The impact of employee turnover: the case of leisure, tourism and hospitality industry.
In most developed and budding economies of the world, services account for the mainstream of the financial system. The service sector of the economic system is varied, comprising of the leisure and hospitality, entertainment, recreation, accommodation and food service as well as other different industries that sell to individual customers and business customers as well as to government agencies and nonprofit organizations. Service industries also account for most of the growth in new jobs. In addition, virtually all companies view service as critical to retaining their internal customers as well as external customers today and in the future (Braymer, 1997). Today's customers are more challenging, therefore; providing service quality is no longer simply an option, but a necessity. According to BLS (2000) the 20th century was an amazing phase for US workforce as remunerations rose, fringe benefits grew and workplace environment improved. At the beginning of the 1990s, the majority of the new jobs that were created were in categories paying above-median wages, and the expansion in strong labor markets generated an increase in real (inflation-adjusted) wages, especially among low-wage workers. In those good days, BLS insists, "American workers' had no fears of job loss because of the good economic times." Survey results show that the percentage of workers who believe that job losses were likely in the coming year was in the decline in the mid-1990s, from 12 % in 1993 to 8 % in 1998. A different survey of workers employed by large firms indicated that the percentage of workers who were frequently concerned about being laid off rose until 1996 but declined thereafter, from 46 % to 33 % in 1999 (BLS, 2000). Again, labor statistic figures showed that in 1999, the US unemployment rate was 4.1 %, the lowest it had been in 29 years, and employers were faced with the challenge of recruiting, training and retaining employees. On the other hand, in October 2001 employment fell sharply, and the unemployment rate jumped to 5.4 per cent. These employment losses stretched across most industries, with especially large declines in manufacturing and services. Following to the September 11, 2001 terrorist attacks, the services industry lost 111,000 jobs, mainly in travel-related businesses like hotels (46,000) and auto services (13,000), particularly car rental agencies and parking services. Unemployment rate rose from 7.6 to 8.1%, the Bureau of Labor Statistics of the U.S. Department of Labor reported in the month of March, 2009. The BLS (2009) figures in February indicate that job losses were large and widespread across nearly all major industry sectors. In the case of the leisure and hospitality, employment continued to follow a downward trend as 33,000 jobs were lost for the month of February 2009, with about half of the decrease in the accommodation industry (-18,000). This situation has not helped the industry in maintaining a steady workflow or aid the industry in reducing the stigma attached to it by people as an industry with high employee turnover rate. The unemployment figure in this sector, as aspect of the super sector consisting of Entertainment, Recreation, Accommodation and Food Service, is 11.4% and the average hourly pay is $10.98 as indicated by the Bureau of Labor Statistics.
Culture of turnover in the industry
The word turnover has been used in various contexts. Nonetheless, in the human resources context, employee turnover or labor turnover is the movement of workers out of an organization. Some experts may choose to define employee turnover as "the rate at which an employer adds and losses staff." It must be emphasized that the movement of people into and out of an organization do have some unswerving brunt on the company's human resources approach, including recruitment drives or initiatives. Today, people often attribute the inability of U.S productivity levels to keep tempo with those of foreign competition to employee turnover. Turnover is measured for individual companies and for their industry as a whole. If an employer is said to have a high turnover relative to its competitors, it means that employees of that company have a shorter average tenure than those of other companies in the same industry. High turnover can be harmful to a company's productivity if skilled workers are often leaving and the worker population contains a high percentage of novice workers. In the U.S., for the period of December 2000 to November 2008, the average total non-farm seasonally adjusted monthly turnover rate was 3.3% (BLS, 2009). Employee or labor turnover has severe consequences to organizations. As Schlesinger & Heskett (1991, p.1) claim, "when accounting for the costs (both real costs, such as time taken to select and recruit a replacement, and also opportunity costs, such as lost productivity), the cost of employee turnover to for-profit organizations has been estimated to be up to 150% of the employees' remuneration package." They insist that employee turnover has "both direct and indirect costs." Direct cost relate to the leaving costs, replacement costs and transitions costs, while indirect costs relate to the loss of production, reduced performance levels, unnecessary overtime and low morale. Like recruitment, turnover can be classed as 'internal' or external. According to Ruby (2002) internal turnover involves employees leaving their current position, and taking a new position with the same organization. Both positive (such as increased morale from the change of task and supervisor) and negative (such as project/relational disruption) effects of internal turnover exist, and thus this form of turnover may be as important to monitor as its external counterpart. Internal turnover might be moderated and controlled by typical HR mechanisms, such as an internal recruitment policy or formal succession planning.
