4 Important Theories for Employee Retention

 

Employee retention is the most effective way that an organization can corroborate the existence of quality employees. Retention of employees increases the productivity of the organization, saves employee turnover costs, and boosts the organization’s morale (Merin, 2021). High employee turnover negatively affects on an organization’s operations and reducing the turnover will support to increase performance of the organization and increase employees’ morale. Especially, a recruitment process absorbs high cost and also takes more time where sometimes it may take months. Also, training and development of new employees is a huge expense to a company. The fact is new employees will take a considerably long time and charge the company a considerable expense to collaborate the same output to the organization which was given by the employees who worked before. Hence, an organization that operates in a competitive environment always take actions to retain employees (Rossi, 2018).

 

This article discusses 10 major models and theories on employee retention that uses by organizations all over the world.

1.  Theory of Organizational Equilibrium

This theory explains that a person will continue working in an organization as long as the person’s perceived contribution in an organization and the organization’s perceived contribution to the person’s life is at par. Also, job satisfaction depends on compatibility with employee’s roles in the organization, predictability of relationships in the organization and conformity of employee’s self-image with the occupation (Merin, 2021)

Accordingly, the employees who are satisfied with the contribution to the organization against the compensation they receive are tend to retain in the organization.

   

    2. Maslow’s Hierarchy of Needs

                          Figure 1: Maslow’s Hierarchy of Needs (Peak Frameworks Team, n.d.)

 

This model contains 5 areas(stages) that a human usually considers to be fulfilled.  This model can be applied for employee engagement in organizations as the same in order to determine how employees can be motivated (Herrity, 2022).

The foundation level is psychological needs which refer to the basic needs such as having allocated time and place to have meals, rest, other utilities, and other necessities required in a workplace. The next higher stage refers to ensuring safety in the workplace. This also means the job security of a person. Belongingness is the next higher level which refers to the employees’ feeling of belonging to the organization/ work environment which gives employees an emotional loyalty to the company and also this motivates employees to give a better output. Esteem needs level is the stage that employees expect growing in the career, achieving goals, receiving recognition and etc. Final level, self-actualization where an employee feels that he or she is doing the best to the organization (Herrity, 2022).

3.       Social Exchange Theory

                                Figure 2: Social Exchange Theory (Harris & D'Cruz, n.d.)

 

This theory is based on the idea of social behavior is the result of an exchange process. People weigh the benefits and costs of the social engagements and when the cost (risk) is comparatively higher than the benefits (rewards) from the relationship, they will terminate the relationship. Accordingly, people always try to increase the benefits while getting reduced the risk or cost (Nickerson, 2023)

In the context of employee retention, social exchange theory suggests that when an employee meets high risk relationship at a lower reward, the employee will leave the organization (Crawley, n.d.)

 

4.       Human Capital Theory

 

Employees’ education and training have a huge impact on the organization’s performance as well as employee performance. Also, the researches have proven that there is a positive relationship between individual performance and an organization’s performance (Wangare, 2022) Moreover, when HRM of an organization develops employees with education and training, it’s increasing the human capital where the greater human capital, the greater employee retention. Further, when an organization invests in the training and development of employees, they will perform better and will tend to stay in the organization (Crawley, n.d.).

 

Conclusion

Retention of employees is an important task for HRM as the high employee turnover will incur huge costs to the organization as the organization needs to conduct recruitments, training and development sessions for new employees and also this will adversely affect on the business operational activities too. Theory of Organizational Equilibrium, Maslow's Hierarchy of Needs, Social Exchange Theory and Human Capital Theory are some of important theories which can be applied in HRM to retain employees in the organization. 

 
References

Crawley, S.( n.d.) 12 must-know models and theories on employee retention.[Online] gomada. Available from : https://www.gomada.co/blog/models-and-theories-on-employee-retention [Accessed 09 August 2023].

Harris & D'Cruz. (n.d.)Theories of Romantic Relationships.[Online] Available from: https://mrsharrispsychology.school.blog/theories-of-romantic-relationships/ [Accessed 09 August 2023].

Herrity, J.(2022) Maslows's hierarchy of needs: applying it in the workplace.[Online] indeed. Available from: https://www.indeed.com/career-advice/career-development/maslows-hierarchy-of-needs [Accessed 09 August 2023].

Merin, (2021). Employee retention theories-analysis & implementation.[Online]. Available from: https://hrshelf.com/employee-retention-theories/ [Accessed 09 August 2023].

Nickerson, C. (2023) Social Exchange Theory of Relationships: examples & more.[Online]
Available from: https://www.simplypsychology.org/what-is-social-exchange-theory.html
[Accessed 09 August 2023].

Peak Frameworks Team (n.d.) Maslow's hierarchy of needs: a tool for effective business management. [Online] Available from: https://www.peakframeworks.com/post/maslows-hierarchy [Accessed 09 August 2023].

Rossi, M., 2018. Core.ac.uk. [Online]
Available at: https://core.ac.uk/download/pdf/250153734.pdf
[Accessed Maay 2018].

Wangare, J.(2022) Human capital theory in human resource management. [Online]Tuko Available from: https://www.tuko.co.ke/289142-human-capital-theory-human-resource-management.html [Accessed 09 August 2023].