“TRAINING AND EMPLOYEE RETENTION”

SUBMITTED BY:-KHALID HUSSAIN

B.Com (HONS.) 3rd Year, 6th Semester

ENROLL NO:-A7004611021

HUMAN RESOURCE

Under Guidance Of:

Mrs. SUCHITRA SRIVASTAVA

Faculty

ABS, LUCKNOW

[DISSERTATION REPORT IN PARTIAL FULFILMENT OF THE

AWARD OF FULL TIME BACHELORS OF COMMERCE (2011-2014) ]

AMITY BUSINESS SCHOOL

AMITY UNIVERSITY, UTTAR PRADESH

STUDENT DECLARATION

Title of project report: TRAINING AND EMPLOYEE RETENTION. I understand what

plagiarism is and am aware of the University’s policy in this regard

I declare that

(a) The work submitted by me in partial fulfillment of the requirement for the award of

degree B.COM(HONS)assessment in thisDISSERTATION is my own; it has not

previously been presented for another assessment.

(b) I declare that this DISSERTATION is my original work. Wherever work form other

source has been used, all debts (for words data, arguments and ideas) have been

appropriately acknowledged and referenced in accordance with the requirements of

NTCC Regulations and Guidelines.

(c) I have not used work previously produced by another student or any other person to

submit it as my own.

(d) I have not permitted, and will not permit, anybody to copy my work with the purpose of

passing it off as his or her own work.

(e) The work conforms to the guidelines for layout, content and style as set out in the

Regulations and Guidelines.

DATE KHALID HUSSAIN

Enrolment no A7004611010

B.COM(HONS)

STUDENT’S CERTIFICATE

Certified that this report is prepared based on the Dissertation project undertaken by me in

TRAINING AND EMPLOYEE RETENTION. from 16thdec 2013 to 31st mar 2014, under Mrs.

Suchitra Srivastava in partial fulfillment of the requirement for award of degree of

BACHELOR OF COMMERCE, B.COM (H) from

Amity University, Uttar Pradesh.

Date.______________

Signature Signature Signature

Khalid Hussain Mrs. Suchitra srivastava Prof V.P.Sahi

Student Faculty Guide Dir.(ABS)

FACULTY CERTIFICATE

Forwarded here with a Dissertation report on “TRAINING AND EMPLOYEE RETENTION.”

Submitted by KHALID HUSSAIN, Enrollment No A7004611021, student of B.Com (H)

6th Semester (2013-14).

This project work is partial fulfillment of the requirement for the degree of Bachelors of

Commerce from Amity University Lucknow Campus, Uttar Pradesh.

Mrs. Suchitra Srivastava

FACULTY(ABS)

Amity University,

Lucknow Campus

CERTIFICATE

I hereby certify that

a. KHALID HUSSAIN, Enrolment No.A7004611021, student of B.COM(HONS) 2011-

2014 at AMITY BUSINESS SCHOOL, Amity University Uttar Pradesh has completed

the Project Report on “TRAINING AND EMPLOYEE RETENTION” during 6th

SEMESTER under my supervision.

b. The presented work embodies original research work carried out by the student as per the

guidelines give in University Regulations.

c. The research and writing embodied in the thesis are those of the candidate except where

due reference is made in the text.

d. I am satisfied that the above candidate’s prima facie, is worthy of examination both in

term of its content and its technical presentations relative to the standards recognized by

the university as appropriate for examination.

e. I certify that in accordance with NTCC guidelines, the report does not exceed the

prescribed maximum word limit; or Prior approval has been sought to go beyond the

word limit.

f. Wherever work form other source has been used, all debts (for words, data, arguments

and ideas) have been appropriately acknowledged and referenced in accordance with the

requirements of NTCC Regulations and Guidelines.

Signature of the faculty

MRS. SUCHITRA SRIVASTAVA

FACULTY

ACKNOWLEDGEMENT

I Khalid hussain sincerely thankful to all those people who have been giving me any kind

of assistance in the making of this project report.

I express my gratitude to , who has through his vast experience and knowledge has been able

to guide me, both ably and successfully towards the completion of the project.

I would hereby, make most of the opportunity by expressing my sincerest thanks to all my

faculties whose teachings gave me conceptual understanding and clarity of

comprehension, which ultimately made my job more easy. Credit also goes to all my friends

whose encouragement kept me in good stead. Their continuous support has given me the

strength and confidence to complete the project without any difficulty.

Last of all but not the least I would like to acknowledge my gratitude to the respondents without whom this survey would have been incomplete.

Abstract

Tuition reimbursement programs provide financial assistance for direct costs of education and

are a type of general skills training program commonly offered by employers in the United

States. Standard human capital theory argues that investment in firm-specific skills reduces

turnover, while investment in general skills training could result in increased turnover. However,

firms cite increased retention as a motivation for offering tuition reimbursement programs. This

rationale for offering these programs challenges the predictions of the standard human capital

model. This paper tests empirically whether tuition reimbursement programs increase employee

retention. The empirical analysis combines two data sources: a case study of a non-profit

institution and the Survey of Employer-Provided Training, 1995 (SEPT95), which consists of

training data collected from a cross section of establishments. From the case study analysis,

this paper finds that participation in tuition reimbursement increases retention. Results from

SEPT95 confirm this finding. These results are consistent with a theory in which investment in

general human capital is used to complement investments in firm-specific human capital.