The BLS employee turnover rates for the year ending August 2006, released in October 11, 2006, showed overall U.S. voluntary turnover increased slightly to 23.4% annually, up from 22.7% the previous year. The highest turnover by far is still in the Accommodation and Food Services sector at 56.4% and the Leisure and Hospitality sector at 52.2%. Sectors that saw the highest increase in turnover were Accommodation and Food Services, up 7% from the previous year, Leisure and Hospitality, up 5.4% and Information, up 4.5%. The only sectors seeing a (slight) decrease in turnover were Real Estate, Natural Resources and Mining, and Professional and Business Services. Many today bemoan the fact that hotels are becoming more of a bottom-line focused entity than a house of hospitality. The prediction is that the high employee turnover trend will not abate until the industry refocuses attention to relationship approach in which there is greater concern for employees.
Researchers investigating employee turnover theories in the hospitality industry suggest that there are specific factors influencing the trend (D' Annunzio-Green, Maxwell & Watson, 2004). Some call this the "turnover culture." (Deery & Shaw, 1999).
It is certain that many will not be surprised by the fact that the Leisure and Hospitality industry has such a high rate of turnover because turnover culture is considered to be a major problem in the hospitality industry. This situation is consistent with Iverson & Deery (1997). Their finding reveals that one of the main determinants predicted to have a significant role in an individual's decision to leave an organization is that of the turnover culture. Experts have made several attempts at defining turnover culture. "A turnover culture develops through the acceptance of turnover behavior by peers, management and organizational structure. It is more likely to develop in organizations where employees have strong work norms, a positive attitude on life and stress within their roles. Finally, a turnover culture exists where turnover behavior is regular, accepted as the norm and may be perceived to be beneficial to both the employer and employee" (Deery, 1999, p. 175). This variable has often been alluded to in the literature on labor turnover, but has been largely untested. This is quite surprising given that the hospitality industry has been characterized in terms of high turnover rates, a part-time and casual workforce, an absence of an internal labor market--i.e. low job security, promotional opportunity and career development, plus low wages and low skills levels. Turnover culture is best characterized as the acceptance of turnover as part of the workgroup norm.
That is, it is a normative belief held by employees that turnover behavior is quite appropriate. The concept is grounded in both the absence culture literature (Ilgen and Hollenbeck, 1977; Martocchio, 1994) and the organizational culture research (Cooke and Rousseau, 1988; Abelson, 1993). Turnover culture can have an impact on the organization in a negative way by acting as a counterculture to the organization's main objectives (Cooke and Rousseau, 1988). This is especially true when objectives such as quality of service and reduced costs are used as sources of competitive advantage.
