In Asia, where employee turnover is escalating, the answer seems to be "yes." Leading companies, however, prove that loyalty isnt dead, but it needs to be redefined.
By Dinna Dayao
Penang Seagate Industries flies Malaysian workers earning $10 a day all the way to the United States to learn how to run the latest robots. Motorola Philippines provides its employees with benefits amounting to 50 percent of their basic pay. Rohm & Haas in China offers its staff housing allowance.
Are these companies being overly generous?
No, theyre just doing what it takes to hold on to their talented staff. That has become a critical goal for anyone doing business in a region where economic growth has created a huge demand for skilled workers.
The figures are alarming. The Economist Intelligence Unit estimates that Hong Kong and Singapore have an annual staff turnover rate of more than 20 percent; Thailand more than 14 percent; and China more than 12 percent.
Malaysia, which produces 5,700 engineers each year, requires almost double that number to satisfy its need for skilled labor, reports HR Magazine. South Korea needs 340,000 engineers―60,000 more than its graduating. Singapore has turned to countries like India, Australia, the Philippines, and China for 30 percent of its information technology professionals. Those countries, in turn, find their skill shortages further aggravated by these employee migrations.
High turnover drains profits and adversely affects businesses overall efficiency. Tangible costs include time involved for recruitment, selection, and training of new personnel. Intangible costs are reflected in increased workloads, as co-workers take up the slack until new employees are hired; in the organizational turbulence created by high turnover; and in the adverse publicity that seems to follow high-turnover businesses, notes HR Focus.
Other “soft” costs might include loss of customer confidence in new personnel, lower productivity because of lower skill levels of new hires, and disruption of coordinated team tasks. These costs add up: Companies lose about two months of employee time for every termination because of training time, lost productivity, and other factors, estimates the Hay Group, a management consulting firm. The cost: up to $50,000 per lost worker.
Three factors. From a classical point of view, high turnover can be attributed to three factors: low compensation, faulty hiring practices, and poor management that leads to low employee morale.
Add two factors that are changing the employment scene in Asia: underqu-alified managers and rampant poaching. Some companies are growing more quickly than their managers. Rapid promotions have placed many people in managerial positions who are technically qualified and adept at producing reports, but who are not trained to set the kind of environment that leads to low turnover.
Even if they could, they face restless employees. In many sectors around the region, frantic job-hopping has become the norm. Some China employees can increase their pay by up to 50 percent by moving to another employer. The figures arent much lower in other countries, particularly in high-growth industries like consumer products marketing, banking, and telecommunications.
The skills shortage will continue to worsen. Asias companies must go beyond short-term solutions like poaching and importing labor if they are to sustain their growth.
In fact, one of the most damaging effects of high turnover is that it makes a long-term commitment to continuous improvement harder to achieve, affecting a companys ability to create value. As a result, high turnover has ceased to be merely a human-resources (HR) concern.
Frederick Reichheld, author of The Loyalty Effect believes theres a wonderful opportunity for HR to become a truly strategic function today. “Intellectual capital and knowledge are more and more the true assets in a business. So whom you hire, how they grow productivity, and how they choose to stay loyal and share that with you as opposed to defecting to the competition―thats the guts to success,” he says in HR Focus.
But isnt the idea of “loyalty” dead? Yes, but only in the old meaning of the term. “Loyalty has changed. Its no longer about the employer being a mothership to a person for his or her whole life. People have different expectations these days,” said Sharon Bent, an organizational psychologist, in the Sydney Morning Herald.
What we need, then, is a redefinition of “loyalty.” The Times-Mirror, quoting management experts, summarizes the new meaning:
“Rather than have workers subordinate themselves to a paternalistic company that then takes care of them, a new order is called for. One way of looking at it is that the relationship between worker and employer will take on a more professional tone. Employees will understand the competitive challenge the company faces. They will be committed to meeting this challenge in exchange for an appropriate reward, but they will no longer be faithful for a lifetime.”
So, you ask, what about the so-called new social contract―the belief that the employer and employee dont owe each other much? That the employer owes employees the opportunity to increase their employability, while employees owe their commitment while theyre there, and not more?
Reichheld dismissed that idea in an American Management Association interview: “Its one of the stupidest ideas Ive heard of, that you want to somehow move through life without investing in each other in a meaningful way. One-night stands are no way to run a family life, and they are no way to run a business either.”
HR strategies. Companies in Asia that have adopted a strategic HR mindset are showing how to solve the turnover problem in meaningful ways. Heres a summary of the approaches they use:
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