Introduction

Becker’s (1964) seminal work on investment in human capital makes a fundamental

distinction between general and firm-specific skills, which has implications for investment and

employee turnover. Firm-specific human capital is defined as having value only to the current

employment relationship, while general human capital is valuable to both current and potential

employers. Becker’s theory predicts that employees will bear the full cost of general skills

training – either by paying for training directly or by accepting lower wages during training

periods – because employers face the threat of not capturing the return on their investment due

to “poaching” of trained employees by other employers. In a competitive labor market, workers

have the incentive to invest efficiently in general human capital because they receive a wage

equal to the value of their marginal product. In the case of investment in firm-specific human

capital, employers and employees share the costs. Neither party is willing to bear the full

amount due to the risk of opportunistic behavior by the other. The employer and the employee

share the surplus, or rents, from the investment; the relative bargaining power of the two parties

determines how these rents are allocated.

This standard theory on investment in human capital has implications for turnover.

Investment in firm-specific human capital reduces turnover because rents accrue only if the

employment relationship is maintained. However, this result does not hold for investments

in general human capital because these skills are transferable across employers. According

to Becker’s theory, offering employees general skills training would increase turnover.

Despite the predictions of this theory, recent empirical studies show that firms provide

general training to their workers and argue that firms bear part of the cost.2 Tuition

reimbursement programs are an example of general skills training provided by firms. Employers

reimburse employees for direct costs of coursework taken at accredited academic institutions.

Because instruction and degree accreditation occur at third-party institutions, skills acquired are

transferable – as well as observable – to many potential employers. Hence, tuition

reimbursement programs closely resemble general skills training as described by Becker.

2.2 Program Characteristics

Tuition reimbursement programs typically consist of three parts: 1) a maximum

reimbursement amount; 2) an eligibility requirement; and 3) a reimbursement policy based on

academic performance. A 2002 survey by Eduventures of human resource professionals and

managers at over 500 firms finds that 70 percent of firms offering a tuition reimbursement program

cap annual reimbursement, and over half of these firms (57 percent) have maximums that exceed

$4,000 (Eduventures 2003).8 Table 1 shows the distribution of reimbursement maximums from the

Eduventures survey. The majority of firms choose maximums below or equal to the maximum

annual tax exclusion, $5,250, but a significant fraction of firms have reimbursement maximums that

exceed the tax exempt limit or have no maximum reimbursement amount. Among firms offering

tuition benefits, nearly 40 percent offer reimbursements beyond the level that receives tax-

advantaged status (i.e. amounts greater than $5,250).

Most firms in the Eduventures survey allow employees to become eligible for the

program after six months of service; rarely do eligibility requirements exceed one year. Twenty

percent of firms impose service requirements after participation. Service requirements after

participation are more common in plans that have unlimited tuition reimbursement. The 2002

survey by Eduventures also reports that over 90 percent of programs have a minimum grade

standard for reimbursement, typically set at a “C” or better. Many companies tie grades directly

to reimbursement percentages, making the cost of participation higher for workers who receive

lower grades. The tuition reimbursement program analyzed in the case study has an eligibility

requirement of one year of service and does not have a service requirement after participation.

The maximum reimbursement amount is $5,250 for a single year and the program only

reimburses costs of tuition for participants obtaining a “C” grade or better. Hence, the case

study program is typical in its reimbursement amount and requirements, making it a good

candidate for case study analysis.

In addition to the above characteristics, the firm must follow guidelines set by the

Internal Revenue Code for tuition reimbursements to be exempt from taxation. To qualify for the

8 The survey was sponsored by Cenquest, a provider of managed education solutions, which helps companies create and manage tuition assistance programs (www.cenquest.com). Eduventures, who conducted the survey, is an independent research and advisory firm of corporate, post-secondary, and pre-K-12 learning markets (www.eduventures.com).

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tax exclusion, a firm must have a written plan for the exclusive benefit of providing employees with

educational assistance. The program must meet non-discrimination clauses and employees cannot

be offered a choice between educational assistance and other forms of compensation.

Before 1978, all employer-provided educational expenses fell under Section 162 of the U.S.

Internal Revenue Code. Section 162, enacted in 1954, excludes employer-provided educational

assistance from taxation as long as the coursework is job-related. Over time, the “job-related”

requirement became narrowly interpreted due to court case rulings, thus limiting the

educational opportunities of employees in low-level positions relative to employees in higher-

level positions who typically have broad job descriptions. The legislative intent of the tax

exclusion in Section 127 was to provide educational opportunities at the workplace for lower-

level employees – those employees who could not take advantage of educational assistance

for job-related coursework because they were limited by narrow job descriptions.

The tax exclusion affects program characteristics by requiring firms to

establish a separate plan offered to all regular employees. The program also needs

to satisfy non-discrimination clauses, meaning that firms cannot restrict the use of

this program to highly compensated employee. In addition, the maximum

reimbursement exempt from taxation provides a focal point for reimbursement levels

offered by firms. Hence, even though establishment-level information on program

characteristics is not available in SEPT95, the requirements stipulated in the tax

code imply that tuition reimbursement programs are similar across firms.

3.0 Literature on Tuition Reimbursement Programs

Despite the prevalence of tuition reimbursement programs, few academic studies

have looked explicitly at these programs. The primary reasons given by firms as to why

they offer tuition reimbursement programs are: recruitment and employee retention. The

first reason implies that tuition reimbursement programs are a non-wage benefit. The

rationale for the second reason is that tuition reimbursement programs are training

programs that affect worker productivity, and thus retention.

