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Employee Turnover and Its Impact On Organizational Profit: A Literature Review

This literature review examines the significant impact of employee turnover on organizational profitability, highlighting causes such as job dissatisfaction, low wages, and poor work-life balance. It emphasizes the importance of effective recruitment and retention strategies, including improved compensation and supervisor support, to mitigate turnover's adverse effects. The study establishes a negative relationship between turnover and profit, underscoring the need for organizations to prioritize employee retention for sustained performance.

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12 views5 pages

Employee Turnover and Its Impact On Organizational Profit: A Literature Review

This literature review examines the significant impact of employee turnover on organizational profitability, highlighting causes such as job dissatisfaction, low wages, and poor work-life balance. It emphasizes the importance of effective recruitment and retention strategies, including improved compensation and supervisor support, to mitigate turnover's adverse effects. The study establishes a negative relationship between turnover and profit, underscoring the need for organizations to prioritize employee retention for sustained performance.

Uploaded by

ali.waheed0082020
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Employee Turnover and Its Impact on

Organizational Profit: A Literature


Review

Abstract
Employee turnover is a major challenge for organizations, impacting profitability,
productivity, and operational stability. This study explores the causes of employee
turnover, its negative relationship with organizational profit, and strategies to address
the issue. Key factors leading to turnover include job dissatisfaction, low wages,
work-life imbalance, and lack of recognition. The study also highlights the
moderating role of recruitment, showing that effective hiring practices can reduce the
adverse effects of turnover. Strategies such as improving compensation, fostering
work-life balance, providing supervisor support, and enhancing training programs are
essential for employee retention and improved organizational performance.

Broad Problem Area


Employee turnover remains a global challenge for organizations, resulting in
increased recruitment costs, disrupted operations, and declining profitability.
Organizations struggle to retain skilled employees due to factors like job
dissatisfaction, poor work-life balance, low remuneration, and lack of recognition.
Addressing turnover is essential to ensure stable organizational growth, productivity,
and competitiveness in a rapidly changing business environment.

Problem Statement
High employee turnover causes significant operational and financial challenges for
organizations. It increases recruitment and training costs, reduces productivity, and
disrupts the organizational workflow. Despite its critical impact on profits, many
organizations lack effective retention strategies and hiring processes to mitigate the
adverse effects of turnover. Understanding the relationship between turnover,
recruitment, and profit is essential to developing sustainable solutions for employee
retention.

Theories
Several theories provide a framework to understand employee turnover and its
impacts:

1. Herzberg's Two-Factor Theory


Herzberg’s theory divides workplace factors into motivators (e.g., recognition,
growth opportunities) and hygiene factors (e.g., salary, working conditions). The
absence of hygiene factors causes job dissatisfaction, leading to higher turnover
(Al-Suraihi et al., 2021).
2. Human Capital Theory
This theory emphasizes that employees are valuable assets for organizations.
Turnover results in a significant loss of investments made in employee training,
reducing organizational performance (Becker, 1964; Khan et al., 2023).
3. Job Demands-Resources (JD-R) Model
According to this model, excessive job demands (e.g., stress, workload)
combined with limited job resources (e.g., supervisor support, recognition) lead
to burnout and increased turnover intentions (Al-Suraihi et al., 2021).

These theories provide a foundation for understanding how various workplace factors
influence employee turnover and retention.

Introduction
Employee turnover is the rate at which employees leave an organization and are
replaced. It is a significant issue faced by organizations globally, as it disrupts
productivity, increases recruitment costs, and reduces profitability. Turnover can be
voluntary or involuntary and is influenced by factors such as job satisfaction, work
environment, compensation, and leadership (Khan et al., 2023).

High turnover negatively impacts organizations, forcing them to spend resources on


recruitment and training while experiencing a loss of experienced employees. This
makes employee retention a top priority for human resource managers and
organizational leaders. Identifying the causes and solutions for turnover is crucial for
improving employee satisfaction, reducing costs, and enhancing overall performance
(Al-Suraihi et al., 2021).

