was compared and verified with information from the survey questionnaire. Consequently, this enabled the researcher to create a connection between themes and other factors affecting employee engagement and retention.
Philosophically, the study took the interpretivist paradigm. Such a philosophy does not arrive at conclusions through observation of the data collected without performing further probes (Mohajan, 2018). The positivist approach, on the other hand, does not conduct further probing of the research data. The interpretivist philosophical paradigm utilises field data to infer and build on study’s aims and objectives. Nonetheless, some scholars such as Kankam (2019) have argued that further probing exposes research work to high subjectivity levels. However, Mohajan (2018) counters such arguments by pointing out that bias can be avoided when a researcher collects rich data.
Just like many research projects, this study faced reliability challenges. According to Johnston (2017), reliability in research is closely associated with consistency. Most secondary research methods face the challenge of consistency as a result of the varied opinions, views and facts presented in secondary data sources such as books, journals and internet sources (Mohajan, 2018). However, the challenge posed by the reliability of data was widely addressed by the incorporation of survey data; this was aimed at collecting first-hand information and relating it with the second-hand information collected from secondary sources.
Research and Findings
There is a close relationship between employee engagement and retention. The former leads to the latter. However, for this to happen, HR practices such as training and development, and compensation and rewards need to be properly done. The CIPD (2017) report showed that four-fifths of organisations had challenges retaining key staff in 2016, an increase from previous years. The diagram below shows the median rates of labour turnover (%) over the years as per the report:
Source (CIPD, 2017: 39)
Figure 1: Median rates of Employee Turnover (%), 2005-2016.
The huge increase in employee turnover rate over the last three years can be attributed to a lack of efforts to implement HR practices such as training and development, and compensation and rewards. As a result, some of the employees opt to look for opportunities in other organisations (or countries) where there are better employment terms (Gilani & Cunningham, 2017). According to Fletcher, Alfes and Robinson (2018), most employees voluntarily leave organisations that are nor rewarding them favourably or enhancing their career development in any particular way. The views of Fletcher, Alfes and Robinson (2018) are again confirmed in the CIPD (2017) report where it was shown that most of the employees in UK organisations left their jobs on a voluntary basis. This is shown in figure 2 below:
Source (CIPD, 2015: 39)
Figure 2: Median employee turnover rates, by reason of leaving.
From the diagram above, most employees often leave their organisations voluntarily compared to those who are dismissed involuntarily. An employee can walk out of an organisation if he or she feels that the compensation and reward system is not balanced or does not offer much economic empowerment. However, Gilani and Cunningham (2017) point out that a reward or compensation system should not be limited to just financial gains. Low employee turnover rates can also result from professional recognition, good workplace relationships and favourable working conditions (Gilani & Cunningham, 2017).
The secondary data can be backed up by the responses gathered from the questionnaire survey. From the survey, most employees believed that their salaries and remunerations did not meet their requirements or match their expectations. Sixty-three percent of the respondents either disagreed or strongly disagreed that their salary and other variable payments compared well with the rest of the market. Besides, 53% of the employees who took part in the survey either disagreed or strongly disagreed on the whether their remuneration package was attractive. The two statistics align with the views of Perreira, Berta and Herbert (2018) who point out that employees who are not satisfied with their compensation and rewards are always on the look-out for offers that are available in competitor organisations. The result of this is poor employee retention since these employees always take opportunities in the other companies when they avail themselves.
According to Sow, Anthony and Berete (2016), there is better employment engagement and retention when effort is rewarded at the workplace. A high turnover can result from the feeling among employees that their efforts at the workplace are not well appreciated. The opinion of Sow, Anthony and Berete (2016) was again manifested in the questionnaire survey where 66% of the respondents believed that their remuneration did not match their efforts at work. Sometimes employers are not aware of such concerns from their employees due to poor relationships that result in substandard employee engagement.
Nonetheless, Kaur (2017) points out that as much as rewards and compensation may enhance employee retention, they may not necessarily lead to job satisfaction. There are many other factors that contribute to job satisfaction. One such factor is training and development of employees (Kaur, 2017). From the questionnaire survey, 49% of the employees held the view that they lacked good training opportunities that were necessary for their career growth. Another 56% of the participants did not believe that they could attain their planned career progression at their current organisations. Hence, when employers remain non-committal to the training and development of their workforce, chances of a high employee turnover are increased (Fletcher, Alfes and Robinson, 2018). Nevertheless, 59% of the study respondents held the belief that they could use their skills in performing different tasks in their organisations. Therefore, with more training and development opportunities, such employees will only enhance their workplace utility and be critical players in achieving organisational goals.
Many organisations are seeking ways to address the low employee engagement and retention rates that they are facing. According to the CIPD (2017) report, below are some of the measures organisations are taking in their attempt to address the HR challenges:
Source (CIPD, 2017: 42)
Figure 3: Steps taken to improve staff retention in 2016 (% of respondents whose organisations have undertaken specific initiatives)
The figure shows that most respondents in the CIPD (2017) study report acknowledged that their organisations had increased training, learning and development activities as a tactic of addressing low employee engagement and retention. According to Kossivi, Xu and Kalgora (2016), training and development is a measure to address employee retention since employees will remain in a place where they feel valued and challenged. There is no better way to ensure this than to train and enhance the career development of these employees. Kaur (2017) further adds that as work-life balance becomes more and more uncertain, the contemporary employee is seeking an organisation that gives him or her personal fulfilment. Moreover, the increase in training and development activities as per the CIPD (2017) report can also be attributed to the increased realisation that investing in the skills of employees boosts their value to a company. Hence, training and development works for both the interests of the employer and the employee.