Iverson & Deery (1997) report a study which examined the influence of turnover culture on an employee's decision to stay or leave. This study was conducted by testing a causal model of employee intent to leave using a sample of 246 employees from 6 five-star accommodation hotels in Australia. As expected, the results indicated that turnover culture was the most important determinant of intent to leave, followed by the variables of job search behavior, job opportunity, organizational commitment, union loyalty, job satisfaction, career development, reutilization, promotional opportunity, role conflict and negative affectivity. More so, many often see employment in many hospitality industrial sector as something temporary, or stop-gap employment which one can leave eventually as things improve. Many experts link the culture in the hospitality industry as one that breeds stress and thus cause employees to leave. For instance, Lo & Lamm (2005) reported findings from two case studies that indicate that working in the hospitality industry can be stressful and that many workers are vulnerable in terms of their poor working conditions and low wages. Many writers have raised some concerns as a result of the stressful conditions prevalent in the hospitality industry. Wallace (2003) links working long hours, unpredictable shifts, few breaks, heavy physical demands (manual handling heavy loads, etc), and mental and emotional demands as sources of stress employees experience in the hospitality and leisure industry. Both studies by Lo & Lamm (2005) reveal consistency in the common acceptance by those in the industry that stress is an integral part of the job (e.g. shift work, long working hours and emotional demands), indicating that hospitality workers are expected to tolerate occupational stress. For instance, in their work, "The personal cost of hospitality management; Retention programs that work," Sarabaakhsh et al (1989) have indicated that both restaurant managers and hotel managers have higher stress and anxiety levels and more career interference with their personal life than managers in a traditional office setting, but the results of the study described in this article suggest that hotel management takes a heavier toll than restaurant management.
Causes of employee turnover
The results of inquiry into the causes of the high turnover rates within the hospitality industry are only beginning to emerge (D' Annunzio-Green, Maxwell & Watson, 2004). The actual causes of employee turnover in the leisure, tourism and hospitality industry have not been to a large extent documented. Therefore, it will be unwise to think or conclude that the few findings from studies in other industries will apply to this industry. However; one finding that has provided a clearer reason for turnover in restaurants and hotels is the study by Woods & Macaulay (1989). In 1989, Woods and Macaulay reported the results of their study that investigated six restaurants and six hotels. Among others, the study showed that the opening of a new competitor is an express cause of restaurant and hotel turnover. To determine what was being done to curb employee turnover in the six hotels and six restaurants covered in the study, the researchers posed this question: "What are you doing to address the turnover problem?" The response was revealing, "none of these companies had designed specific programs to combat high turnover." The same study finds that the quality of supervision was cited by both employees and managers as an important cause of turnover in all the companies surveyed. Woods and Macaulay (1989) conclude that this appears to be industry-wide phenomena. Again, this study found that pay and benefit packages appears to be a large point of contention, as well as overall job satisfaction. This finding appears to be consistent with Griffeth et al (2000); and Abassi et al. (2000). Similarly, Manu et al. (2004) argue that employees quit from organizations due to economic reasons and they supported their position with an economic model that showed that people quit for economic reasons. Tanke (1990) argues that turnover has continued to increase in unskilled and semiskilled job positions. Schneider and Tucker (1989) stated that turnover in any service industry is high, but in many areas of the hotel business, "six to ten people are replaced out of every ten hired during the year." Marvin (1994) identified turnover as losing people you did not want to lose when you did not expect to lose them and further clarified turnover as the following:
1.) "Resignations with less than two weeks' notice--Employees who leave their jobs (no show, no call) or leave with less than two weeks' notice are delivering a message."
2.) "Terminations (except temporary staff)--when workers do not succeed in their jobs and termination is the only alternative, the problem can be attributed to one of two possibilities: either unqualified applicants, or the quality of the working environment, training and coaching."
3.) "Any regular staff resignation within the first six months--Selecting the right people and being properly handle to their training and succeed will not guarantee that employees will stay forever, but they should to keep their jobs longer six months."
In this paper, turnover should be figured on the basis of full-time employees that were considered as the total labor. Temporary workers are hired for a specific period of time, usually to cover seasonal flows in business; therefore, their departure should not be counted as turnover. Wheelhouse (1989) noted that "turnover occurs when the work unit loses a worker who must be replaced." The author suggests that are many reasons why employees leave their jobs, and grouped the major causes as follows:
a) "Mishandled selection process"
b) "Mishandled hiring process"
c) "Employee dissatisfaction with job opportunities or compensation."
d) "Poor management."
