Retention in a Financial Institution Company

Factors affecting retention in a financial institution

The field of human resource management has often been concerned with the factors affecting the retention of the employees. The current study sets out to assess these factors in the context of the financial institutions. The literature review constitutes the starting point in the analysis and the basis of the questionnaire created. The methodology used is the quantitative approach and the findings indicate that the retention of the employees in financial institution is driven by a multitude of forces, not so different from the forces driving retention in other fields. One particular finding is that aside from the traditional factors, the employees in the financial sector are also driven by job stability. This further indicates the evolving feature of the factors stimulating retention.

Statement of the problem and significance of the study

Human resource management is a complex field, focused on the relationship between employee and employer from before the actual employment contract and even after this contract is closed. One particular dimension of human resource management is represented by the efforts of employers to retain their staff members. Employee retention is crucial in organizations as it reduces the costs associated with high employee turnover rates (replacement, training and so on). In this setting then, the currently addressed issue revolves around the factors impacting employee retention within the specific field of the financial sector.

The study has a dual significance. On the one hand, it is useful for the research academy as it centralizes the information already available on the topic of the factors affecting retention within the financial institutions. Nonetheless, this topic is quite specific and novel and the number of researches conducted is quite limited. In this instance then, the second theoretical significance of the current study is that it generates new information and enhances the knowledge on the topic studied.

Aside from the theoretical importance, the study is also significant as it provides information to the practitioners in the field. Specifically, the study is useful for the managers in the financial sector who can use it to gather input on the factors which stimulate employee retention and use the information to reduce employee turnover rates.

2. The study

a. Objectives of the study

The current study sets out to identify the forces which stimulate the retention of the employees within financial institutions. Its objectives are those of:

Identifying which forces stimulate individuals to remain employed in financial institutions

Proving or disproving the initial hypothesis.

b. Statement of hypothesis

A generally accepted perception is that employees are motivated by the financial rewards they receive from their employers. This project however starts at the premise that the employees in the financial sector are also motivated and retained by other non-tangible factors as well. Throughout the research to be conducted, the hypothesis would be tested at a deeper level, in order to identify which of the retention factors are of more importance. In other words, are the employees in the financial sector more motivated to remain employed with a firm by the financial incentives or by the non-financial incentives?

c. Definition of terms

Retention = the ability of an economic agent to maintain the best staff members (Close, 2008).

Quantitative research = research approach based on facts and figures, rather than personal interpretations.

3. Review of related literature

The topic of employee retention is vastly debated within the specialized literature and various researchers propose various solutions to reducing employee turnover rates. Jennifer Carsen (2005) for instance argues that it is necessary to start at the very business core and develop a strong and trustworthy relationship with the employee. This solution includes factors such as selection, recruitment and hiring, the leadership model, employee training and development, mentoring and performance appraisals. Leslie McKeown (2002) however focuses more on the provision of various benefits to the employees, including financial and non-financial, as a means of rewarding and stimulating.

At the specific level of financial institutions, the executives in the field recognize the importance of retaining the best staff members and focus on this feature as a key success factor. This understanding can be linked to the fact that financial institutions provide services rather than material products, and the satisfaction of the final customers is directly pegged to the nature of the relationship developed between the customers and the company employees (Taylor, 2002).

In this setting then, an article in the Portland Business Journal (2002) notes that the executives in the banking community use similar tools to retain their staffs as the managers in other fields. A central role is as such played by the compensation systems, coupled with benefits packages. Still, in the financial sector, the article noted, there were some differences in the compensation packages offered to key managerial staffs and key staff employees.

Within the compensation package promoted as a retention strategy, employers in the financial sector often include salary increases (annual and pegged to evaluations), 401k plans, bonuses based on personal performances, stock ownership plans and phantom stock options. The latter two benefits were however only offered to the executive employees and they were based on the overall performances of the bank (Portland Business Journal, 2002).

While the need for financial rewards is recognized, the consultants at insurance broker and risk advisor Marsh Global argue that the recent economic problems translated into the inability of the financial sector to continue to lure its employees with financial rewards. In this setting then, they argue that companies in the financial sector strive to differentiate themselves and become preferred employers through the creation and offering of “more progressive and attractive benefits packages” (Marsh, 2010).

The consultants at Marsh have as such created three specific categories of voluntary benefits as follows: protection benefits, lifestyle benefits and time out benefits. The lines below reveal the specific benefits included in each category:

Protection benefits: travel insurance, voluntary income protection, health cash plan, dental care, cancer care, critical illness insurance, personal accident cover

Lifestyle benefits: computers and cameras, fashion and beauty, gifts and flowers, home and garden, electrical appliances, motoring, music and video, toys and books, high street vouchers

Time out benefits: holiday and travel, leisure time and days out, sport and fitness, health and beauty, theme parks, car hire, buses and coaches, trains and ferries, foreign exchange (Marsh, 2010).

While the list of voluntary benefits created by the consultants at Marsh is comprehensive, other sources focus on more specific factors used by financial institutions to retain their employees. The lines below point out to this:

Zabihollah Rezaee (2001) places an increased emphasis on the role of training as a means of retaining staffs. Employee training as development as such serves a dual purpose of increasing the quality of the services and stimulating employee motivation, satisfaction and subsequently retention.

Guler Aras and David Crowther (2010) argue that mentoring is a highly useful means of retaining the employees in the financial sector and it is also useful as it can enhance productivity

Gail Hawkins (2004) argues that one of the pillars of employee retention is represented by the culture of the employing organization.

4. Design of the study

a. Description of research design and procedures used

The research methodology employed throughout this project is a quantitative one, characterized by the fact that it relies on numbers and figures. The researcher is an objective observer who does not become directly involved in the phenomenon researched.

The particular procedure to be employed is the questionnaire, which is a highly commonly used tool in the collection of data. The questionnaire for the current analysis is revealed below:

Question 1: Which of the two motivates you the most to get a job?

a) The salary package, including bonuses and other financial rewards

b) The non-financial incentives, including flexible schedules, training

Question 2: Which of the two would motivate you to leave your current job?

a) The salary package, including bonuses and other financial rewards

b) The non-financial incentives, including flexible schedules, training

Question 3: Would you stay in a position which offers high salaries and other financial rewards, if the working climate and other non-financial features were of negative traits?

a) Yes, because of the money

b) No, I would not subject myself to improper treatment

c) Yes, I would remain employed, but on the side, I would seek new employment opportunities.

Question 4: Which of the non-financial factors listed above are of most importance to you in keeping a job within a company?

a) Assisted education and support in educational attainment

b) Training and development and support with professional advancement

c) Opportunities for career development and promotions

d) Flexible working schedules

e) The relationship with the employer

f) The working environment, including the relationship with the colleagues

Question 5: Please state any other factors which motivate you to continue to work in the current financial institution.

b. Sources of data

The data would be collected from 50 individuals employed in ten different financial institutions.

c. Sampling procedures

The sampling procedure is based on the systematic selection of individuals meeting specific requirements. These requirements are:

The respondent has worked within the financial sector for at least five years

The respondent has occupied important positions in the firm (e.g. they are not cleaning staffs)

The respondent has been employed with the current firm for at least twelve months.

5. Analysis of data

The questionnaire revealed throughout the previous section was issued on 50 respondents, from ten different employers in the local financial sector. The responses are revealed in the table below:

Question 1

Question 2

Question 3

Question 4

a b a b c a b c d e f

40%

60%

50%

10%

80%

20%

40%

12%

14%

When asked about the first reason which stimulated them to remain employed within a position, most of the respondents indicated that the financial packages were the number one cause. This factor weights as such the most in the decision of an individual to get a certain job and it is pegged to the physiological needs of the individual, those of having a shelter and providing for themselves and their families.

Nonetheless, when the non-financial incentives are weak, when the working environment is poor or when they feel too much stress, the employees tend to seek new employment opportunities. This finding is supported by the answers to the second and third questions in which:

60 per cent of the respondents stated that they were satisfied with their salaries, but would seek new jobs if the working conditions were better than the current ones

50 per cent of the respondents stated they would seek better employment opportunities when the working environment is negative.

In other words, the financial factor of the job is a crucial force in attracting the employees and hiring new members. But in order to retain them, the non-financial factors also play a crucial role. As it was revealed in the fourth question, most of the respondents (80 per cent) would remain in a well paid position only until they would be able to find a similar one within a more positive working environment.

In other words, the financial incentives are necessary in hiring an employee, but are insufficient in retaining them. At the level of the non-financial incentives most important to them, the respondents indicated the following (in order of importance):

Opportunities for career development and promotions

Training and development and support for professional advancement

The working environment, including the relationship with the colleagues

Flexible working schedules

Assisted education and support in educational attainment

The relationship with the employer.

The chart below reveals the structure of these non-financial incentives by the importance assigned by the respondents:

One particular interest is raised by the fact that the employees in the financial sector have argued that job stability is one major retention factor. At the final question in the questionnaire, most answers indicated that aside from the incentives included in the previous questions, the element which prompted them to keep a job was the stability of the position. Other factors indicated by the respondents included the nature of the tasks performed or the proximity to the home. The responses are revealed below:

Job stability, 60 per cent

Nature of tasks completed, 30 per cent

Proximity to the house, 10 per cent.

In other words, the employees will remain employed within a firm as long as the firm can guarantee that they would not be let go. This particular factor was not revealed throughout the review of the available literature and it can be as such linked to the recent events in the global economy. The debt crisis and the internationalized economic crisis have reduced the trust of employees in their employers and job stability has become a great incentive. The subsequent conclusion is that the retention factors in the financial sector — however recurrent in the literature — are also evolving and changing based on the features in the micro and the macroenvironment.

6. Summary and conclusions

a. Major findings

The employees in the financial sector are not tremendously different compared to other individuals working in other fields. They are motivated by both financial incentives as well as non-financial factors. The financial factors appear to play a more important role in the hiring of employees, whereas the actual retention is more so pegged to non-financial factors.

The current study has commenced at the premises that the employees in the financial sector are motivated by the financial factors, as well as the non-financial incentives and the research conducted proves this initial theory.

b. Conclusions

The employees in the financial institutions are similar to the employees in other fields and the managerial teams use similar incentives to motivate their performances and retentions. It is concluded that the employees in the financial institutions are driven by basic needs and that the financial factor plays a crucial role in the acceptance of a position. Long-term activation within the respective position is however also conditioned by non-financial factors.

In light of the economic crisis facing the modern day society, an important factor in job retention is the perceived stability of the position. This factor is less commonly addressed within the specialized literature, indicating as such the changing feature of the retention issues and factors.

c. Limitations

The limitation of the study is that it relies on the input provided by 50 individuals alone, all of them being employed in firms within the local community. This means that the findings are characteristics of this specific sample and might not apply to the entire community of individuals employed in the financial sector.

d. Recommendations for further investigation

Based on the study findings and its limitations, the recommendation is that of applying the research questions to a wider community. Also, it is recommended that the retention factors be assessed in five years again so that eventual changes are identified and studied.

References:

Aras, G., Crowther, D., 2010, A handbook of corporate governance and social responsibility, Gower Publishing Ltd.

Carsen, J.A., 2005, HR how to: employee retention, CCH Incorporated

Close, K.A., 2008, Nursing retention: Why registered nurses choose to stay with the VA Salt Lake City healthcare system, ProQuest

Hawkins, G., 2004, How to find work that works for people with Asperger syndrome: the ultimate guide for getting people with Asperger syndrome into the workplace (and keeping them there!), Jessica Kingsley Publishers

McKeown, J.L., 2002, Retaining top employees, McGraw-Hill Professional

Taylor, S., 2002, The employee retention group, CIPD Publishing

Rezaee, Z., 2001, Financial institutions, valuations, mergers, and acquisitions: the fair value approach, 2nd edition, John Wiley and Sons

2002, Banks say they value employee retention most, Portland Business Journal, http://www.bizjournals.com/portland/stories/2002/12/02/focus2.html last accessed on November 2, 2011

2010, Voluntary employee benefits solutions for financial institutions, Marsh, http://be.marsh.com/en/sector/Financial/images/Voluntary_Employee_Benefits_Solutions_for_FIs.pdf last accessed on November 2, 2011

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