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CHAPTER 2
LITERATURE REVIEW
INTRODUCTION
No research study is complete and justified unless it is focused around certain
theories, hypothetical ideas and empirical findings. So also this research study started
with a review of the conceptual theories and empirical evidences for a detailed
understanding of employee loyalty as a research topic of interest.
A comprehensive review the literature on employee loyalty offered very few
studies linked specifically to the keyword “employee loyalty”. Most of these methods,
concepts, theories, approaches and findings closely overlap with the concept of
organizational commitment as they sometimes considered as synonyms in the field of
management, psychology, organizational behavior and business ethics. Loyalty is a
term most widely used in the field of organizational Behavior, business administration
and management, whereas the commitment is most commonly used in the field of
Psychology. Hence, for this research study literature on both loyalty and commitment
is referenced carefully and cautiously.
2.1 THE CONCEPT OF EMPLOYEE LOYATY
Traditionally, employee loyalty implied ability to remain in the organization
for a long term or all through one’s work tenure. Loyalty was a thought that would
prompt an employee to remain focused and committed to the organizations for what
its vision and values are. These loyal and dependable employees always chose the
organization's interests and were willing to make personal sacrifices to a certain
extent.There are various definitions for employee loyalty and each of them address
loyalty in a different manner.
26
Mowday, Porter & Steers (1982) defined “loyalty as productivity that exceeds
normal expectations, i.e., goes past the call of duty”.
Solomon (1992) defined employee loyalty as “A willingness to remain with
the organization”.
(Silvestro, 2002) defined employee loyalty as a measure of the amount of time
one works for the company.
J. Meyer and N. Allen (1997) stated organizational loyalty as a conditional
drive for personal identification and involvement in a particular organization. These
loyal employees tend to decline the job offers, and accept that their relationship with
the organization is the best alternative they have chosen.This way loyal employees
are indispensable assets to the organization as their loyalty to the organization helps
in better interaction with external and internal customers and they are able to deliver
better services to maximize the profits of their organization (Michlitsch, et al, 2000).
From the above definitions, it can be presumed that employee loyalty is the
psychological attachment of employees to their employer. This kind of loyalty is
evident from the sentiments, disposition, positive conduct and actions of employees.
In the past, trustworthiness and loyalty of the employees were expected as an
exchange of the long term benefits like job security, annuity, retirement and lifetime
employment. But in recent times, the scenario is not the same due to drastic changes
in the economy as well as organizational dynamics and employee loyalty cannot be
best understood only with reference to the tenure with the employer. This is best
justified in the research outcome of “Payscale” discussed in the first chapter of this
thesis. According to Phaneuf (2013), employee loyalty cannot be simply measured by
the amount of time, but also on a lot of other factors that an employee commits while
27
on the job. It is the extent to which employees recognize themselves with the
organization’s work ethics, objectives of the organization and contribute to the
corporate performance. Thus the definition and the concept of employee loyalty has
undergone a major shift in the theory and practice of employee management in
today’s business environment.
From the modern organization perspective, employee loyalty can be defined as
long-lasting, dependable, trustworthy relationship that an employee holds by acting as
brand ambassador of the organization while working with it.
2.2. IMPORTANCE OF EMPLOYEE LOYALTY
The famous quote by Napoleon Hill (1883 -1970) in his book “Think and
Grow Rich” published in 1937 says “Lack of loyalty is one of the major causes of
failure in every walk of life”. This is true and could be applied to businesses and even
more to organizations of today largely driven by employees. The absence or little
loyalty on either side of employer and employee can result in critical failure of the
systems and processes within the organization resulting in an exodus of talent thereby
crippling the operational efficiency of businesses.
Renowned Loyalty experts Keiningham, Aksoy( 2009) assert that the long
term success of the company is largely dependent on the quality and loyalty of its
employees.They give an insight on the statistics related to steady decline in the
employee loyalty levels based on a comprehensive global examination.On an average,
an organization looses fifty percent of its workforce within four years and loses fifty
percent of its customers within five years.The traditional conviction of life time
employment does not apply to the current generation of employees and this way job
hopping has become a norm.
28
Organizations in their golden reign and good times of growth may not give
careful consideration on aspects of employee loyalty. Then again, when the business
environment gets testing and when employees perceive unfavorable work conditions
within the system and their intentions to quit gets stronger. This is the time employees
venture out in search of opportunities resulting in voluntary turnover. This triggers an
alarm to organizations and they try to address the issues at the onset of a problem.
An effort of this kind may not be as fruitful in changing the magnitude of the problem
in the loyalty levels. These problems have been identified by researchers in the
academic fields to pursue research studies related to employee loyalty and
commitment in the different regions of the globe. The subsequent sections of this
chapter discuss the various theories and empirical findings that have the most
significance for a developing an appropriate theoretical framework for this study.
2.3. REFERENCE THEORIES LINKED TO EMPLOYEE LOYALTY AND
ITS CONSTRUCTS
A review of literature traced many management theories spinning around
loyalty, yet for the current study those theories that best supports this research study
has been considered relevant and has been incorporated. Much of the empirical
findings concerning to employee loyalty are intensely influenced by Allen and
Meyer’s Three –Component Model of organizational commitment and job
Characteristics theory
2.3.1 Three Component Model of Organizational Commitment
The three-component model developed Allen and Meyer (1990). According to
this model, commitment is of three types.
a. Affective Commitment: It is the emotional attachment to the organization.
