What motivates people at work? What role can managers play in improving employee motivation, morale, and engagement? Please be specific, wide-ranging, analytical, and recommendations-oriented in this discussion.
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A Review of Employee Motivation Theories and their Implications for Employee Retention within Organizations
By Sunil Ramlall, Ph.D., University of St. Thomas, Minneapolis, MN
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A Review of Employee Motivation Theories and their Implications for Employee Retention within Organizations Sunil Ramlall, Ph.D., University of St. Thomas, Minneapolis, MN ABSTRACT The article provides a synthesis of employee motivation theories and offers an explanation of how employee motivation affects employee retention and other behaviors within organizations. In addition to explaining why it is important to retain critical employees, the author described the relevant motivation theories and explained the implications of employee motivation theories on developing and implementing employee retention practices. The final segment of the paper provides an illustration with explanation on how effective employee retention practices can be explained through motivation theories and how these efforts serve as a strategy to increasing organizational performance. In today’s highly competitive labor market, there is extensive evidence that organizations regardless of size, technological advances, market focus and other factors are facing retention challenges. Prior to the September 11 terrorist attacks, a report by the Bureau of National Affairs (1998) showed that turnover rates were soaring to their highest levels over the last decade at 1.3 % per month. There are indeed many employee retention practices within organizations, but they are seldom developed from sound theories. Swanson (2001) emphasized that theory is required to be both scholarly in itself and validated in practice, and can be the basis of significant advances. Given the large investments in employee retention efforts within organizations, it is rational to identify, analyze and critique the motivation theories underlying employee retention in organizations. Low unemployment levels can force many organizations to re-examine employee retention strategies as part of their efforts to maintain and increase their competitiveness but rarely develop these strategies from existing theories. The author therefore described the importance of retaining critical employees and explained how employee retention practices can be more effective by identifying, analyzing, and critiquing employee motivation theories and showing the relationship between employee motivation and employee retention. Furthermore, Hale (1998) stated that 86% of employers were experiencing difficulty attracting new employees and 58% of organizations claim that they are experiencing difficulty retaining their employees. Even when unemployment is high, organizations are particularly concerned about retaining their best employees. PURPOSE AND STRUCTURE The article provides a synthesis of employee motivation theories and offers an explanation of how employee motivation affects employee retention within organizations. In addition to explaining why it is important to retain critical employees, the author described the relevant motivation theories and explained the implications of employee motivation theories on developing and implementing employee retention practices. The final segment of the paper provides an illustration with explanation on how effective employee retention practices can be explained through motivation theories and how these strategies serve as a strategy to increasing organizational performance. In today’s business environment, the future belongs to those managers who can best manage change. To manage change, organizations must have employees committed to the demand of rapid change and as such committed employees are the source of competitive advantage (Dessler, 1993). “Commitment is critical to organizational performance, but it is not a panacea. In achieving important organizational ends, there are other ingredients that need to be added to the mix. When blended in the right complements, motivation is the result” (O'Malley, 2000, p.13). Why is it Necessary to Retain Critical Employees? Fitz-enz (1997) stated that the average company loses approximately $1 million with every 10 managerial and professional employees who leave the organization. Combined with direct and indirect costs, the total cost of an exempt employee turnover is a minimum of one year’s pay and benefits, or a maximum of two years’ pay and benefits. There is significant economic impact with an organization losing any of its critical employees, especially given the knowledge that is lost with the employee’s departure. This is the knowledge that is used to meet the needs The Journal of American Academy of Business, Cambridge * September 2004 52 and expectations of the customers. Knowledge management is the process of creating, capturing, and using knowledge to enhance organizational performance (Bassi, 1997). Furthermore, Toracco (2000) stated that although knowledge is now recognized as one of an organization’s most valuable assets most organizations lack the supportive systems required to retain and leverage the value of knowledge. Organizations cannot afford to take a passive stance toward knowledge management in the hopes that people are acquiring and using knowledge, and that sources of knowledge are known and accessed throughout the organization. Instead, organizations seeking to sustain competitive advantage have moved quickly to develop systems to leverage the value of knowledge for this purpose (Robinson & Stern, 1997; Stewart, 1997). Thus, it is easy to see the dramatic effect of losing employees who have valuable knowledge. The concept of human capital and knowledge management is that people possess skills, experience and knowledge, and therefore have economic value to organizations. These skills, knowledge and experience represent capital because they enhance productivity (Snell and Dean, 1992). Human capital theory postulates that some labor is more productive than other labor simply because more resources have been invested into the training of that labor, in the same manner that a machine that has had more resources invested into it is apt to be more productive (Mueller, 1982). One of the basic tenets of human capital theory is that, like any business investment, an “investment in skill-building would be more profitable and more likely to be undertaken the longer the period over which returns from the investment can accrue” (Mueller, 1982, p. 94). Again, employee retention is important in realizing a