Employee turnover is still one of the most troubling issues for Leisure, tourism and hospitality businesses. As though not bad enough with regular employees, turnover rates are even more challenging among managers-especially because of the disruption caused by managers' exits. For instance, in a limited study of hotel managers, annual turnover was found to be as high as 80%" (Woods & McCauley, 1989). Take the case of 1998, the annual turnover rate for salaried employees in full-service restaurants with a check average over $10 was 50 %; for restaurants under $10, 33 %; and for limited-service, fast-food restaurants, 100 % (National Restaurant Association and Deloitte & Touche, 1999). In the same vein, Horton and Ghiselli (1999) established that the annual turnover rate for foodservice managers and supervisors to be in the region of 67 %.
Ghiselli et al (2001) have consistently linked a number of variables to turnover. Those with the strongest empirical correlations are age, tenure, job content, and job satisfaction (Mobley et al, 1979). Other factors have shown varying correlations, including skill level, type of occupation, and education, while a number of studies have found age to be one of the strongest correlates of employee turnover. Authors such as (Lewis and Chambers 2000; Tutuncu and Demir 2003), have added low pay (consistent with other research findings), long and/or antisocial work hours (usually more than eight hours), repetitive jobs (too much task cycles), seasonality of employment and not much future career prospects as major reasons for service employee turnovers. Many experts believe that the tourism and hospitality industry employ many people in the generation Y, those born in the 1980s and many of these are seen as casuals or transitional workers. Guerrier (1999) states that the tourism and hospitality industry is characterized by "dichotomous culture," and "despite having a somewhat glamorous image involving a high degree of face to face contact, work in the industry has traditionally been seen as associated with servility." This view is congruent with Baum (1995, p. 122) who describes the industry as entrenched in "upstairs/downstairs master/servant culture." Experts insist that these downbeat instances are the main reasons there are high rate of employee turnover rate in the tourism and hospitality industry today.
The negative effects of employee turnover
Read this caption, "Jacksonville, Florida, hotel gets eighth general manager in 4 years." That was exactly the situation Jacksonville Adam's Mark found itself when its then manager, Ben Soto announced his resignation leading to the bringing in of Mark Kaiser, its eight manager since the hotel opened in 2001. Frequent managerial changes are suggestive of internal imbalances in an organization, a situation that can hamper the efficiency, effectiveness and even the consistency in organizational functions, practices and services.
Woods & Macaulay (1989) in a study highlighted the correlation between employee turnover and poor performance and profitability. Based on their research, they concluded, "when employees are never on a job long enough to internalize the company's culture and work fully and procedures are haphazard, it can lead to poor performance and reduce profitability." Interesting enough, all the executives surveyed in their study agreed that lower employee turnover would increase the strength of their company's culture and the level of productivity.
