Chapter 5: Individual/Organization Relations and Retention
Chapter 5
Individual/Organization Relations and
Retention
Learning Objectives
After students have read this chapter, they should be able to:
• Describe four different views of motivation at work.
• Explain the nature of the psychological contract.
Chapter Overview
The relationship an employee feels with the employer has many elements that might affect
his or her performance. Expectations, job satisfaction, commitment, engagement, and
loyalty are some of those relationships. This relationship can also affect two very
expensive HR issues—absenteeism and turnover. The basics for understanding this
relationship and the consequences of that relationship are covered in this chapter.
Chapter 5: Individual/Organization Relations and Retention
Chapter Outline
I. Individuals at Work
The relationship between the individual and his or her employing organization helps
explains why people might choose to leave a job. But for an employer to want to keep an
employee that employee must be performing well. Several factors affect the performance
A. Individual Performance Factors
HR Headline: Why Are the Accountants Leaving?
Pricewaterhouse Coopers was faced with runaway turnover, dropping employee
engagement, and a drop in quality associated with not being able to retain their top
talent. Their $28 billion in revenue came from 155,000 employees in 153 countries.
To understand the problem they were having, the company commissioned a study
to be done by the School of Business at the University of Southern California. The
results helped identify why accounting “knowledge workers” were leaving.
• The employees were looking for development and coaching on the job.
The company had to recognize the desire of knowledge workers to have a portfolio
of experiences that provided marketable skills. Further, every staff member had
personal interests that varied depending on the stage of life and career.
Chapter 5: Individual/Organization Relations and Retention
The three major factors that affect how a given individual performs are illustrated in
Figure 5-1:
• Individual ability to work
• Effort level expended
• Organizational support
B. Individual Motivation
Motivation is the desire within a person causing that person to act. Motivation is a
goal-directed drive, and it seldom occurs in a void. Understanding motivation is
important because performance, reaction to compensation, turnover, and other HR
concerns are affected by and influence motivation.
Need Theory
One theory of human motivation developed by Abraham Maslow classified human
needs into five categories that ascend in a definite order. Until the more basic needs
are adequately fulfilled, a person will not fully strive to meet higher needs. Maslow’s
well-known hierarchy is composed of:
• Physiological needs
Chapter 5: Individual/Organization Relations and Retention
Consequently, this reasoning continues; conditions to satisfy these needs should be
present at work to enable the job itself to be meaningful and motivating.
Two Factor Theory
Frederick Herzberg’s motivation/hygiene theory assumes that one group of factors,
motivators, accounts for motivation. However, hygiene factors, can cause
dissatisfaction with work.
The implication of Herzberg’s research for management and HR practices is that
even though managers carefully consider and address hygiene factors to avoid
employee dissatisfaction, employees may not be motivated to work harder. The two
factor theory suggests that only motivators cause employees to exert more effort and
thereby enhance employee performance. However, subsequent research by others has
questioned whether the two groups of factors are really as distinct as Herzberg
thought. Figure 5-2 shows a comparison of needs theory and two factor theory.
Equity Theory
The employee’s view of fair value is critical to the relationship between performance
and job satisfaction because one’s sense of equity is an exchange and comparison
process. A sense of inequity occurs when the comparison process results in an
imbalance between inputs and outcomes.
Expectancy Theory
Chapter 5: Individual/Organization Relations and Retention
also influenced by people’s expectations. If expectations are not met, people may
feel that they have been unfairly treated and consequently become dissatisfied. This
theory states that individuals base decisions about their behaviors on their
This model of motivation suggests that individuals’ levels of effort (motivation) are
not simply functions of rewards. Employees must believe that they have the ability to
perform the tasks well; they must expect that high performance will result in
receiving rewards; and they must value those rewards. If all three conditions are met,
employees will be motivated to exert greater effort.
C. Management Implications for Motivating Individual Performance
A common theme in the motivation literature is the motivating effect of making
successful progress in meaningful work. Some would argue that is the single most
Motivation provides the effort necessary for an individual to work on his or her own as
a self-starter. But it also provides the necessary effort for teamwork and collaboration
with others. If it values teamwork and collaboration, the organization’s culture is a good
motivation lever for managers to use for this purpose.