full return on investment. Human capital theory includes the length of service in the organization as a proxy for job relevant knowledge or ability. A person’s job relevant knowledge or ability influences that person’s wage, promotional opportunity and/or type of job (Becker, 1975; Hulin & Smith, 1967; Katz, 1978). The understanding of length of service in an organization relates back to Ulrich’s (1998) component of commitment in his definition of intellectual capital. His definition was simply “competence multiplied by commitment” (p. 125), meaning intellectual capital equals the knowledge, skills, and attributes of each individual within an organization multiplied by their willingness to work hard. It will become significantly more important in the years ahead to recognize the commitment of individuals to an organization, as well as the organization’s need to create an environment in which one would be willing to stay (Harris, 2000). Organizations will need to either create an intellectual capital environment where the transmission of knowledge takes place throughout the structure, or continue to lose important individual knowledge that has been developed through the length of service. This deep knowledge is what many believe will help to meet the needs and expectations of the customers and to create and sustain a competitive advantage within the global economy in which organizations are competing in today. A SYNTHESIS OF EMPLOYEE MOTIVATION THEORIES The term motivation derived from the Latin word movere, meaning to move (Kretiner, 1998). Motivation represents “those psychological process that cause the arousal, direction, and persistence of voluntary actions that are goal oriented (Mitchell, 1982, p.81). Motivation as defined by Robbins (1993) is the “willingness to exert high levels of effort toward organizational goals, conditioned by the effort’s ability to satisfy some individual need.” A need in this context is an internal state that makes certain outcomes appear attractive. An unsatisfied need creates tension that stimulates drives within the individual. These drives then generate a search behavior to find particular goals that, if attained, will satisfy the need and lead to the reduction of tension (Robbins, 1993). The inference is that motivated employees are in a state of tension and to relieve this tension, they exert effort. The greater the tension, the higher the effort level as illustrated in Figure 1. Motivational theorists differ on where the energy is derived and on the particular needs that a person is attempting to fulfill, but most would agree that motivation requires a desire to act, an ability to act, and having an objective. - Insert Figure 1 about here - There are numerous theories of motivation. The author identified the most relevant theories and explained the respective theories of motivation and how motivation may impact employee commitment in an organization. Five methods of explaining behavior – needs, reinforcement, cognition, job characteristics, and feelings/emotions – underlie the evolution of modern theories of human motivation (Kretiner, 1998). In this motivational theory effort, the following motivation theories were selected (1) need theories, (2) equity theory, (3) expectancy theory, and (4) job design model given their emphasis and reported significance on employee retention. Need Theories of Motivation Need theories attempt to pinpoint internal factors that energize behavior. Needs as defined previously are physiological or psychological deficiencies that arouse behavior. These needs can be strong or weak and are influenced by environmental factors. Thus, human needs vary over time and place. The Journal of American Academy of Business, Cambridge * September 2004 53 Maslow’s Need Hierarchy Theory Maslow’s defining work was the development of the hierarchy of needs. According to Stephens (2000), Maslow believed that human beings aspire to become self-actualizing and viewed human potential as a vastly underestimated and unexplained territory as illustrated in Figure 2. Insert Figure 2 about here Maslow believed that there are at least five sets of goals which can be referred to as basic needs and are physiological, safety, love, esteem, and self-actualization. Maslow (1943) stated that people, including employees at organizations, are motivated by the desire to achieve or maintain the various conditions upon which these basic satisfactions rest and by certain more intellectual desires. Humans are a perpetually wanting group. Ordinarily the satisfaction of these wants is not altogether mutually exclusive, but only tends to be. The average member of society is most often partially satisfied and partially unsatisfied in all of one’s wants (Maslow, 1943). The implications of this theory provided useful insights for managers and other organization leaders. One of the advise was for managers to find ways of motivating employees by devising programs or practices aimed at satisfying emerging or unmet needs. Another implication was for organizations to implement support programs and focus groups to help employees deal with stress, especially during more challenging times and taking the time to understand the needs of the respective employees (Kreitner, 1998). When the need hierarchy concept is applied to work organizations, the implications for managerial actions become obvious. “Managers have the responsibility to create a proper climate in which employees can develop to their fullest potential. Failure to provide such a climate would theoretically increase employee frustration and could result in poorer performance, lower job satisfaction, and increased withdrawal from the organization” (Steers & Porter, 1983, p.32). Champagne & McAfee in their book Motivating Strategies for Performance and Productivity: A Guide to Human Resource Development listed some potential ways of satisfying employee needs: Need Examples_________________________________ 1. Physiological Cafeterias Vending machines Drinking fountains 2. Security Economic Wages and salaries Fringe benefits Retirement benefits Medical benefits Psychological Provide job descriptions Give praise/awards Avoid abrupt changes Solve employee’s problems Physical Working conditions Heating and ventilation Rest periods 3. Affiliation Encourage social interaction Create team spirit Facilitate outside social activities Use periodic praise Allow participation 4. Esteem Design challenging jobs Use praise and awards Delegate responsibilities Give training Encourage participation 5. Self-actualization Give training Provide challenges Encourage creativity Some of these ideas may be easy and inexpensive to implement while others can be quite difficult and costly. In addition, the level and type of need of employees may vary