Figure 3 also shows that 50% of the respondents in the CIPD (2017) report noted that their organisations had improved employee benefits while 46% stated that their organisations had increased pay. The statistics show that more and more HR professionals are appreciating the role of compensation and rewards in promoting employee engagement and retention. Bana (2019) notes that better financial returns for employees are more important due to the current global economic downturns and rates of inflation. However, organisations need to create a balance between the investments made on compensation and rewards, and the overall profitability of the company.
Organisations are also cognisant that the contemporary business world is dominated with technological advancements and innovation. Kaur (2017) notes that this has forced many companies to invest in training and development activities for their employees to ensure that skills do not become obsolete and that the companies maintain their competitive advantage in their markets. Nevertheless, Nguyen and Duong (2020) note that training and development, and compensation and rewards are closely connected. Once employees have become more skilful through training and development initiatives, their value is added and they may end up requiring more compensation and rewards. Perhaps this is one of the reasons why most mid-level organisations have always been a bit hesitant to invest in the training and development of their employees (Nguyen & Duong, 2020). However, with the high turnover rates, HR professionals and top managers are now changing tact, as confirmed in the figure 3 above and in the survey questionnaire.
Furthermore, a high employee turnover comes with increased operational costs for an organisation. More resources have to be directed towards recruitment and selection of new employees to replace the outgoing ones. Moreover, losing best talent hinders efficiency at the workplace and can prove to be costly in the long-run (Zhang, 2016). Hence to avoid these uncertainties and costs, organisations are investing in training and development, and offering better compensation and reward packages for their staff.
Conclusion, recommendations and limitations of the data
Conclusion
Employee engagement and retention are some of the key contemporary HR issues. Consequently, training and development, and compensation and rewards are two crucial HR practices that mediate the relationship between employee engagement and retention. Some of the reasons for low employee retention levels are low salaries, lack of opportunities for career growth and poor working conditions. The two main approaches to compensation of employees are the job-based approach that is more beneficial where job are well-defined and the skills-based approach where employees are rewarded for their capability to perform tasks.
Nonetheless, a CIPD (2017) report showed that four-fifths of organisations in the UK were facing challenges in retaining key staff in 2016 alone. Most employees voluntarily leave organisation when they feel that their career progress is stagnating or when their compensation levels are low compared to other organisations. Besides, a high employee turnover is witnessed when employees feel that their workplace efforts are not matched by compensation levels. However, many organisations are investing in training and development programmes to boost employee engagement and retention. Training and development makes employees feel valued and this enhanced their job satisfaction. Besides, employees become more adaptable to current technological trends. Good compensation and reward packages boost the survival of employees in the modern economic downturns. Finally, a high turnover increases operational costs to a firm due to expenses such as recruitment and selection.
Recommendations
The value of employee training and development in terms of employee engagement and retention cannot be underestimated. Since low employee retention means that employees are moving to rival companies, organisations should undertake benchmarking against the competition during such initiatives. Such a move would ensure an organisation’s training and development programmes offer the same or more value to employees than its competitors. Besides, organisations should include coaching and mentoring as part of their HR policies. Spence et al. (2016) note that coaching and mentoring not only makes employees more efficient in their roles, but also can lead to emotional attachment to the organisation; resulting in employee retention. Moreover, training and development ought to be aligned with a firm’s operating goals. Some of these goals could include customer satisfaction, quality service, productivity and better performance (Alzyoud, 2018). The alignment would ensure the organisation becomes the biggest beneficiary of the training programmes. Furthermore, training and development should be conducted under Specific, Measurable, Appropriate, Realistic and Time-bound (SMART) objectives (Zhang, 2016). On compensation and rewards, HR professionals need to give more emphasis on intrinsic rewards such as recognition, sense of accomplishment and sense of responsibility where employees take fully charge of their roles. According to Woolley and Fishbach (2018), intrinsic motivation leads to cohesive interaction and more effort at the workplace; boosting employee engagement. Furthermore, there should be salary surveys and harmonisation of compensation at various work levels as this would minimise conflict and make everyone feel appreciated.
Limitation of the Data
One of the limitations of the data used in this report is that it is based on UK organisations only. Hence, the data lacked a comparative aspect where employee engagement and retention in other countries would be compared with UK-based organisations. On the other hand, this report uses 2016 data. Since then, there have been many occurrences whose effect on the labour market has been immense. For instance, Brexit and the Covid-19 pandemic came with serious implications to employee retention. Therefore, and arguably, the data can be regarded as a bit outdated. Furthermore, the survey was only based on a Likert scale. One of the limitations of the scale is that it only gave five options for the respondents and the space between choices cannot be possibly equidistant. Lyberg and Weisberg (2016) argue that the Likert scale may not be a true measure of the real attitudes of study participants. Additionally, the validity of data from a Likert scale can be compromised due to social desirability where respondents aim to put themselves in positive light.