Chapter 5: Individual/Organization Relations and Retention
Many organizations spend considerable money to “motivate” their employees using a
wide range of tactics. For example, some firms have motivational speakers to inspire
employees. Other employers give T-shirts, mugs, books, and videos to employees as
motivators. However, the effectiveness of these expenditures has been questioned,
particularly given the short-term nature of many of these programs and rewards.
II. Individual Workers and Organizational Relationships
A. Psychological Contract
A concept that has been useful in understanding individuals’ relationships with their
employers is that of a psychological contract, which refers to the unwritten
expectations employees and employers have about the nature of their work
relationships. The psychological contract can create either a positive or negative
relationship between an employer and an individual. It is based on trust and
commitment that leads to meeting both the employer’s and employee’s expectations and
needs.
The Changing Psychological Contract
Traditionally, employees expected to exchange their efforts and capabilities for
secure jobs that offered competitive pay, a solid range of benefits, and career
progression within an organization, among other factors. But as some organizations
Chapter 5: Individual/Organization Relations and Retention
When individuals feel that they have some control and perceived rights in the
organization, they are more likely to be committed to the organization and utilize
their knowledge, skills, and abilities to accomplish performance results. A
psychological contract usually recognizes the following expectations:
Employers Will Provide
Employees Will Contribute
Competitive compensation and benefits
Continuous skill improvement and
increased productivity
Flexibility to balance work and home life
Reasonable time with the organization
Career development opportunities
Extra efforts and results when needed
Psychological contracts can be strengthened and employee commitment enhanced
when the organization is involved in a cause the employee values highly.
Global Psychological Contract Concerns
With many organizations having global operations, the psychological contract
becomes more complicated. Employees in foreign countries and expatriate
employees from the United States have varying psychological contract expectations.
B. Job Satisfaction and Commitment
In its most basic sense, job satisfaction is a positive emotional state resulting from
evaluating one’s job experiences. Job dissatisfaction occurs when one’s expectations are
not met.
Chapter 5: Individual/Organization Relations and Retention
include more demanding and stressful work, fewer relationships with management, and
less confidence in compensation and other rewards. Satisfied workers are less likely to
leave the organization than their less satisfied counterparts.
The degree to which employees believe in and accept organizational goals and want to
remain with the organization is called organizational commitment. Job satisfaction
influences organizational commitment, which in turn affects employee retention and
turnover. The interaction of the individual and the job determines levels of job
satisfaction and organizational commitment.
Chapter 5: Individual/Organization Relations and Retention
C. Employee Engagement and Loyalty
In one set of definitions, employee engagement includes satisfaction, support from
management, using effort beyond a minimum, intention to stay, and other concepts. As
such it is a combination of several concepts often measured separately.
Loyalty
Many employees still want security, stability, a supervisor they respect, competitive
pay and benefits, and the opportunity to advance. But competition and increasing
costs of doing business have led companies to trim payrolls. As a result some argue
the era of company loyalty has passed and people are more inclined to move between
companies.
HR Perspective: Organizational Redesign and Morale
Organizations sometimes need to redesign themselves and certainly not all
redesigns are successful. In fact, a recent survey by McKinsey Consulting of
executives who had taken their companies through a redesign implementation
showed that only 8 percent felt the changes (1) added value, (2) were completed
on time, and (3) fully met the business objectives set for the redesign.
While morale may suffer from a reorganization, but explaining how it will work,
making sure it does work, changing mind-sets, and doing it relatively quickly all
seem to minimize effects.
Chapter 5: Individual/Organization Relations and Retention
Loyalty can be defined as being faithful to an institution or employer. Loyalty is a
reciprocal exchange—employees’ loyalty to a company depends on their perceptions
of the company’s loyalty to them. The trend toward having employees bear more of
the risk in their pensions, health insurance, and career development has sent a clear
message that the employee must control his or her own future as the employer is not
loyal.
III. Employee Absenteeism
A major issue in the relationship between employee and employer relates to employees
who are absent from their work and job responsibilities. Absenteeism is any failure by an
employee to report for work as scheduled or to stay at work when scheduled.
Chapter 5: Individual/Organization Relations and Retention
A. Types of Absenteeism
Employees can be absent from work or tardy for several reasons. Some absenteeism is
inevitable because of illness, death in the family, and other personal reasons. Though
absences such as those that are health related are unavoidable and understandable, they
HR Skills and Applications: Controlling Tardiness
Tardiness, in which persons report late to work, is a part of the issue of
absenteeism. Whether an employee is a few minutes or a few hours late, tardiness
means time away from work, and frequently affects the work of others by being
gone.