Variables
The variables analyzed in this study are:

1) Independent Variable:

1. Employee Turnover: The rate at which employees leave an organization (Al-Suraihi


et al., 2021).
1) Moderating Variable:

1. Recruitment: The process of selecting and hiring the right employees to replace
those who leave (Khan et al., 2023).

1) Dependent Variable:

1. Organizational Profit: The financial outcomes of an organization influenced by


turnover rates (Khan et al., 2023).

Other Influencing Variables:

1. Job Satisfaction
2. Supervisor Support
3. Work-Life Balance
4. Remuneration

Relationship Between Variables


Employee Turnover and Organizational Profit

There is a negative relationship between employee turnover and organizational profit.


High turnover leads to increased recruitment and training costs, productivity loss, and
operational disruptions, ultimately reducing profits (Khan et al., 2023).

Moderating Role of Recruitment

Recruitment plays a moderating role in minimizing the impact of turnover. Effective


recruitment ensures the right employees are hired, reducing the disruption caused by
turnover and improving organizational performance (Khan et al., 2023).

Influence of Job Satisfaction, Work-Life Balance, and Supervisor


Support

Factors such as job satisfaction, supervisor support, and work-life balance are strongly
linked to employee retention. Organizations that improve these factors experience
lower turnover rates and enhanced profitability (Al-Suraihi et al., 2021).

Hypotheses
1. H1: Employee turnover has a negative impact on organizational profit.
2. H2: Recruitment moderates the relationship between employee turnover and organizational
profit.
3. H3: Job satisfaction negatively influences employee turnover.
4. H4: Supervisor support reduces employee turnover.
5. H5: Work-life balance positively influences employee retention.

Model of Variables
The conceptual model below illustrates the relationship among the variables:

Employee Turnover → Organizational Profit


↓
Recruitment (Moderating Variable)

Additional Influencing Factors:

 Job Satisfaction
 Supervisor Support
 Work-Life Balance
 Remuneration

Literature Review
Causes of Turnover

Employee turnover is influenced by multiple factors, including job dissatisfaction,


low pay, poor work-life balance, and lack of supervisor support (Al-Suraihi et al.,
2021). Job stress and burnout, caused by excessive workloads and limited resources,
also contribute significantly to turnover (Khan et al., 2023).

Impact on Organizational Profit

Turnover negatively impacts profits due to increased costs for recruitment,


onboarding, and training. Khan et al. (2023) highlighted that turnover disrupts
organizational operations, leading to productivity loss and reduced revenue. Al-
Suraihi et al. (2021) estimated that replacing an employee can cost up to 2.5 times
their annual salary.

Moderating Role of Recruitment

Recruitment strategies play a critical role in reducing turnover's impact. Effective


hiring processes ensure that employees align with organizational values and adapt
quickly, minimizing productivity loss (Khan et al., 2023).

Strategies for Retention

To reduce turnover, organizations must implement strategies such as:

1. Improved Compensation: Offering competitive salaries to retain employees.


2. Training Programs: Enhancing employee skills to boost satisfaction.
3. Work-Life Balance: Ensuring flexible work arrangements.
4. Supervisor Support: Encouraging strong leadership to foster loyalty (Al-Suraihi et al., 2021).

References
Al-Suraihi, W. A., Samikon, S. A., Al-Suraihi, A. A., & Ibrahim, I. (2021). Employee
turnover: Causes, importance and retention strategies. European Journal of Business
and Management Research, 6(3). https://doi.org/10.24018/ejbmr.2021.6.3.893

Khan, Z. U., Alam, N., Badar, A., & Ahmad, M. B. (2023). Impact of employee
turnover on organizational profit with moderating role of recruitment. Bulletin of
Business and Economics, 12(3), 169-176. https://doi.org/10.61506/01.00015

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