9. RETENTION STRATEGIES – Hurconomics for Talent Management: The Creation of a Business-driven HRD Missionary


Retention Strategies

Costs of Attrition

Quite often, the cost of leaving a company is underestimated. The following are the costs of attrition:

  • Direct costs: Administrative costs, hiring and training costs
  • Real costs: Productivity loss during vacancy
  • Intangible costs: Loss of client relationships, impact on competitive edge, psychological impact on survivors

These costs are rarely calculated. Here is a method of calculating the costs of attrition:


Step 1:

Choose a target position for which the attrition costs are to be calculated (for example, senior sales manager).

Step 2:

List the total number of employees in the target group (for example, 20).

Step 3:

Note how many of these employees have quit in the last year (for example, five).

Step 4:

Calculate your percentage turnover (for example, 25 per cent).

Step 5:

Calculate the average salary for the target position (for example, 1 lakh).

Step 6:

Add to it the cost of benefits for the organization (for example, 1,30,000) (1.3 lakh at 30 per cent cost of benefits).

Step 7:

Estimate the number of productive months lost as a result of attrition (for example, if four months is the turnaround time to have a trained senior sales manager in position, for five managers the cost = 5 × 4 months × 1,30,000 = 26,00,000 or 26 lakh).

Step 8:

Find out the employee cost as a percentage of the revenues (normally, it is eight to 12 times for manufacturing units; three to four times for IT and other related industries).

Step 9:

Estimate the opportunity lost per person by multiplying Step 7 figures with those of Step 8 (for example, for IT: 26,00,000 × 4 = 1,40,00,000 or 1.4 crore; for pharmaceuticals: 26,00,000 × 10 = 2,60,00,000 or or 2.6 crore).

Step 10:

Each employee retained is therefore equivalent to the 5,20,000 (5.2 lakh) saved in terms of R-COT and 35,00,000 to 65,00,000 (35 lakh to 65 lakh) saved in terms of opportunity cost.


This calculation excludes the administrative and other indirect costs of replacement.

Why Do People Leave Jobs?

There are always various factors behind a person’s decision to leave a job. While leaving a job is considered attrition by the organization, it is considered talent acquisition by the new organization to which the individual moves, a career move by the individual, and an opportunity for economic growth and an enhanced quality of life by the individual’s family. So what appears as a problem to someone may appear as an opportunity to another.

This chapter examines the reasons for attrition, explores what enhances retention, and outlines some of the factors that help control attrition as well as those factors that cannot be controlled.

Factors affecting attrition and retention

There are various reasons why people leave jobs. The reasons vary from individual to individual, but when data is collected from a large number of individuals who have left an organization, some consistencies may be observed that can provide insights into why people leave. If these factors are controllable, one should certainly attempt to control them. If they are not within the organization’s control, it should prepare itself for managing attrition. Indeed, there are many ways of managing attrition.

Managing attrition does not simply mean reducing attrition; it could also mean reducing its negative effects and increasing its positive effects. To do this, appropriate retention and capacity utilization, or talent utilization, tactics should be used. In a particular organization, attrition has been used as a brand-building opportunity. Thus, an organization may claim that it provides talent for other companies or that if a person joins the organization her/his brand value will go up, and she/he is assured of good jobs later.

During my early years at IIMA, I noticed a good number of the faculty leaving IIMA every year and I felt quite concerned. My concern increased because of the institute’s apparent lack of concern about the matter. When I expressed my anxiety to a senior faculty member, he told me that the institute felt happy enough if some of its faculty left. He pointed out that almost all those who left went abroad to teach at prestigious universities. This earned IIMA a good reputation, and these faculty members would always be welcomed back if they wanted to return. They returned with more knowledge, experience and wisdom after having worked abroad as ambassadors for IIMA. What a view of attrition! Of course Indian organizations today can’t quite think like IIMA in the 1970s.

Today, when a person leaves an organization, it disrupts the organization’s activities greatly. In small organizations, the disturbance is even greater. Hence it is important to understand and manage attrition. Some of the reasons why people leave their jobs are explained here.

Career aspirations  In a growing economy, it is natural for employees at all levels to aspire to build their career. The desire to change jobs is prompted by individual ambition, and economic, professional and social aspirations. In the past, organizations grew at a steady and stable pace; individuals saw career growth in the organizations they worked in and stuck to them. These days, organizations don’t grow at the same pace as individuals’ career aspirations, or there are other organizations that match an individual’s aspirations better. When the entire world’s a stage for personal and career growth, it is futile for any organization to try to compete with others all the time. It is better to appreciate the growth and mobility of the contemporary mind, and treat attrition as a natural phenomenon rather than become agitated about it. However, if possible, organizations should do something to create new opportunities that meet the growing aspirations of competent people (who are also potential leavers). Such an attempt requires a correct diagnosis of the situation.

Comparisons and equity considerations  Individuals today constantly find themselves making comparisons with peers or classmates from the same college, batch, age group, organization, and so on. Reports in business magazines and compensation surveys by consultants and MNCs have only aggravated the situation. In their zeal to compete with one another in the marketplace, organizations often commissioned such compensation surveys and further fuelled the situation rather than controlling it. Now some of them are having to suffer the consequence of the situation created during better times.

Family mobility  Sometimes, the desire to be with loved ones pushes a person to move. Although we have largely moved away from the joint family system, there are still affiliations and affections. The need to be close to one’s family, spouse, children or parents at different stages in life, to fulfil different types of obligations, prompts some people to leave their jobs and more from one city to another.

Personality factors  Some people get bored and fatigued easily. They need to change their job or whatever they are doing periodically. Otherwise they become restless and create morale problems all around. They waste others’ time discussing organizational politics and polluting the atmosphere. Some people are constantly searching and seeking. They are very ambitious, highly achievementdriven and want to scale new heights in the shortest time. They have either been socialized in such a manner, are power hungry or have other motives known only to themselves. While some simply need variety frequently, others may have a value profile that does not match their current job or company.

Job-related factors  There could be many job-related factors that prompt the decision to leave a job. These factors may be intrinsic and job-related, or extrinsic and job-related, or job-chemistry-related. Intrinsic factors are those related to the characteristics of the job. Such problems are found aplenty in BPOs where the work conditions (night shifts, odd hours, the nature of clients one deals with, and so on) create challenges and difficulties.

Extrinsic factors include lack of role clarity, independence and autonomy, bad boss, poor chemistry of the team, work conditions that can be changed easily, lack of respect towards employee, and so on. A large number of extrinsic factors can be controlled. Briefly, the job-related actors include the following:

  • Inability to use ones’ competencies
  • Lack of challenges
  • One’s boss and her/his management style
  • Lack of scope for growth in terms of position, salary, status and other factors
  • Role clarity
  • Job stress, role stress or role stagnation
  • Lack of independence and autonomy
  • Lack of learning opportunities
  • Lack of excitement and innovation, novelty, and so on in the job

Economic factors  These deal with aspirations related to salary and perks, housing, quality of living, savings potential, and so on.

In addition, there could be other factors that affect decisions. These include:

  • Place of job and mobility of one’s partner
  • Fatigue
  • Family reasons, like having to look after old parents
  • Nearness to kith and kin
  • ROI in education

We need to make an exhaustive list of the factors affecting attrition. HR managers are the best placed to prepare such a list. The steps for retention management are as follows:


Step 1:

Study and list all the factors responsible for attrition.

Step 2:

Identify, from among these factors, those that can be controlled and those that can’t.

Step 3:

Assess the current strength and importance of the factors for the organization.

Step 4:

Prepare a plan of action based on a diagnosis of the sources of attrition.

Step 5:

Understand how we can enhance retention and human resource utilization (HRU).

Step 6:

Based on these steps, prepare retention management and talent utilization strategies.

Some Methods to Manage Retention and HRU

Any method of controlling attrition or increasing retention should be based on a good understanding of the factors leading to attrition. The factors may sometimes be very simple and could be revealed by an examination of statistical data based on answers to simple questions.

Where is the attrition occurring? Is it more in males than females? In what levels is it more? Is there anything common to those who leave? Is it related to some fields or people from a particular region or linguistic group? Is it more prevalent among candidates from certain colleges, institutions or age groups? Simple demographic analysis among those who leave could reveal some significant insights.

For example, in an oil exploration company, such an analysis revealed that attrition was limited to those from the drilling and financial services divisions. Those who left the drilling division were found to be older in age than those who left the finance department. Those who left the drilling department left with VRS and got good jobs elsewhere because experienced people are always in demand. Those who left the finance department left because the demand for young chartered accountants and financial managers had risen. In both cases, there were push as well as pull factors operating simultaneously.

Once the sources of attrition or causes are identified, solving the problem becomes relatively easy. At least the organization can determine if any internal interventions will help reduce attrition. Some of the possible interventions that could help enhance retention are as follows:

  • Financial restructuring and new incentive schemes (including restructuring of salary and perks, ESOPs, PLPs): IL&FS introduced a new scheme of performance-linked pay in the mid-1990s to manage retention at all levels. Under this system, all employees received a performance-linked pay at the end of the year depending on the company’s performance, departmental performance and individual performance. Combining all the three performance parameters, it was possible to receive as much as a year’s salary or more as PLP, depending on the financial performance of the company. Introducing small recognition schemes can go a long way.

    Loyalty pay is a good mechanism to retain employees, wherein employees get their share of the performance-linked pay or enhanced incentive pay proportionate to their stay in the company. For example, in the IL&FS case only a part of the PLP was given at the end of the first year and the remaining part was given proportionately at the end of the second and third years.

  • Employee satisfaction surveys (ESS) and organizational climate (OC) interventions: Organizational climate and employee satisfaction surveys help to indicate the factors affecting attrition and enable organizations to take corrective action. In the case of a manufacturing company, a climate survey revealed the lack of schools and commuting facilities in the area. School facilities could have improved the tenure of employees. In another study, the technological innovations were found to create tension, resulting in decisions by the fresh and junior levels of management to leave. Such climate surveys may indicate that small gestures like organizational communication, social get-togethers and celebrations can inculcate a sense of identity and belonging, and enhance the ‘we feeling’, thereby leading to retention. Climate surveys also reveal those aspects of personnel policies that need to be revamped to enhance retention. In one company, such a survey indicated that a reduction of too much differentiation and discrimination between the lower staff and officers in matters like canteen food, leave facilities and other work conditions would reduce resentment towards the management and enhance commitment to the company. Attrition in the company is often more a psychological than physical problem. Psychological attrition and retirement, that is, cases where the employee draws her/his salaries from the organization but does not contribute anything to it, are particularly trenchant problems in Indian PSUs.

    HRD audits also provide insights into the factors that may enhance retention. In an HRD audit of an electronics company located in Bangalore, it was found that the salaries of young technicians were 20 per cent to 30 per cent more than the market salaries, but there was attrition because the company did not have any career plans, as even the strategic plan was determined by the head office in Europe, and year-to-year targets came through the MD of the company. On the basis of the audit, the MD of the company was able to present his case to the head office, get a strategic plan prepared and also institute career planning mechanisms.

  • Assimilation and integration: Studies have linked the retention capacity of a firm to the induction and assimilation processes. The new economy and the need to be competitive require that a person needs to be inducted into the company even before she/he joins it. If the new employee at the top level joins the organization with a full understanding of its culture and the role she/he is supposed to handle, much employee turnover can be contained. These issues have already been discussed in Chapter 3.
  • Coaching services: With increased competition and a greater scope for career enhancement, the world of executives is becoming a busy one. It is a world of work pressure and competition. Organizations pay more and pressurize their employees to perform as they need to get their ROI on CTC. The young manager is busy proving to her/his company that she/he can make a difference and deserves what she/he is being paid. One is often left with no time for one’s family and oneself. This could result in increased stress and frustration. For some people the world is becoming an increasingly lonely place. In such a situation, making mentors and coaches available can go a long way to help people get the right type of counselling and advice.
  • Employee engagement: The best way to retain people is to motivate them. Challenges, job satisfaction, giving employees the respect and importance they deserve, being sensitive to their needs, making the organization fair, consistent and credible, with stable systems and practices that are not changed whimsically to accommodate erratic individual needs may help retention. Task forces can be constituted to examine the sources of attrition. When employees are engaged, care must be taken to see that they enjoy their work, their families are cared for, and adequate social and financial security is provided. If these things are done, retention levels go up by themselves. There is no substitute for a company with a secure and protective atmosphere. Employee engagement should come from the challenging nature of the work. There are many examples of HR practices that have been found to engage employees. Periodic training, learning opportunities, freedom and autonomy at the workplace, recognition of employees’ contributions and supportive bosses can have a powerful, positive impact on retention rates.