Employee turnover is not only frustrating for those who invest time and effort in hiring and training employees, but it is also extremely costly (Alexander, 2006). She claims that Even if you hire an employee you think will be a good fit for the position, there is no guarantee that they will stay. The high cost of turnover, which averages over $600 per employee who leaves, is one of the major reasons the managers should constantly consider for perspective employees. According to Schneider and Tucker (1989) neither the employer nor the employee can afford the high cost of turnover, which is estimated at over $1 billion annually for the foodservice and lodging industry. This cost, they suggest can be broken down into four phases: (1) recruitment, (2) selection and placement, (3) hiring and training, and (4) separation. These costs are direct costs. Wheelhouse (1989) argues that turnover also causes indirect costs that are harder to assess accurately. Indirect costs are the intangibles which specific figures are not available. Indirect costs of employee turnover include production losses; breakage, waste, and accidents; loss of morale and work unit cohesion; and lost customers. As Alexander (2006) indicates, estimates on how much employee turnover actually costs are varied and depend highly on the nature of the business being analyzed. Some researchers have estimated that a single employee's departure from the workforce can cost his or her employer between 25 and 400 percent of that employee's annual compensation. A common estimate is that employee turnover costs 1.5 times the departing employee's income. As stated earlier, direct costs of turnover may include recruitment, selection, and training of new employees, and indirect costs may include high workloads and overtime for remaining workers, reduced productivity, and low morale. According to Employment Policy Foundation (2004), a Washington, D. C. research group and publishers of the 'Fact Sheet" that examines employee turnover rates by industry, the cost of employee turnover analysis indicate that for the twelve months ending August 2004, average employee turnover costs reached $13,355, up 6.8 % from its December 2002 level. This analysis is consistent with the various studies that have revealed the ugly side of employee turnover. Despite the costs associated with it, turnover still occurs in large numbers in the United States. The U.S. Department of Labor's Bureau of Labor Statistics tracks employee turnover on a monthly basis. Through its calculations ending in October 2005, the annual turnover rate for 2005 is estimated at approximately 3.34%. Annual rates were 3.22% in 2004, 3.08% in 2003, 3.16% in 2002, and 3.45% in 2001. These numbers are even higher in the private sector and vary by geographical region and industry, with higher turnover rates occurring in the South (3.5%) and West (3.53%) and lower numbers in the Northeast (2.83%) and Midwest (3.18%). The highest turnover occurs in leisure and hospitality (6.05%) and construction (5.53%), with the lowest in government (1.22%).
Curtailing turnover in the industry
Ask any manager in the tourism and hospitality industry about employee turnover and you will get a similar answer, "employee turnover is of great concern." Employee turnover continues to plague the leisure and hospitality industry as keeping and retaining employees become a huge issue. So, what can employers do about turnover and its associated costs? How do you find out what motivates your employees to stay or leave? The answer is probably a lot simpler than you might think. Finding out what drives your employees is an important step in learning whether your particular workforce likes the way you run your business. Sarabakhsh et al (1989) suggest that the first step in curing high turnover is discovering why employees leave. One important caveat in deducing your workers' happiness is this: "don't assume that better-paid employees are happier employees." It is important to remember that more money is not a cure-all for employment turnover. Furthermore, before throwing more money at your employees, remember that turnover can sometimes be beneficial because if all employees stayed with your organization with steady growth, most employees would be at or close to the top of their pay scale and your salary expenses would be high. Thus, the key to reducing turnover seems to be finding out what motivates employees to leave a job. Alexander (2006) reports the results of an employee-oriented poll by the Gallup organization. In the survey, employees were asked how satisfied they were with their jobs. Results revealed that 42% of employees were completely satisfied, 44% were somewhat satisfied, 11% were somewhat dissatisfied, and 3% were completely dissatisfied. This was down from 50% completely-satisfied employees in 2004 and 44% in 2003. As Smith (2006), a management consultant asserts, "While many leading companies place more effort in employee retention, most are clueless." They accept employee turnover as a normal part of doing business. High turnover organizations spend disproportionate amounts of resources on recruiting and replacing their workforce, while smart organizations invest in employee retention. Yes, there is going to be turnover no matter what you do, but blindly ignoring the reasons for turnover is foolish and expensive. The leisure and Hospitality industry is an industry constantly hit by high turnover cost. The table below shows employee replacement costs by industry.
Industry Dollars per Employee Construction $14,500 Manufacturing $14,500 Trade & Transportation $12,500 Information $19,500 Financial Activities $18,000 Professional & Business $15,500 Education & Health $14,000 Leisure & Hospitality $ 7,000 Other Services $12,750 All Private $14,000 Source: Employment Policy Foundation tabulation and analysis of Bureau of Labor Statistics, Employer Cost of Employee Compensation data.