Regardless of the reasons for it, tardiness especially becomes a problem when it is
chronic and amounts to absenteeism. When tardiness amounts to absenteeism it
must be addressed if it is to be fixed. Some ways of addressing it can include the
following:
• Establish and consistently communicate policies on lateness.
• Remind individuals of the consequences of tardiness, especially if it is
frequent.
• Have specific discussions with tardy persons on the reasons for their lateness,
and then document those reasons as part of their personnel records.
occasional tardiness.
Chapter 5: Individual/Organization Relations and Retention
Many employees see no real concern about being absent or late to work because they
feel that they are “entitled” to some absenteeism. In many firms, a relatively small
number of individuals are responsible for a large share of the total absenteeism in the
B. Controlling Absenteeism
Voluntary absenteeism is better controlled if managers understand its causes sources of
costs, and believe absenteeism can be controlled. Once they do, they can use a variety
of approaches to reduce it. Figure 5-7 shows sources of direct and indirect costs.
Organizational policies on absenteeism should be stated clearly in an employee
handbook and emphasized by supervisors and managers.
Methods employers use to address absenteeism can be placed into several categories.
Five of the more prominent are as follows:
• Disciplinary approach: People who are absent the first time receive an oral
warning, and subsequent absences bring written warnings, suspension, and finally
dismissal.
C. Measuring Absenteeism
Labor Department estimates on what percentage of employees are absent at any given
time run from 3 to 5 percent with some firms/industries as high as 8 percent. A major
Chapter 5: Individual/Organization Relations and Retention
employees who are frequently absent and departments that have excessive absenteeism.
Common information to be calculated includes:
• How many people are absent
Various methods of measuring or computing absenteeism exist. One formula suggested
by the U.S. Department of Labor is as follows:
( ) ( )
Number of person-days lost through job absence during period × 100
Average number of employees × Number of workdays
The absenteeism rate can also be based on number of hours instead of number of days.
Additional information can be gained by separating absenteeism data into long– and
short-term categories. Different problems are caused by employees who are absent for
one day 10 times during a year, and employees who are absent one time for 10 days.
IV. Employee Turnover
Turnover occurs when employees leave an organization and have to be replaced. Many
organizations have found that turnover is a costly problem. The extent to which employers
face high turnover rates and costs varies by organization and industry. For example, the
Society for Human Resource Management (SHRM) calculates that the average for all
industries is 15% annual turnover.
Chapter 5: Individual/Organization Relations and Retention
Human Resources systems designed to reduce turnover can indeed succeed.
A. Types of Employee Turnover
Turnover can be classified in many ways.
Involuntary Turnover
Voluntary Turnover
Employees are terminated for poor
performance or work rule violations
Employee leaves by choice
Involuntary turnover is triggered at all levels by employers terminating workers due to
HR Perspective: Reducing Turnover at Boys & Girls Clubs of America
The Boys and Girls Clubs of America in Atlanta has about 370 corporate employees.
They have typically tracked voluntary turnover and take those people who retire
out of the calculations and those who leave headquarters to go to work for a local
boys and girls club. Through exit interviews the organization determined that the
reason people left most frequently was a bad job fit or the person found the job not
to be what they had originally expected.
Chapter 5: Individual/Organization Relations and Retention
Functional Turnover
Dysfunctional Turnover
Lower-performing or disruptive
employees leave
Key individuals and high performers leave
at critical times
Uncontrollable Turnover
Controllable Turnover
Employees leave for reasons outside the
control of the employer
Employees leave for reasons that could be
influenced by the employer
Some examples of reasons for turnover the employer cannot control include:
• The employee moves out of the geographic area
• The employee decides to stay home with young children or an elder relative
Turnover and “Churn”
Hiring new workers while laying off others is called churn. This practice raises a
paradox in which employers sometimes complain about not being able to find skilled
workers while they are laying off others. As organizations face economic and
B. Measuring Employee Turnover
The U.S. Department of Labor estimates that the cost of replacing an employee ranges
from one-half to five times the person’s annual salary. The turnover rate for an
organization can be computed as a monthly or yearly cost. The following formula, in
which separations means departures from the organization, is widely used: