One of the biggest hinderances of a business’s growth is hiring and retaining good employees. There is considerable cost between the time lapse of the manager’s recognition for the need of a new employee, actually hiring, and then training the employee.
According to Massad (2017) article in the SA Journal of Human Resource Management the cost of employee turnover can cost 25% to 500% of the annual compensation of the employee. He further states the average cost per employee is $13,996. These expenses include: recruiting, onboarding, and training the new employee.
In addition, with the current unemployment rate of 3.7% it can be difficult to find qualified employees.
It is much more cost effective to make a sincere effort to retain existing employees and create programs to promote these employees from within. There are skill sets that can increase the employee’s commitment to the organization and play an important part in improving job retention. Implementing these skills will create a more positive work environment for the entire business.
In addition, these skill sets can be one part of a process that will increase task performance and profitability.
Utilizing transformational leadership skills will increase the employee’s commitment to the business and improve the office environment. Transformational leadership can lower employee turnover, but there are other issues that effect job retention rates.
Massad’s (2017) research supports the theory that Transformational style leadership can predict a lower level of employee’s intentional turnover rate. It is important to note the word “intention”. In other words, from this study we cannot make connection between an employee’s intention to resign from job and the actual behavior of quitting a job.
Hussain, Shujahat, Malik, Iqbal, & Mire (2018) conducted an extensive research project in the banking industry. They measured two elements of trust and how it correlates with job performance, organizational commitment, and employ turnover. These researchers isolated the components of trust into two separate categories, cognitive trust and affective trust.
They define cognitive trust as being related to the manager’s integrity and reliability. They defined affective trust as the manager’s ability to show concerns and care for their employees.
These authors found a positive correlation between employee’s trust in management to their commitment to their host organization. In researching the employee’s level trust in management and employee turnover: they found higher levels of employee trust in management can correlate in lower employee turnover rate. However, there are many other factors that also play role in job retention. In addition, employee’s trust may correlate in the employee task performance, but again there are many other factors that play a role job performance that must be considered.
The result of this literature is that a management team that practices transformational leadership skills can greatly increase the employee’s commitment to organization and therefore we can infer that the environment of the organization will be more positive and this can lead to lower employee turnover. However, it does need to be noted that there are many factors to influence employee turnover.
For more information on Transformative leadership styles please fill free to contact SBDC Advisor, Bill Thompson.
Hussain, S., Shujahat, M., Malik, M.I., Iqbal, S., Mir, F.N. (2018). Contradictory results on the mediating roles of two dimensions of trust between transformational leadership and employee outcomes. Journal of Organizational Effectiveness: People and Performance, Vol 40 Issue 1, pp. 39-63. https://doi.org/10.1108/JOEPP-11-2016-0063.
Massad, A. A. (2017). Can transformational managers control turnover intention? SA Journal of Human Resource Management/SA Tydskrif Vir Menslikehulpbronbestuur 15(0), a873. https://doi.org/10.4102/sajhrm v15i0.873