Tackling the problems posed by employee turnover, especially in the hourly positions has been a huge issue for managers in the hospitality industry. Hubbard (2002, p.2) maintains "hiring the right person for the job at the onset is, of course, the best means to control the turnover rate." He indicates "in times of employee shortages, managers pressed for time can easily get a little careless in the selection process." Great point there, however, hiring right the "right" person is not an easy task. It can only happen when you have efficient and effective hiring procedures and standards. Many suggest that the hospitality industry does not have clear hiring standards. Research by Thomas et al (1998) indicates the most commonly adopted recruitment method of small tourism firms was word of mouth, a finding consistent with Bonn Forbringer's (1992) position that the hospitality is prone to hiring almost any 'warm bodies'. Furthermore, serious efforts should be made to reorientate people about "career culture" in the industry, an idea shared by many including Cairncross and Buultjens (2007) who suggested a need to change the perception of employment in the industry to "improved career progression to replace the low pay, long hour and boring work." In addition, training and development programs must be instituted in the industry to make working there more attractive and improve the prestige of employees. As Ivancevich (2003, p. 396) suggests "If employees perceive themselves as ineffective, unwanted, or unneeded, they may react to these feelings by quitting." Today's organizations compete through people. Therefore, Porter's (1990) competitive advantage has become crucial to the survival of many organizations. A dependable, proficient, and unwavering workforce is argued to be one of the keys aggressive successes. Antolik (1993) posits that maintaining experienced workers is one of the hospitality industry's biggest challenges and advice that slow advancement and dissatisfaction often compel employees to search for positions elsewhere.
From the foregoing, it has become necessary for hospitality and tourism industry players to understand that employees are their most valuable resource. Today, organizations compete through people. Therefore, clear policies on employee recruitment, selection, retention/motivation, training and development must be put in place as a mode for reducing turnover rate. Many in the human resource profession see high turnover rate as a recruitment and selection error. To this end, employee recruitment and selection must be conducted diligently to ensure that the right "fit" is struck. As stated by Redford (2005) it is vital to "Give new starters realistic expectations." The author argues "Making sure they have a clear idea of their role and the culture of the company can save disappointment later," and maintains that giving applicants realistic job descriptions would be the ideal thing to do. Efficient and effective workforce is a productive workforce. Efficiency deals with how productively managers utilize organization resources to achieve organizational objectives. To have a resourceful workforce, organizations need to have skillful, capable and technically sound employees. Therefore, the role of employee training and development programs becomes paramount. Bohlander & Snell (2007, p. 294) describe the term training as "almost any effort initiated by an organization to foster learning among its members." They differentiated training from development, which according to them "tends to focus on broadening an individual's skills for future responsibilities." Companies must continuously train employees to bring their knowledge, skills, and abilities (KSAs) up to level fit for acceptable performance. Research has indicated that when employees consistently fail to accomplish organizational targets, this might be a hint that training is needed. Availability of instruction programs coupled with development opportunities will keep employees motivated. A highly motivated employee is a happy employee and a happy employee is a productive employee. As Redford (2005) suggests "training objectives should focus not just on the skills staff need to do their current job, but allow them to grow skill-sets in new areas too. This way, employees are more likely to see their future within the same organization."
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Agaptus C. Chikwe, MBA
Faculty, School of Business
1500 N. W 49th Street
Fort Lauderdale, Florida 33309
Annual U.S. Voluntary Turnover by Industry Total US 23.4% Financial activities 16.4% Finance and insurance 15.5% Real estate and rental and leasing 19.6% Professional and business services 27.8% Education and health services 18.6% Educational services 13.5% Health care and social assistance 19.6% Leisure and hospitality 52.2% Arts, entertainment, and recreation 28.7% Accommodation and food services 56.4% Other services 23.1% Source: U.S Department of Labor, Bureau of Labor Statistics (BLS). Note: Table made from bar graph.
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|Author:||Chikwe, Agaptus C.|
|Publication:||Consortium Journal of Hospitality & Tourism Management|
|Date:||Aug 1, 2009|
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