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3.1 Tuition Reimbursement and Recruitment

The use of benefits as a recruiting device is prevalent in labor and personnel

economics. Rosen’s (1986) work on “equalizing differences” established a theory for how

non-wage benefits affect the composition of workers attracted to a firm. In the case of a

tuition reimbursement, workers who value continuing education are willing to trade-off

wages (at some rate) for tuition payments. This tradeoff implies that the incidence of tuition

reimbursement is on the worker. The tax-advantaged status increases the value of a given

level of tuition benefits; the value increases with the worker’s marginal tax rate.

A common reaction to these programs is to only attribute their provision by firms to their

tax-advantaged status. However, this overlooks the trade-off between wage and non-wage

compensation. If total compensation reflects the value of a worker’s marginal product, then

benefits and wages are substitutes at the margin. Firms offer tuition reimbursement program

instead of additional wages or other benefits if tuition benefits are more effective at attracting a

certain type of workers. The tax-advantaged status of tuition reimbursement programs

increases the value of these benefits to a worker facing a positive tax rate, but cannot explain

why a firm offers tuition benefits instead of other forms of compensation.

Cappelli (2004) addresses the effect of tuition reimbursement programs on recruitment

by developing a model in which provision of these programs generates a separating equilibrium

in which only high-ability workers choose to work at firms with a tuition program. His model

includes two types of agents – low and high ability – in which ability is known to the worker, but

unknown to the firm. Participation in a tuition reimbursement program is assumed to reveal the

worker’s type to all potential employers because instruction takes place outside the firm.

Because participation is assumed to be more costly to workers with low ability, wages can be

set such that all high-ability types participate and no low-ability types participate. Hence, in his

model, firms use tuition reimbursement programs as a screening device to attract high-ability

workers. Using educational attainment as a proxy for ability, Cappelli tests his theory using the

1997 National Employer Survey (NES-EQW) and finds that the average education attainment of

new hires is higher for firms with tuition reimbursement programs, which is consistent with his

theory if educational attainment is a direct measure of ability.

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However, the sharp prediction of his model – all high ability types participate – is

inconsistent with empirical participation rates. Participation in tuition reimbursement programs

by employees is low, typically between three and five percent.9 The Corporate Leadership

Council (2002) reports that low participation rates could be due to a lack of marketing by firms.

If employees lack information about the program, it cannot influence an employee’s selection of

employer. Cappelli (2004) controls for recruiting costs when he obtains his result that the

education level of new hires is higher in firms that offer tuition reimbursement programs, but his

estimation does not control for benefits and wages. This omission could confound his result

because high wage, high benefit firms are more likely to offer tuition programs (see Section 5.1)

and these firms are also more likely to employ workers with higher educational attainment.

Additionally, his model does not address why some firms offer tuition reimbursement and

others do not. Due to the limitations of the data used in this analysis, 1997 NES-EQW, Cappelli

does not examine determinants of offering a tuition reimbursement program. In the 1997 NES-

EQW, 85 percent of firms respond affirmatively to the question pertaining to the provision of

tuition reimbursement programs. A change in the wording of the question in the NEW-EQW

between 1994 and 1997 resulted in the reported incidence of tuition programs increasing from

47 percent in 1994 to 85 percent in 1997. This paper is the first to examine the determinants of

offering tuition reimbursement programs.

Aside from the sharp predictions and shortcomings listed above, the general idea of

Cappelli’s (2004) model is attractive because it is consistent with Rosen’s (1986) prior work.

The low participation rates found empirically could be reconciled in his model by thinking of

workers as attaching an option value to participation: non-participants at firms that offer the

program could be systematically different (i.e. of higher ability) than workers at firms that do not

offer this program if high ability workers are willing to trade-off wages for the option of

participating.10 Data on how implementation of a tuition reimbursement program affects the

applicant pool would be ideal to test the effect of these program on recruitment. However, this

type of data is difficult to obtain. Results from the case study in Section 4 provide inconclusive

9 References include: Corporate Leadership Council, statistics from Watson Wyatt, Buddin and Kapur (2004), and conversations with HR personnel at firms with a program. 10 Low participation rates could be explained by adding a exogenous shock that decreases the cost of participation, or by modeling heterogeneity in ability as a continuous distribution.

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evidence that implementation of a tuition reimbursement program differentially affects new

hires and existing employees in terms of the impact of participation on employee retention.

3.2 Tuition Reimbursement and Retention

In contrast to using tuition benefits as a recruiting device, the claim by firms that they

use tuition reimbursement programs to reduce turnover does not have support in the theoretical

literature. Rather, the theoretical literature predicts the opposite: provision of general skills

training would increase turnover. Becker’s (1964) theory of investment in human capital argues

that, because general skills are fully transferable (by definition) firms risk having their trained

employees poached or “cherry-picked” by outside firms if they provide workers with general

skills training. The labor market is assumed to be competitive, resulting in the worker’s wage set

equal to the value of her marginal product. Because the worker captures the full return on the

investment, Becker’s theory implies that the worker bears the full cost of general training.

Because the market is competitive and skills are transferable, the worker is indifferent between

employers. Therefore, even if the incidence of general skills training falls on the worker,

turnover would be non-decreasing in the provision of general skills training. This disconnect

between the theoretical literature and the intended use of these programs by firms presents an

opportunity to analyze empirically the effect of tuition reimbursement programs on retention.

There are several case studies that examine the tuition reimbursement programs

offered by the U.S. Department of Defense.11 The two studies most similar in their

econometric methodology to the case study analysis in this paper are Garcia, Arkes, and

Trost (2000) and Buddin and Kapur (2005), which examine the impact of tuition

reimbursement on retention in the U.S. Navy. Garcia, Arkes, and Trost (2000) follow a

cohort of enlistees who began service in 1992 and study the effect of participation on the

likelihood of remaining with the Navy for at least six years. They find that participation

increases the probability of staying in the Navy by nearly 13 percentage points.

Buddin and Kapur (2005) find the opposite: participation in tuition reimbursement

decreases the probability of re-enlisting after four years by 16.5 percent. Buddin and Kapur

11 These include Boesel and Johnson (1988), Garcia and Joy (1998), Garcia, Arkes, and Trost (2000), and Buddin and Kapur (2002, 2005).

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criticize Garcia, Arkes, and Trost’s (2000) definition of retention and instead use re-enlistment

after the end of a four-year contract as the relevant measure. Buddin and Kapur (2005) argue

that the time window for which enlistees have access to participation in tuition reimbursement

should be held fixed, and so they limit their sample only to those enlistees who served a full

four-year contract. These two studies also differ in the variables used as exclusion restrictions

in their bivariate probit estimation: Garcia, Arkes, and Trost (2000) use participation in the

orientation session for educational opportunities offered to enlistees, while Buddin and Kapur

(2005) use the enlistee’s proximity to a four-year college before enlistment and an interaction

between the number of courses offered on base and the size of the base. Buddin and Kapur

argue that the instrument used by Garcia, Arkes, and Trost (2000) fails the exogeneity test.12

While the exclusion restriction in Garcia, Arkes, and Trost (2000) is untenable, this

paper does not agree with Buddin and Kapur’s (2005) criticism that the window of opportunity

for participation needs to be held constant for “leavers” and “stayers”. If enlistees jointly

determine their participation and retention decisions, constraining the duration of service to be

the same across participants and non-participants imposes restrictions on the effect of the

program. By using different criteria for their samples, Garcia, Arkes, and Trost (2000) and

Buddin and Kapur (2005) are addressing slightly different research questions. Garcia, Arkes,

and Trost (2000) examine the effect of participation on the likelihood of staying six years, while

Buddin and Kapur (2005) analyze the effect of participation on the likelihood of staying a fifth

year after already completing four years with the Navy. Even in the absence of these

complications, generalizing results from the Armed Services to civilian workers is difficult due to

the fundamentally different employment relationship.

Benson, Finegold and Mohrman (2004) present a civilian analysis of the impact of

participation in tuition reimbursement on retention using a case study of a large U.S. manufacturing

firm (roughly 10,000 employees). Employees at this firm have a high participation rate in the tuition

program – nearly 60 percent – which may be due to the program’s unlimited reimbursement of

tuition, stock rewards for degree completion, and the fact that the firm strives to be a leader in the

provision of continued education for its workers. This number is also inflated because it includes

individuals who took only a single course rather than limiting

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the sample to those enrolled in a degree program. Hence, their study examines an atypical

tuition reimbursement program in terms of characteristics and participation rates. Benson,

Finegold and Mohrman (2004) use a Cox-proportional hazard model to analyze how degree

completion affects the probability of leaving the firm between January 1996 and June 2000.

They argue that promotion after degree completion would reduce the likelihood of leaving

because it produces a better match between responsibilities and skills sets. However, their

theory falls short of fully explaining their empirical findings. They find that promotion

decreases the likelihood of leaving for employees who obtain a graduate degree. However,

these individuals have a greater likelihood of leaving than non-participants. Additionally,

promotion does not affect the likelihood of leaving for those employees earning a bachelor’s

or associate’s degree. More importantly, their assumption that hazard rates are proportional

might not be appropriate. They claim there is a sharp increase in the hazard upon degree

completion, which suggests that the effect of participation on the separation hazard is not

proportional over time.

While few studies examine tuition reimbursement programs, there have been many

studies that examine the provision of general skills training by employers. These studies

develop models in which a variety of mechanisms, such as asymmetric information or

mobility costs, could create a wedge between wages and productivity. This wedge provides

firms with an incentive to offer and pay for general skills training.13 These studies relax

Becker’s assumption that labor market is competitive to explain why firms offer general

training.

This paper contributes to the literature by empirically evaluating the effect of

employer-provided general training – provided through tuition reimbursement programs

– on employee retention. If general training decreases employee turnover then a

central prediction of Becker’s model is incorrect. In order to continue to use this

standard theory, it would need to be amended to account for this negative relationship

between general training and turnover. Allowing for general human capital and firm-

specific human capital to interact is one possible amendment, which is addressed in

Section 6.

Retention Programs

It is important to first pinpoint the root cause of the retention issue before implementing a program to address it. Once identified, a program can be tailored to meet the unique needs of the organization. A variety of programs exist to help increase employee retention.

Career Development – It is important for employees to understand their career path within an organization to motivate them to remain in the organization to achieve their personal career goals. Through surveys, discussion and classroom instruction, employees can better understand their goals for personal development. With these developmental goals in mind, organizations can offer tailored career development opportunities to their employees.

Executive Coaching – Executive coaching can be used to build competencies in leaders within an organization. Coaching can be useful in times of organizational change, to increase a leader’s effectiveness or to encourage managers to implement coaching techniques with peers and direct reports. The coaching process begins with an assessment of the individual’s strengths and opportunities for improvement. The issues are then prioritized and interventions are delivered to target key weaknesses. Assistance is then provided to encourage repeated use of newly acquired skills.

Motivating Across Generations - Today’s workforce includes a diverse population of employees from multiple generations. As each generation holds different expectations for the workplace, it is important to understand the differences between these generations regarding motivation and engagement. Managers, especially, must understand how to handle the differences among their direct reports.

Orientation and On Boarding – An employee’s perception of an organization takes shape during the first several days on the job. It is in the best interest of both the employee and the organization to impart knowledge about the company quickly and effectively to integrate the new employee into the workforce. By implementing an effective on boarding process, short-term turnover rates will decrease and productivity will increase.

Women’s Retention Programs – Programs such as mentoring, leadership development and networking that are geared specifically toward women can help retain top talent and decrease turnover costs. By implementing programs to improve work/life balance, employees can be more engaged and productive while at work.[4]

Retention Tools and Resources

Employee Surveys – By surveying employees, organizations can gain insight into the motivation, engagement and satisfaction of their employees. It is important for organizations to understand the perspective of the employee in order to create programs targeting any particular issues that may impact employee retention.

Exit Interviews – By including exit interviews in the process of employee separation, organizations can gain valuable insight into the workplace experience. Exit interviews allow the organization to understand the triggers of the employee’s desire to leave as well as the aspects of their work that they enjoyed. The organization can then use this information to make necessary changes to their company to retain top talent. Exit interviews must, however, ask the right questions and elicit honest responses from separating employees to be effective.

Employee Retention Consultants – An employee retention consultant can assist organizations in the process of retaining top employees. Consultants can provide expertise on how to best identify the issues within an organization that are related to turnover. Once identified, a consultant can suggest programs or organizational changes to address these issues and may also assist in the implementation of these programs or changes.[5]

Join, Stay, Leave Model

For organizations and employers, understanding the environment is the first step to developing a long-term retention strategy. Organizations should understand why employees join, why they stay and why they leave an organization. This join, stay, leave model is akin to a three-legged stool, meaning that without data on all three, organizations will be unsuccessful in implementing a proper retention strategy.

Why employees join- The attractiveness of the position is usually what entices employees to join an organization. However, recruiting candidates only half the problem while retaining employees is another. High performing employees are more likely to retain when they are given a realistic job previews. Organizations that attempt to oversell the position or company are only contributing to their own detriment when employees experience a discord between the position and what they were initially told. To assess and maintain retention, employers should mitigate any immediate conflicts of misunderstanding in order to prolong the employee’s longevity with the organization. New-hire surveys can help to identify the breakdowns in trust that occur early on when employees decide that the job was not necessarily what they envisioned.[6]

Why employees stay- Understanding why employees stay with an organization is equally as important to understanding why employees choose to leave. Recent studies have suggested that as employees participate in their professional and community life, they develop a web of connections and relationships. These relationships prompt employees to become more embedded in their jobs and by leaving a job; this would severe or rearrange these social networks. The more embedded employees are in an organization, the more they are likely to stay.http://www.shrm.org/templatestools/toolkits/pages/managingforemployeeretention.aspx Additionally, the extent to which employees experience fit between themselves at their job, the lesser chance they will search elsewhere. Organizations can ascertain why employees stay by conducting stay interviews with top performers. A stay survey can help to take the pulse of an organization’s current work environment and its impact on their high performing employees. Employers that are concerned with over-using stay interviews can achieve the

same result by favoring an on-going dialogue with employees and asking them critical questions pertaining to why they stay and what their goals are.[7]

Why employees leave- By understanding the reasons behind why employees leave, organizations can better cater to their existing workforce and influence these decisions in the future. Oftentimes, it is low satisfaction and commitment that initiates the withdrawal process, which includes thoughts of quitting in search of more attractive alternatives. If administered correctly, exit interviews can provide a great resource to why employees leave. Typically, employees are stock in their responses because they fear being reprimanded or jeopardizing any potential future reference.[8] The most common reasons for why employees leave are better pay, better hours and better opportunity. These typical answers for leaving, often signal a much deeper issue that employers should investigate further into. By asking relevant questions and perhaps utilizing a neutral third party provider to conduct the interview, employers can obtain more accurate and quantifiable data. Contrary to what most organizations believe, employees often leave due to relationships with manager and/or treatment of employees and not compensation, as this is often a response that employees are uncomfortable expressing to their organization directly.[9] Retention Diagnostic is a rapid benchmarking process that identifies the costs and can help uncover what affects employee loyalty, performance and engagement.[10]

Employee Retention Best Practices

By focusing on the fundamentals, organizations can go a long way towards building a high-retention workplace. Organizations can start by defining their culture and identifying the types of individuals that would thrive in that environment. Organizations should adhere to the fundamental new hire orientation and on boarding plans. Attracting and recruiting top talent requires time, resources and capital. However, these are all wasted if employees are not positioned to succeed within the company. Research has shown that an employee’s first 10 days are critical because the employee is still adjusting and getting acclimated to the organization. Companies retain good employees by being employers of choice.

Recruitment- Presenting applicants with realistic job previews during the recruitment process have a positive effect on retaining new hires. Employers that are transparent about the positive and negative aspects of the job, as well as the challenges and expectations are positioning themselves to recruit and retain stronger candidates.[11]

Selection- There are plethora of selection tools that can help predict job performance and subsequently retention. These include both subjective and objective methods and while organizations are accustomed to using more subjective tools such as interviews, application and resume evaluations, objective methods are increasing in popularity. For example, utilizing biographical data during selection can be an effective technique. Biodata empirically identifies life experiences that differentiate those who stay with an organization and those who quit. Life experiences associated with employees may include tenure on previous jobs, education experiences, and involvement and leadership in related work experiences.[12]

Socialization- Socialization practices delivered via a strategic onboarding and assimilation program can help new employees become embedded in the company and thus more likely to stay. Research has shown that socialization practices can help new hires become embedded in the company and thus more likely to stay. These practices include shared and individualized learning experiences, activities that allow people to get to know one another. Such practices

may include providing employees with a role model, mentor or trainer or providing timely and adequate feedback.[13]

Training and development- Providing ample training and development opportunities can discourage turnover by keeping employees satisfied and well-positioned for future growth opportunities. In fact, dissatisfaction with potential career development is one of the top three reasons employees (35%) often feel inclined to look elsewhere. if employees are not given opportunities to continually update their skills, they are more likely to leave. Those who receive more training are less likely to quite than those who receive little or no training. Employers that fear providing training will make their employees more marketable and thus increase turnover can offer job specific training, which is less transferable to other contexts. Additionally, employers can increase retention through development opportunities such as allowing employees to further their education and reimbursing tuition for employees who remain with the company for a specified amount of time.[14]

Compensation and rewards- Pay levels and satisfaction are only modest predictors of an employee’s decision to leave the organization; however organizations can lead the market with a strong compensation and reward package as 53% of employees often look elsewhere because of poor compensation and benefits. Organizations can explicitly link rewards to retention (i.e. vacation hours to seniority, offer retention Bonus payments or Employee stock options, or define benefit plan payouts to years of services)[15] Research has shown that defined compensation and rewards as associated with longer tenure. Additionally, organizations can also look to intrinsic rewards such as increased decision-making autonomy. Though this is important, employers should not

Effective Leaders- An employee’s relationship with his/her immediately ranking supervisor or manager is equally important to keeping to making an employee feel embedded and valued within the organization. Supervisors need to know how to motivate their employees and reduce cost while building loyalty in their key people. Managers need to reinforce employee productivity and open communication, to coach employees and provide meaningful feedback and inspire employees to work as an effective team.[16] In order to achieve this, organizations need to prepare managers and supervisors to lead and develop effective relationships with their subordinates. Executive Coaching can help increase an individual’s effectiveness as a leader as well as boast a climate of learning, trust and teamwork in an organization. to encourage supervisors to focus on retention among their teams, organizations can incorporate a retention metric into their organization’s evaluation.

Employee Engagement- Employees who are satisfied with their jobs, enjoy their work and the organization, believe their job to be more important, take pride in the company and feel their contributions are impactful are five times less likely to quit than employees who were not engaged. Engaged employees give their companies crucial competitive advantages, including higher productivity and lower employee turnover.

Outsourcing Employee Retention Program

Turnover costs can have significant negative impact on a company’s performance. Turnover cost can represent more than 12 percent of pre-tax income for the average company and nearly 40 percent for companies at the 75th percentile for turnover rate.[17] Organizations and managers understand the importance of implementing an effective retention program but aren’t proactive in implementing one and often leave it for another day. That day hardly ever comes. Organizations that don’t have the time or have limited resources can outsource

employee retention programs to specialists. Companies can hire third party specialists to pinpoint the root causes of their workforce challenges. By identifying the root causes, customized action plans can be tailored to fit your organization’s need to and create a retention program customized to your organization. Another benefit of outsourcing is that organizations can get quantifiable justifying the actions needed to improve their organization.

Importance of Training on Employee Retention

The challenge of how to retain valuable employees is one of the biggest concerns plaguing companies in the competitive marketplace. With the economy beginning to settle out and more positions opening within in growing companies, employees are faced with a decision: Is the grass really greener on the other side? As a result, employers must look at what they are doing to attract, and more importantly retain, the top talent they had been fortunate enough to preserve during the recession.

One way many organizations have chosen to hang on to their top talent is by re-investing in their human capital -the specialized knowledge, skills, and abilities of a company’s workforce. After making the initial investment of hiring these employees, companies are now looking to provide their workforce with the tools needed to grow and develop as contributors to the growth of the company.

Companies have found that investment in their human capital in the form of training and development yields high returns. According to an article by Chris Taylor in Training and Development Magazine ("Recession Survivors: Training to the Rescue," October 2003), “a knowledgeable workforce may ensure a company's survival.” The article profiles four companies that survived the economic impact of September 11, 2001, and a business climate marked by recession and corporate scandals.

These companies - Southwest Airlines, Viacom, Dell, and Guardsmark - all consider employee training an investment in company growth and stability. Instead of cutting back their training budgets during hard times, these companies chose to invest in the development of new skills and knowledge within their workforce. They showed a commitment to their employees and gave them the educational background necessary to increase both productivity and effectiveness in their markets. Their employees, in turn, supported these companies and ensured their survival through a difficult chapter in our country’s history.

Many employers are choosing to empower their employees and are creating learning organizations. Employers are communicating the expectation for continuous learning within their employee-base. They offer work time support for learning, and make online learning and reading a part of every employee’s regular day-to-day job duties. Employers are utilizing outside training resources and are sending employees off-site for training. Many provide college tuition reimbursement and pay for professional association memberships to further employee engagement in the company’s commitment to learning.

Empowering employees with training is crucial to the ongoing development of an organization. What better way to retain your top talent than to enable them to become more talented contributors to the growth of the business?

Effective Training Boosts Employee Retention and Bottom-line Success

Effective training also contributes to your employee retention, especially if these individuals learn what they really need to be successful in their jobs and if they earn rewards for their new knowledge. 

Verizon Wireless understands the importance of proper training, and for the past few years we have been recognized as one the country’s best training organizations. This year Training magazine ranks our company No. 4 among its top 125 training organizations in America, noting especially our Data Certification program. We don’t have all the answers to training but, as this recognition shows, what we have learned can be of help to other companies as they develop their training.

Through Data Certification and our other training programs, Verizon Wireless strives to achieve four specific goals. They are to: 1) motivate employees to learn through incentives; 2) establish training goals that align with company business objectives; 3) provide a strong combination of training methods; and 4) ultimately help the company deliver better service to our growing customer base.

The Data Certification program is divided into four stages: Learn it consists of classroom and online instruction; Show it requires employees to demonstrate what they’ve learned to their managers; Prove it involves a certification test and attainment of certain sales and customer-service quality goals; and Earn it is designed to give employees recognition and financial rewards for hitting their sales targets.

Use Certification Programs as IncentivesCertification programs, like ours, which reward individuals who master new products and services, can help employees overcome their resistance to change and keep them excited about the influx of new devices and applications. Moreover, giving employees recognition, financial rewards or other benefits for completing certification programs can be a powerful incentive for them to stay with your company. Employees are more likely to stay when they have tangible evidence that their expertise is appreciated. The results are obvious. The company has better trained, more experienced employees and lower employee-turnover expenses.

Tie Training to Company ObjectivesTo make sure our training efforts are closely aligned with our ever-changing array of products and services, Verizon Wireless has placed the training function in the Marketing

department rather than in Human Resources, where it typically resides. Marketing is a lot closer than HR to our products and services so our training is better able to focus on those we have identified as key to our company’s growth. As a result, the success of our training program is measured by an increase in sales of these key products and services. That is, training is tied directly to company business objectives.

We have also learned that a flexible infrastructure is essential for training programs to be successful. This is especially true if you have third-party partners who sell and service your products, because they represent the face of your company to customers. Extending training programs through online learning portals, for example, further ties training to your business goals. 

Customize Your Training MethodsAnother reason our training is effective is that we customize it to particular audiences. Specifically, we reach out to our sales and customer service departments and gather their input as we develop our programs. Training is then tailored to their specific needs—in terms of both content and delivery method.

While many of our training programs are still conducted in classroom settings, a new generation of electronic training tools is beginning to supplement or replace traditional classroom instruction. Among the electronic tools we’re using are online learning, training CDs and e-learning (computer-enhanced learning such as CD-ROMs, websites and online simulations). Today, we are evaluating even newer training delivery methods, such as m-learning (using mobile devices as the delivery method or actual training device) on wireless phones, PDAs and MP3 players. 

These high-tech training methods offer a great deal of flexibility and convenience for marketers of almost any product or service. In addition, as we have also learned, they can be particularly useful for companies selling high-tech products that can be incorporated right into their training programs. For those individuals who benefit from a hands-on approach to learning, Verizon Wireless is piloting a new program through which employees can check out particular devices for up to 30 days. Once they’ve become familiar with a device, they simply return it and wait for the next one in their queue to arrive. Through this hands-on experience, our employees are developing a thorough and lasting understanding of the products they are selling. 

A major benefit of this program is that it incorporates what the employee feels he or she needs to learn rather than just what the curriculum dictates. This focus on the learner improves both the training itself and our employee retention rates. Of course, the better our employees understand our products and services, the more effectively they can educate our customers and offer them more value.

Rewarding employees through certification and other incentive programs, tying training directly to company objectives and choosing the right methods for training are key factors in

ensuring that the substantial investment companies make in employee training today actually contributes to their bottom-line results.

TRAINING INCREASES EMPLOYEE RETENTION

I thought I had hired the perfect person for the front desk. She was bright, articulate, and eager to learn the hotel business from the ground up. She was going to be my front desk star. I arranged an interview with the front office manager and she agreed: star material! Imagine my surprise and disappointment when two weeks later my new star was in my Human Resource director’s office offering her resignation.I sat down for the exit interview with a list of prepared questions, and the only thing I could blurt out was, “What happened?” She looked away as she explained that she thought everyone at the front desk was nice and professional, and felt the front office manager was first rate. However, she confessed to me, the real reason for leaving was a simple one: No one took the time to train her. She felt horrible that she was not pulling her weight; however, she was just not comfortable in what she was doing. Simply put, she did not feel knowledgeable enough to do the job and she did not want to let anyone down. In her mind, quitting was the best option.When we play a game, we always ask the questions: “What are the rules?” and “Howcan I win at this game?” When new employees are asking these questions and the questions are not answered for them up front, they can become frustrated and upset because they do not know how to win at their job.I learned during my career in Human Resources and Training that most employees want to do a good job. People enjoy coming to work when they feel their efforts make a difference for the company. Oh, to feel the sweet effects of success! They also enjoy receiving recognition for the contributions they make to the company.The fear for many companies is that they spend time and money developing people, only to see them take those newly acquired skills to another company. However, training actually can increase employee retention, when the training reinforces the value of the employee. In addition, a well-designed training program plays a critical part in nurturing associates’ psyches. Associates want to feel that the job they do is important to the success of the business and that the business is investing time and money in them to have the job done correctly, and at the highest level.Training also allows associates the opportunity to learn new skills and hone existing skills they bring to the job. Being able to grow in a position and feel good about the job theyare doing is important to an individual and their view of the organization. By investing the appropriate training in an employee, they will develop a greater sense of self-worth as they become more valuable to the company. The company, too, will gain specific benefits from training and developing its workers, including increased productivity, reduced employee turnover, and decreased need for constant supervision.As a Human Resource Director for 12 years, I saw employees leave organizations for better jobs and more pay, but I can honestly say I never saw an associate leave a job for merely more pay. Keep your employees interested in continuing their career by using training as a way to demonstrate that the company values them. Training is a bridge that can lead to employee satisfaction and a higher retention rate for your company.

Training: 14 Ways to Develop Employees

The right employee training, development and education, at the right time, provides big payoffs for the employer in increased productivity, knowledge, loyalty, and contribution. Learn the approaches that will guarantee your training brings a return on your investment.

The American Society for Training and Development (ASTD) says:

"Although organizations grappled with some of the worst economic conditions in several decades, business leaders continued to dedicate substantial resources to employee learning in 2009. ASTD estimates that U.S. organizations spent $125.88 billion on employee learning and development in 2009.

"Nearly two-thirds of the total ($78.61 billion) was spent on the internal learning function, and the remainder ($47.27 billion) was allocated to external services. Direct learning expenditures, such as the learning function’s staff salaries, administrative costs, and non-salary delivery costs are included in this figure. A drop of 6.1 percent in overall spending from 2008 to 2009 is due to cuts in these expenditures by some organizations."

The ASTD study found that:

"the average annual expenditure per employee in ASTD’s sample of large organizations (BMF) there was a slight increase in spending on workplace learning and development in 2009. The average annual learning expenditure per employee for all companies surveyed grew from $1,068 in 2008 to $1,081 in 2009—an increase of 1.2 percent. Although overall spending on employee learning and development decreased slightly in 2009, on average, learning functions were serving a smaller workforce; therefore the annual learning expenditure per employee increased slightly."

"As in past years, Forum organizations and BEST Award winners spent more on learning and development per employee than the consolidated sample. However, they spent less overall per employee in 2009 than in 2008."

With this investment of hours and dollars in training, organizations need to make certain their investments in training are wise.

Important Aspects of Training

How training needs are determined, how training is viewed by employees, and how training is delivered become critically important issues. Training trends and methods for gaining knowledge, other than traditional classroom training, such as coaching and mentoring, take center stage.

 

New employee orientation, or new employee onboarding, is a significant factor in helping new employees hit the ground running.

Training that helps each employee grow their skills and knowledge to better perform their current job is appreciated as a benefit. Training also increases employee loyalty, and thus retention, and helps you attract the best possible employees.

Transfer of training from the training provider, whether online or in a classroom, to the job, is also increasingly reviewed as you invest more resources in training.

Learn the approaches that will guarantee a return on your investment and ensure employee loyalty. Organizations are increasingly asking for monetary justification that the training provided produces results - be prepared to demonstrate your results.

 

Options for Training and Education for Employees

Options for employee training and development are magnifying due to these factors:

technological innovations, employee retention strategies, and the need for organizations to constantly develop their employees' ability to keep up with

the pace of change.

So, sending an employee off for training at a one-day seminar or a week-long workshop is only one of many options that exist now.

The American Society for Training and Development has traditionally recommended a minimum of 40 hours of training a year for every employee. This is consistent with the emphasis employees place on the opportunity to grow and develop both their skills and career while in your employ.

The chance for ongoing development, is one of the top five factors employees want to experience at work. In fact, the inability of an employee to see progress is an often cited reason for leaving an employer.

As a retention strategy for your preferred employees, training and development rates highly. Only their perception of their salary and benefits as competitive, and reporting to a manager they like, rate higher.

Options for Employee Training and Development

When you think about education, training, and development, options exist externally, internally, and online. Choices range from seminars to book clubs to mentoring programs. Here are the existing alternatives to help your employees continue to grow. For recruiting,

retention, and managing change and continuous improvement, adopt all of these practices within your organization.

 

External Education, Training, and Development

Seminars, workshops, and classes come in every variety imaginable, both in-person and online.

Take field trips to other companies and organizations. Colleges and universities, and occasionally, local adult education, community colleges or

technical schools provide classes. Universities are reaching out to adult learners with evening and weekend MBA and business programs.

Professional association seminars, meetings, and conferences offer training opportunities.

Internal Education, Training, and Development

Onsite seminars and classes provide training customized to your organization. Coaching  gives employees the opportunity to share knowledge. Mentoring is increasingly important  in employee development and training as are formal

mentoring programs. Form a Book Club at work.

What Your Organization Can Do to Facilitate Continuous Learning and Regular Training

Create a learning environment. Communicate the expectation for learning. Offer work time support for learning. Make online learning and reading part of every

employee's day. Provide a professional library. Offer college tuition reimbursement. Enable flexible schedules so employees can attend classes. Pay for professional association memberships and conference attendance annually for

employees.Training is crucial to the ongoing development of the people you employ and their retention and success. Be creative to provide diverse opportunities for training.

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