Employees infer satisfaction from their work, their peers, and their work
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surroundings are strong of that fulfillment. Employees who have a high affective
commitment are those who will go past the obligation at hand for the benefit of
the organization. Likewise affective commitment is alluded in the recent
literature to as ‘engagement’ and it is this type of commitment that is measured
most often by organizations.
b. Continuance Commitment: It is the cost associated with leaving the
organization.
c. Normative Commitment: It is the moral obligation of an employee to remain in
the organization. Employees see the organization to be on their side and inspires
a feeling of shared commitment in which both the organization and the employee
feel an awareness of other's expectations of one another. Employees believe they
are involved in a reasonable financial exchange in which they benefit from the
relationship. These act as temptations to enter and stay in the organization.
Based on the three component model of organizational commitment, employee
loyalty can be best understood as a function of affective commitment.
2.3.2 Job Characteristics Theory: This is the most widely studied for its relevance
to job characteristics. According to Hackman and Oldham’s (1975) job
characteristics theory, there are five important factors that keep employees' job more
satisfying. They are skill variety, task significance, task identity, autonomy and
feedback. According to this theory, job or the task itself is the key to employee
motivation. Thus, by offering challenges and variety in the tasks, an employee’s
motivation levels can enhance and adds more meaningfulness to the work. It is
therefore important to note that in a job design phase, these factors need to form a
right amalgam to receive increased performance.
30
2.4. EMPIRICAL STUDIES ON EMPLOYEE LOYALTY
In the present research, employee loyalty is viewed as employees being
committed to the organization and have a positive feeling about the job. This means
to say that even if they have not put long years of service with their current
organization, they are dedicated to adding value and enhancing the image of the
organization through positive work behaviors and actions. However, in the course of
time, even if employees choose to quit the organizations due personal emergencies,
they still continue to endorse the same positive feeling of the organization. Chen et
al., (2002) & Alvesson (2000) argued that loyal employees willingly put the needs
and interest of their employer to a level higher than giving priority to their desires and
interests. Loyal employees are not attracted to any sort of financial motivators
(Reichheld, 1996) that prompts them to quit the company. They likewise uphold the
image of the company and are less likely to complain or resist changes in the
organization (Walz and Niehoff, 2000).
Raju and Srivastava (1994) elaborated that organizational commitment as a
factor that promotes the attachment of the individual to the organization. Employees
are said to be committed to their organizations if they enthusiastically continue their
association with the organization and exhibit significant exertion in achieving
organizational objectives. The authors argue that these elevated levels of effort
exerted by employees increase organizational commitment. This will prompt higher
levels of performance and viability of both the individual and the organizational
levels.
Jai Prakash Sharma and Naval Bajpai (2010) did a comparative study in public
and private sector companies in India of 250 employees in the limit of managerial
and non-managerial ranks. Their results revealed that employees in public sector
31
organization have more prominent levels of organizational commitment compared to
private sector organizations. Furthermore, the job satisfaction increases or decreases
when there is an increment or diminishing organizational commitment. This possible
finding was important in light of the fact that most of the Indian employees have an
alternate social presentation to the occupation status and holding work out in the
public is seen to be more secure in terms of professional stability.
Ramanathan and Senthil (2013) conducted a study to investigate the role of
employee loyalty and to examine crucial factors influencing quality service in the
business units of equipment rentals. The study was undertaken on a sample size of
100 across the South Indian cities. The results revealed that organizational culture is
the leading contributing factor to employee loyalty followed by superior leadership
style.On the negative side, stringent HR policies, discrepancies in pay, lack of
rewards and recognition, severity in the work loads, conflicts due to contract nature
of the business and personal problems resulted in lower levels of employee loyalty
hampering the development of the company.However, when viewed totally, most of
the respondents agreed that employee loyalty is important for the success of the
company.
A research study was conducted by Tymon et al., (2009) to examine the
talent management practices of twenty eight companies in India. A sample of 4, 811
employees was surveyed to understand employee’s attitudes towards their employer.
They identified four important factors within the control of employer can drive
employee attitude to stay in the company. These four important factors are
professional development practices, performance management practices, the quality
of supervision and the company’s socially responsible posture. The research
confirmed that these result in higher levels of satisfaction and pride with the
32
organization and employees will be more attached to the organization and are more
likely to stay.
According to the findings based on a survey ‘Employee Engagement Insights
of India’ and in an interview with Economic Times, Brad Adams, Head of HR
Research in Asia, Corporate Executive Board said that Indian workforces exhibited
lowest employee loyalty in Asia of the 28 major economies surveyed. This survey
also revealed interesting needs of employees working in Asia. They were work-life
balance, location preference, career development opportunities, upward mobility, the
growth of the company, stable career and earning potential were more important than
just an attractive compensation (Economic times, 2014).
According to Ipsos Reid (2009) study it was found that 22 per cent of 1,128
Canadian employees were less loyal to their employers. In organizations where
employees experienced layoffs, 36 percent reported that their loyalty decreased and
when their salaries were freezed, it was 31 percent.
A survey conducted by Spherion Corp. (2007) found that employees remain
committed to their organizations when there is long term job security. Employees are
also less loyal when they feel ignored and not valued by their employers. Decreased
face to face interactions by relying too much on teleconferencing, video conferencing
and email exchanges lead to the to the erosion of social relationships and thereby
decline in the loyalty levels within the organization.
Yee, Yeung, Edwin (2010) carried out an empirical study of 210 high contact
service shops in Hong Kong to assess the influence of employee loyalty on service
quality, customer satisfaction, customer loyalty and business performance. They
tested this relationship using structural equation modeling and results of this study
33
uncovered that employee loyalty has a significant influence in extending the
profitability of the firm through increased customer satisfaction and customer
loyalty.
Gupta and Aityan ( 2012) conducted a survey on employee loyalty in the bay
area , San Francisco on random sample of 151 participants across multiple industries
like healthcare, hi-tech,finance, retail, services, manufacturing and few others.The
objective of the study was to evaluate the trust employees hold towards their
managers furthermore to know how the organizations believe their employees.The
results of the study demonstrated that larger part of the non-managerial employees felt
that organizations were not loyal and neglected to perceive employees interests
.However, this was not true for managerial employees and they positively assessed
the situation.
2.5. JOB SATISFACTION AND EMPLOYEE LOYALTY
A review of the literature shows that job satisfaction is the most widely
studied construct in the literature related to loyalty, commitment, turnover, attrition
and in anticipating other related behavioral as well as attitudinal outcomes of a job.
Job satisfaction itself, then again, is the consequence of numerous variables and thus,
job satisfaction in this study examines in detail by isolating it into six sub-
components as supervisory support, coworker support, intellectual stimulation, career
development and growth, rewards and recognition and pay. Literature with reference
to each of the sub-component with respect to employee loyalty is reviewed and
introduced under six different headings in this chapter. Before, each of these sub-
dimensions of job satisfaction is discussed, an overview on job satisfaction is
presented.
34
The term job satisfaction is not a new concept and it is as old as the origin of
employment itself.But the way it is viewed today is not the same as viewed in the
past. Traditional definitions of job satisfaction spin around the monetary or extrinsic
factors as key motivators for increased job satisfaction. The concept of job
satisfaction was first developed by Landsberger in 1958 with the Hawthorne effect.
Although, job satisfaction as a segment was not specified in his study. However, he
did distinguish that workers work for a bundle of reasons other than just pay. A
standout amongst the most prevalent study identified with job satisfaction could be
linked to Motivation –hygiene theory developed by psychologist Frederick Herzberg
in 1968. He found that there are out and out two separate factors that impact job
satisfaction. One, the elements leading to job satisfaction were termed as
“Motivators” and these were the nature of the work itself, including the needs of
accomplishment, competency, status, individual worth, and self-realization which
subsequently make employee blissful and satisfied on the job. Second, elements
leading to job dissatisfaction were called hygiene factors and these consist of
company policies, supervision, technical problems, pay, interpersonal relations at
work, and working conditions. Basically, hygiene factors are required to guarantee an
employee that he is not dissatisfied with the job. Motivation factors are needed to
spur an employee to higher performance.
One of the most widely used definitions of job satisfaction in organizational
research is that of Locke (1976), who defines job satisfaction as "a pleasurable or
positive emotional state resulting from the appraisal of one's job or job experiences".
A more recent definition of the concept of job satisfaction is from Hulin and
Judge (2003), who have distinguished job satisfaction as multidimensional
35
psychological responses to an individual's job, and that these personal responses have
cognitive (evaluative), affective (or emotional), and behavioral components.
Job satisfaction can be understood in terms of its relationships with other key
factors, such as general well-being, stress at work, control at work, homework
interface, and working conditions. It is assessed at both the global levels or at the
facet levels (whether or not the individual is satisfied with different aspects of the
job. Spector (1997) listed fourteen common facets of job satisfaction: Appreciation,
Communication, Coworkers, Fringe benefits, Job conditions, Nature of the work,
Organization, Personal growth, Policies and procedures, Promotion opportunities,
Recognition, Security, and Supervision).
A study titled "Analysis of factors affecting job satisfaction of the employees
in public and private sector"(Geeta and Pandey, 2011) in India concluded that Indian
employees tend to love their job if they get what they believe as an important attribute
of a good job. The study also showed that most of the employees in Indian industry
are not satisfied with their job except for a few males in commerce sector and females
in the education sector. Total job satisfaction levels of males were found to be higher
than that of women. Total job satisfaction levels in the manufacturing sector are
found to be very low.
The research conducted by Bajpai & Srivastava (2002) uncovered that a safe
and great welfare approaches expand the levels of job satisfaction while the risk of
layoff, quick turnover, insufficient welfare plans, and less scope for vertical
development increase the levels of job dissatisfaction. If the organization invests in
employee’s well-being it results in higher satisfaction in employees. In case if
organizations invest resources into employees's prosperity, it brings about higher
satisfaction among employees. Along these lines, job satisfaction predominantly
36
concentrates on the attitude of employees to the job while employee loyalty
dependability centers to a more extensive framework i.e. the employees’ attitude of
the organization.
According to Hackman and Oldham’s (1975) job characteristics theory, there
are five important factors that keep employees’ job more satisfying.They are skill
variety, task significance, task identity, autonomy and feedback. According to this
theory, job or the task itself is the key to employee motivation. Thus, by offering
challenges and variety in the tasks, an employee’s motivation levels can enhance and
adds more meaningfulness to the work. It is therefore important to note that in a job
design phase, these factors need to form a right amalgam to receive increased
performance.
In view of the above empirical findings, job satisfaction is inferred as an
imperative component for its relationship with employee loyalty and analyzed in
detail. for the ebb and flow of this study.
2.6. Supervisor Support and Employee Loyalty
Past researchers have identified that employees do not quit their jobs but their
bosses. The reason may be a weak rapport, failure on the manager part to understand
employee needs, lack of communication, faith & trust, failure to recognize
contributions and so on. All this friction can weaken the bond between the manager
and employee. The resultant effect results in low morale, disturbed attitude and
behavior among the employees. This will in turn affect organizations’ health and
loyalty. If, unresolved by the management, employee's intention to quit the job
becomes even more and more evident. This is the point where an organization can
lose critical employees to its competitors. Thus, a strong support from the supervisor
37
helps to reduce burnout, employee’s intention to quit the job and turnover rate
(Kalliah & Beck 2003). An important element in creating the desired culture is
through the leader or a manager. The leader can create a culture by the questions
he/she asks, the decisions he/she makes and the way they act. The actions of the
leader and the culture he/she creates will also help with employee retention. The
supervisor or leader is the person who focuses the employee on what is important.
The boss’s values, actions and words determine how well the employee
performs and if the job is accomplished. It is the immediate supervisor or manager’s
responsibility to create job satisfaction for the employee to develop challenging jobs
and rewarding experiences. Sometimes the supervisor or manager needs to be trained
on how to satisfy quality performers and build loyalty in their people (Emmerich,
2001).
A “lone wolf” (Johnson, R.,n.d) leader who stays in his or her office and
delegates, issue deadlines and monitors goals is no longer effective in an open system
organization. Today’s leaders need to have a high level of energy, enthusiasm and a
high desire to achieve to inspire others. The leader of the future needs to have a
relationship with his/her subordinates. It is recommended that a manager
acknowledges the employee when he/she sees their subordinates and makes an effort
to interact with them.
Satava (2003) conducted surveys of CPA firms in order to find out why
people were leaving. He found that management style made a difference. The survey
indicated that management’s relationship with their employees had a significant
influence on how long the employee stayed on the job. Satava found that the better
management treated their people, the longer the employees would stay with the
company. It was also suggested that the supervisor or manager should talk to each
38
employee at least twice a week. Some of the topics they chat about could be personal
things like family or sports or anything apart from work.
A study by Gallup Organization (2003) based on queries from two million
workers at 700 companies, found that poor supervisor behavior was one of the main
reasons people quit companies. The results of that study were also supported by
Pekala’s (2001) finding that the relation between the supervisor and his/her
employees affected how long the employee would stay with the company.
Past research on perceived organizational support, indicates that supportive
and caring treatment shown by the supervisor has a positive effect on employee
commitment (Eisenberger et al., 1986). Gerstner and Day (1997) reported that high
quality relationships between supervisors and their subordinates has a positive
influence on work performance, work satisfaction, role clarity and organizational
commitment. This reveals that care for employees can promote organizational
commitment and build loyalty. Thus, helping subordinates to grow and succeed, has a
positive influence on improving and nurturing employee loyalty (Liden et al.,
2008).An empirical research on full-time sales staff concluded that servant leadership
behavior improves an employees’ adaptation to the organization, thereby enhancing
his organizational commitment, and thus reducing their turnover intention (Jaramillo
et al., 2009).
Mulki et al., (2006) in their studies on sales staff revealed that employees tend
to quit when they are dissatisfied with their leaders and sense that their leaders cannot
be trusted. This supports that those leaders who established a harmonious relationship
with their subordinates by involving and promoting in shaping their career
development will result in improved organizational commitment and loyalty
(Brashear et al., 2006).
39
A research study to analyze the relationship of servant leadership and
employee loyalty with employee satisfaction as a mediating role was studied in China.
The results showed that, in order to improve employee loyalty, the managers in
addition to developing their servant leadership style should also give due
consideration to the employee needs to increase their psychological satisfaction(Ding
et al., 2012).
Employees view their supervisor as an anchor to their emotional and on-the
job needs. They view him as a mentor or coach who can shape the future direction of
their career and growth within the organization. Supervisors need to care for the
employees more than just being a career tutor. This itself is an intangible incentive in
motivating employees (Moses, 2000). Thus, taking a honest interest in employees can
build loyalty in the organization.
2.7. Coworker Support of Job Satisfaction and Employee Loyalty
In the technology industry, most individuals work in teams and the quality of
time they spend with each other has important implications on the employees’
experiences on the job. The outcome behavior as a result of this experience decides
their loyalty to the organization. It is a well known fact that technology professionals
work in teams of varying size across geographical locations. However, coworker
support as a construct has not received much attention in research studies linked to
employee loyalty .
Scott, et al., (1999) evaluated the quality of the peer relationship on
employee turnover. They found that improved communications among the peers had
a negative impact with employee turnover. In the presence of such close interactions
40
and cooperations among the peers, they denied to leave their peers and chose to
remain in the organization.
Zhou, et al., (2001, 2003) explain coworker support as the encouragement
and assistance extended to one another in accomplishing the tasks by sharing the
expertise and knowledge. Such adjustment among the coworkers can bring about
behavioral results both at the individual levels, group levels and organizational levels.
The behavioral outcomes at the individual levels are job satisfaction, stress,
commitment and at group levels, it can better the interpersonal relationships and help
in forming a cohesive team with a group performance. The organizational level
outcomes are reflected in the culture, loyalty and reduced attrition rates.
Kleinbeck, et al., (1990) found that the components of job satisfaction such as
job scope, significant backing from supervisor, synergy between the teams were
associated with organizational commitment that in turn affected the employee’s
intent to stay. Thus, positive experiences on the job empowers employees to remain
committed and work towards the success of the organization.
In the light of the above findings, coworker support is included as an
important construct of study for the present research study.
2.8. Intellectual Stimulation and Employee Loyalty
Today, science and technology have overtaken functions of finance, sales,
administrative and marketing. This technology industry is driven by scientists,
engineering and IT experts working under a diverse set of desires and expectations
of the job. They tend to quit the jobs when they experience monotony, less autonomy
and absence of challenging assignments (Kochanski & Ledford, 2001).
41
According to McEachern (2001), high technology employees will leave the
organization if their skills are underutilised.The loss of such critical employees can
affect the continuity of innovation in the products and services of the businesses
which could prove fatal to the profitability and growth of the company in the midst of
its competitors. Research has shown that the design of high technology professionals’
work content influences their stability (Amabile, Conti, Coon, Lazenby & Herron,
1996).
Avolio (1999) reported that when an organization is practicing intellectual
stimulation and when boundary-less discussions become the norm. It is amid this
methodology that an organization understands its imaginative & creative potential.
Dockel (2003) indicated that chances to solve challenging assignments, to work with
best individuals, flexibility, freedom, adaptability will increment the retention of
employees with feelings of expanded completeness and meaningfulness to work
which results in increased development of organizational commitment.
Ferreira, et al.,(2010) observed a significant relationship between affective
commitment and creative skills and suggested that employees who see themselves as
having the skills to plan, execute and manage their professional objectives in creative
ways tend to feel emotionally anchored to the organization.
A psychoanalytic research survey was conducted by Cangrade( 2013) on a
sample of 584 employed from a variety of jobs in America to understand how happy
they were in their lives and how satisfied they were in their jobs.The findings
revealed that among the different job characteristics measured, intellectual stimulation
was the number one motivating factor for employees happiness and job
satisfaction.The other motivating factors in the order of priority were achievement and
prestige, power and influence, security, work-life balance, affiliation and money.This
42
study reveals that employees are happier and more satisfied when their jobs provide
intellectual stimulation and task variety through autonomy , power, and
opportunities to gain prestige and recognition.
A research was carried out by Ghulam Yasin et al., (2014) in 50 Small and
Medium scale enterprises in Paksitan to investigate the relationship between
intellectual stimulation, innovations and organizational performance.The outcome of
the study revealed that there was a significant positive relationship between all the
three factors studied. The study also supported that intellectual stimulation promotes
organizational innovations.
Dornstein and Matalon (1998) derived eight variables that seem to be of
relevance to organizational commitment. These are interesting work, organizational
dependency, coworker’s attitude towards their organization, age, educational
qualification, job choices, attitude of family and friends.
According to the research conducted by ‘global management consultancy, Hay
Group’ (2013) revealed that one in every three employees in India lacks confidence to
achieve their career objectives with their current employers. This is quite an alarming
number and it is likely to place India with No.1 position in the global attrition chart
with an anticipated turnover rate of 27.5% in 2014.This calls companies in India to
give a serious thought to what drives employee commitment comments Mohinish
Sinha. A number of the organizations are additionally looking to generate more
sustainable careers to employees so that they specialize themselves in more than one
expertise than just cling to their domain expertise to increase the job commitment
(CXOtoday News Desk Feb 27, 2014).
43
2.9. Career Development and Growth Opportunities and Employee Loyalty
A review of literature indicates that training is an important criteria for
satisfying the technical skills for effective completion of tasks. Since organizations
operating in an open system need to make decisions quickly and also need more
information for those decisions, the organizations structures is getting flatter. The
flatter structures limit the number of advancement opportunities. A good alternative
for career enhancement in the absence of promotion opportunities is to develop the
skills of the employee to make them more marketable.
A career survey was conducted by New-york based AG Barrington Inc., a
financial technology career management firm on sample size of 200 technology
vendors who had intentions to switch their companies.The respondents of this survey
had their experience ranging from two years to thirty six years among which 157 were
men and 43 were women.The results of the study distinguished three principle reasons
that augumented the thought of quitting.These were limited career growth,
underutilization of skills and uncertainty emerging out of organizational
restructuring, mergers or acquisitions. A feeling of stagnation to their long term career
progression acted as the main culprit than money in deciding their mobility out of the
company (McEachern, 2001).
Likewise Baruch ( 2004) discoveries uncovered that employees' psychological
commitment is dependent on how they perceive the organizations adherence to career
oriented practices like training, promotions, development opportunities and the
security of the job.Their commitment is higher when the organizations treat them as
valuable resources who could be developed instead of simply considering them as
entities or commodities of business.Investing on employees gives a promising
44
message to the employees that they are valued and they reciprocate with commitment
to the organization.
David Finegold (1999) from the University of Southern California states “with
career advancement high on the agenda, continuous learning is a crucial part of any
retention program”. The research showed that many leading firms are pursuing
innovative approaches to develop employees skills, such as e-learning, on-line
simulations, project-based learning using new electronic tools and the creation of
online corporate universities.
According to Igbaria et al., (1991), employees whose job is well-matched
with their professional goals ought to experience positive positive feelings about their
work life and ought to bond to their organization.Employees who perceive training as
important and the expenses incurred by the company to train them, may develop a
feeling of commitment referred to as Normative commitment .This way employees
develop an ethical commitment and morally focus on the organization and make that
training spending meaningful and worthwhile (McElroy, 2001).
2.10. Rewards , Recognition and Employee Loyalty
Rewards and recognition is used as a motivational tool in formulating
strategies to retain employees at the workplace. It has a great significance in the work
life of an employee. It elevates and gives a sense of satisfaction on the job taking the
form of enhanced self confidence, emotional well-being, self –esteem and love for
the job increases promoting an affective bond with the organization. However, in the
absence of such rewards and recognition programs, an employee fails to develop a
positive attitude towards the work and such attitudes weakens the bond with the
organization and eventually lead to alienation from work.This has prompted many
45
organizations to implement effective rewards and recognition programs as a
recognition for employees’ outstanding capabilities.This has helped in in creating a
healthy relationship between employer and its employees. Within the context of
organizational Psychology, rewards and recognition are often considered synonymous
with slight demarcation in understanding these two terms.Rewards have a monetary
aspect linked to it and few examples to this are employee stock options, incentives,
cash rewards, bonus .Recognition refers to non-monetary ways of acknowledging the
efforts by verbally honouring the commitment, sharing success stories of the
employees on a common platform, giving much challenging roles and so on.
A survey was conducted in 2013 by Accelir, a strategic advisory and Research
for HCM to understand the current, future and ideal state of rewards and recognition
practices in the workplace. Human Resource professionals and corporate leaders from
400 companies participated in this study. The results revealed that rewards and
recognition need not be always expensive or linked with high monetary value.This
was supported by 57 % of the companies surveyed and they agreed to have only spent
less than 0.5 % of the total payroll while another 11% of companies had spent
slightly higher about 2% of the total payroll on the rewards and recognition programs.
The results also found that only 42% of the companies had a formal recognition
practice or program in place to reward outstanding employees.
Jamie Hale and George Bailey (1998) authors of the article titled “ Seven
dimensions of successful reward plans” clarify that employees are ready to invest
their intelligence, talent and creativity in support of the company strategy in the event
that they can expect a reasonable return. The management theory that supports this
dimension of study is the “organizational equilibrium theory”). According to this
theory, the most vital resource of an organization is its people. Barnard (1938)
46
emphasized that the most important function of the management is to motivate
employees to contribute continuously to the survival of the organization. Employees
continue in the organizations as long as the inducements they receive exceeds the
contributions made by them.
The significance of rewards and recognition in the form of service rewards in
determining employee longevity and loyalty has been well explained by Susan M
Heathfield. Service awards are given to employees as a recognition for their efforts
and long tenure with the organization. It is a thankfulness and affirmation given to
the workers. The recipients of such service awards usually recommend their employer
as an incredible place to work, they infuse positive culture and greater commitment
and continuity in the organization.
Based on the analysis of Raytheon Co.talent retention efforts, Helpert (2006 )
concluded that rewards and recognition are critical for having loyal employees.
Anil Kumar V (1995) studied human resource management in the
electrochemical industries located in Travncore. He reported that in order to motivate
employees and increase their efficiency, the management should adopt measures to
evaluate the merit of the employees and have a feel in them that the merit is well
recognized and appreciated by the management.
In order to embed loyalty in the workplace, companies should give careful
consideration in implementing, improving and innovating the rewards and recognition
program. This motivates a positive, cheerful attitude towards work with increased
performance, reduced intentions to quit and increased trust towards the employer
improving employee morale and loyalty within the organization.
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2.11 .Compensation and Employee Loyalty
Pay is still considered as the powerful incentive in attracting and holding high
technology workers. Money in the form of base salary alone might not be may not be
effective in luring the technology professionals. Instead, they are exceptionally
responsive to different benefits accruing from employee stock options, profit sharing,
bonus together can influence their intention to stay.
Higginbotham (1997 ) findings indicated the superlative term “ high” salary is
not the essential determinant in retaining employees. Even a “good” and “fair” salary
that is competitive has a strong correlation on intention to stay.
Kochanski and Ledford (2001) further emphasized that more than pay, the
system involved in administering the pay hikes and the emotions of equity and
reasonableness is significantly more essential.
Schaubroeck et al., (1994) showed that affective commitment is positively
linked to the apparent reasonableness in remuneration.
A survey was created by Prof Biju Varkkey, faculty of Indian Institute of
Management, Ahmedabad (IIM-A) and Rupa Korde, faculty of Foundation for Liberal
and Management Education, Pune to receive online feedback from private sector
employees on pay rates, job security, employee welfare and contract terms
somewhere around 2009 and 2013. Results indicated that disappointment levels
among workers of India have gone up since 2009 when the financial log jam set in,
says this review on occupation fulfillment by Paycheck India, an exploration activity
at IIM-A. Across levels, around 44% respondents out of 13,205 staff members —
10,996 males and 2,209 females — say they are paid less all through the four years
beginning 2009. More seasoned and older staffers were more satisfied than
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youngsters. Juniors are more disappointed on the job. Only 42% of workers in 2013
felt sheltered and secured in their employment.
A cross-sectional study was conducted to explore the relationship between the
job satisfaction and orgnaizational commitment in the province of KwaZulu-Natal,
South Africa on a convenience sample of 86 employees working in head offices of
four IT companies. The racial composition of the sample had 26% of Indians, 68% of
whites and 6 % Africans. The participants, representing staff levels were 59% and the
remaining 41% at the supervisory level. The results of the study recommend that
employees are encouraged to stay in their organizations when the work environment
provides challenging and meaningful jobs, positive coworker supervisory support and
the managers effort in evaluating the current pay strategies to fair and equitable pay (
Lumley et al., 2011).
2.12. Work Culture and Employee Loyalty
Work culture as a research issue has caught the interest of researchers in the
academic fields like organizational behavior, Management, Business administration,
psychology, anthropology to list a few. There is evidence from past research studies
that signifies the purpose of workplace culture in determining as to what binds
employees to maintain and keep their membership with the organization. A culture
well managed is commitment well managed. Organizational culture can be used as a
powerful organizational development tool for improving business performance
(Brown 1995, 1998).
A detailed review of the literature shows that organizational culture has an
impact on the employees' commitment to the organization. The nature of
organizational culture is important for understanding the levels of commitment in an
organization. Considerable number of studies across the globe can be traced to the
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role of work culture on employee loyalty, but there are also limited studies
researched in India and that too particular to the IT industry that is highly dynamic
and knowledge –driven.This prompted to incorporate “work culture” as important
construct for this research study.
Lok and Crawford (1999) have extensively explored the relationship between
organisatinal culture, sub –culture and commitment .The results of a quantitative
study done in hospital settings revealed that both organization culture and sub culture
were correlated with commitment. When further analyzed, they found sub-culture had
a deeper and stronger relationship with commitment.Among the three constructs of
culture identified, innovative and supportive culture had the strongest correlation with
commitment while bureaucratic culture declined the commitment levels(Lok and
Crawford, 1999).
Another study among the Australian and Hong Kong managers that
innovative and supportive organization culture had a positive effect on commitment
and the impact it made was higher with the Australian when compared with
Hongkong Managers (Lok and Crawford, 2004).
The culture of an organization can be built with four major factors which are
the personal and professional characteristics of the people within the organization,
organizational Ethics, rights given to the employees and the structure of the
organization. The interactions that exist among these four factors defines the culture
of the organization. The moral values and ethics also will have a influence on
organization al culture (Schein 2010).
Researchers have differentiated the work culture into a strong work culture
and weak work cultures. Strong culture is an indicator of good working environment
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with good interpersonal interactions and coordination among the employees. The
presence of such a strong work culture increases the performance of the employees
(Andre, 2008).
Siehl and Martin (1990) argued that organizational culture has the potential to
boost job satisfaction and commitment of employees significantly. They also argued
that the link between the organizational culture and performance is a result of
increased commitment, quality, productivity and satisfaction, all of which are related
to organizational culture.
A study conducted to analyze the relationship between human resource
practices and employee retention in Sharjah and Dubai government organizations
revealed that work place culture acted as an emerging factor to job dissatisfaction and
intent to quit. A work culture that encompasses centralized leadership, poor
management style, limited growth opportunities, lack of empowerment would affect
employee retention (Waleed Alnaqbi, 2011).
Hay Group (2007), contends that the work environment should incorporate a
friendly, decently designed, safe and physical space, good equipment and effective
communication. This will enhance the productivity levels .The research study also
revealed that job autonomy also constitute a very important aspect of the work
environment. When employees have certain levels of autonomy and freedom on the
jobs they do, they feel less stress and get more inclined to stay in their respective
organizations.
A similar study was conducted to investigate the relationship between
organizational culture and organizational commitment in services sector, a call center
in Kayseri and an insurance company in Izmir, Turkey.A correlation analysis revealed
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that there existed a positive relationship between organizational culture traits and
affective commitment levels. But however, there was negative corelation between
continuance commitment and organizational culture traits. This study also measured
the commitment with respect to five demographic variables like age, gender,
education, tenure and marital status. Except for the marital status and age, the other
three variables influenced the perceived levels\ of commitment (Asena Altin Gulova,
Ozge Demisroy, 2012)
Bergman argues that organizational cultures which have strong norms for
internalisation and identification are likely to generate high levelss of affective
commitment( Bergman 2006).
Ruppel and Harrington’s (2000) conducted a study to understand the
relationship of communication, ethical work climate, and trust to commitment and
Innovation on a sample size of 111 managers. They tested if fair, just and right
(ethical) treatment influences trust either directly or indirectly via communication
and the secondly to find out if this trust influences perceptions of commitment and
innovation.The study revealed that an ethical work climate creates the perceptions of
trust and that trust is significantly related to commitment.
A study conducted to analyze the relationship between human resource
practices and employee retention in Sharjah and Dubai government organizations
revealed that work place culture acted as an emerging factor to job dissatisfaction and
intent to quit. A work culture that encompasses centralized leadership, poor
management style, limited growth opportunities, and lack of empowerment would
affect employee retention (Waleed Alnaqbi, 2011).
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Research by Dubie (2000) revealed that loyalty of high technology
professionals was due to good work life policies like flexible work hours, favourable
leave allowances, family friendly initiatives and proximity to home.
Cooper and Burke (2002) also found that on-site and off-site child care
support, flexible work schedules, leave policies take time off from work to
concentrate on family issues plays an important role in deciding an employees'
attachment to the organization and in retaining these valuable employees. They refer
to this as “Organization s’s Career Culture”. This means to say that for people to
commit to their organization, they need to know they are cared about.
Meyer and Allen (1997) accentuate that work practices of the organization
have a huge impact on the commitment levelss of the employees. The practices
recognized were training, decision making, empowerment, promotional
opportunities, open communication, empowerment and rewards linked to
performance.
A study was conducted to analyze the impact of organizational culture on
employees’ commitment in India’s IT services, offshore service providers in
Bangalore and Pune on a sample size of 291 IT executives and Managers.The findings
revealed that ingroup collectivism and performance orientation of the organizational
culture dimension had strongest impact on employee commitment.Further, the
correlation between normative and affective commitment was stronger in India when
contrasted with studies in North America.This shows that when there is a reciprocal
feeling of pride, loyalty and support between the employees and the organization,
employees’ commitment increases. Additionally an organizational culture that is
performance oriented by encouraging, recognizing and rewarding employees for
exceptional performance, innovative thoughts and brilliance likewise will have more
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number of of committed employees (Messner, 2013).Based on the research findings
of Messner, work culture is derived as as a vital construct for the current research , the
results of which can further add to the scarce literature on employee loyalty in India.
2.13. VOLUNTARY TURNOVER INTENTION AND EMPLOYEE LO YALTY
Turnover as a factor has contributed a lot to research data in the area of
employee loyalty and organizational commitment.The movement of highly valued
employees can cause serious dysfunction in the system and this kind of dysfunction
in higher rate can prove to be detrimental to the normal functioning of the
orgnanisation. This is true significantly all the more in the IT industry, where the
business is driven by skilled employees well-groomed on cutting-edge and hard to
replace technologies.The loss of these valued employees can result in project delays
and in the same time, intentions of quiting can likewise truly disrupt the emotional
and physical prosperity of employees and this could be dangerously contagious
prompting exits in larger numbers and loss of workforce diversity. In the current
study, an effort is made to comprehend why workers leave organizations and how
turnover can affect the loyalty of employees. This study is specific to comprehend the
voluntary turnover .Voluntary turnover could be defined as an employees intention to
quit the organization for various reasons that leads to job dissatisfaction.In voluntary
turnover, a distinction is made between avoidable and un avoidable turnover.
Avoidable turnover stems from the components at the working environment like
employment disappointment, dissimilarity in pay, unhostile social communications
and lot of other organizational factors while unavoidable turnover is is seen on a
sudden onset of individual crises beyond the control of the organization. Voluntary
turnover could be detrimental to the success of the organization, as with the exit of
employees there is also threat of knowledge loss.
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Kochanski and Ledford (2001) researched how to deal with turnover issues of
technical professionals like engineers and scientists employed in Research and
development units in Pharmaceutical, medical devices and products, electronics,
networking , computing and other related bussinesses. Five factors emerged to
influence the turnover of employees. These were Job characteristics, base salary,
work-life balance, cash component, supervisor support and career opportunities.
According to this exploration high compensations will not strengthen an employees
bond with the organization but those who received even moderate and reasonable
salaries likewise had strong intent to stay. They were more concerned with sentiments
related in acknowledging pay hikes and the certainty of transparency in choosing and
regulating these pay hikes. Technical experts are high on advancement abilities and in
the event that they are given right chances to build up their vocation, they are likely to
stay in the association.
Dockel, Basson & Coetzee (2006) conducted a study to explore specific
retention factors that induced organizational commitment in a group of 94 high
technology employees working for a telecommunication company in Gauteng
province of South Africa. They measured which of the retention factors related
significantly to the three different types of commitment. Compensation, job
characteristics, support from supervisor and work life policies had a significant
influence on the commitment of employees to the organization.
Westlund led a corelational study to evaluate the association among software
developers job satisfaction and turnover intentions.The essential point of his research
was to figure out if satisfaction with supervisor or overall job satisfaction is all the
more significant related to software developers’ turnover intentions in the United
States. The results indicated that the members' turnover expectations were impacted
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more by overall job satisfaction than fulfillment with supervision. Nonetheless, the
relationship between turnover and satisfaction with supervision alone was not
significant.
Shastri (2010) examined the relationship between two major antecedents
namely charismatic leadership and job satisfaction on the commitment levels of
employees on a sample size of 147 employees of Indian Organizations in northern and
eastern region of India. From the results it was evident that the charismatic nature of
the leader plays a significant role in reducing the turnover rates and increasing the
commitment levels. A leader has to be clear on the goals of the organization and
align them with the needs and desire of the employees.
Denton (1992) in his book” Recruitment, Retention and Employee Relations”,
contends that the issue of turnover ought to be overseen proactively.This should be
carried out when the organization employs and distinguishes great employees. The
best way in attracting and retaining employees is to be an employer of choice by
offering employees professional opportunities, responsibility, a sense of ownership ,
job variety and training. Acknowledging and recognizing employees’efforts through
the implementation of awards program acts as incentives in retaining a pool of
satisfied talent pool.
Thus, by all the past research studies and their findings, employee loyalty
contributes to a greater competence, better business results, increased firm growth and
reduced turnover. Loyal employees also enhance in creating a positive image that the
company has to its environment and outside stakeholders (Meyer and Allen, 1997).
A review of literature on various indicators of loyalty used by researchers
shows that the most often repeated and important indicators of employee loyalty are
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job satisfaction, work culture and turnover intentions.In this study, we have focused
on these three indicators and termed them as “constructss” of employee loyalty.
These are job satisfaction, work culture and voluntary turnover. These three were
identified and chosen due to the fact that their relationship with employee loyalty has
been widely researched in the past in western contexts and there is evidence that there
exists a relationship among these dimensions and employee loyalty. This has
prompted the researcher to derive a conceptual framework to study the significance
and association between these dimensions and employee loyalty in the context of
Information technology industry in India.
The literature review and its concepts has been conceptualized in a visual
framework. This framework integrates the second chapter and forms the basis for
deriving hypothesis for this study.
2.14 RESEARCH GAP
A review of literature indicates that with giant progress in the IT sector ,
challenges of retaining employees has mounted to a new levels . This has put the best
of the organizations into testing phases.This has caught the attention of many
researchers across different parts of the world within the subject of employee loyalty,
commitment and retention. Nevertheless, a search carried out within the available
literature on topics related to employee loyalty in India returns with only a small
number of empirical studies. An observation into these studies revealed are usuallt
not much comprehensive and have considered only few indicators for the study and
the sector coverage is predominantly in non-IT sector. The researcher has identified
this gap within the literature and aims to scale down this gap as highlighted below
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1. The study focuses on employee loyalty in the Information technology companies
in India.The findings of this research will quantiatively add to the confined
literature available on employee loyalty.
2. Most of employee loyalty studies conducted so far have measured job satisfaction
as one whole construct and then reported the findings. However, in this research ,
the job satisfaction is studied very comprehensively with respect to each of its
sub-components : Supervisor support, coworker support, intellectual stimulation,
compensation, career development and growth and finally rewards and
recognition. This manner the researcher has caught the minute important factors
and has broadened the conceptual understanding on employee loyalty among the
knowledge workers.
3. The researcher has conceptualized a new demographic variable “distance from
native location” along with seven other demographic variables. This new variable
was developed keeping in view the family values of India wherein the employed
son / daughter owns up the responsibilities of their aged parents.
Thus, the present study aims at filling the gap between literature ,work related
attributes and the existing HR practices for building loyalty among IT professionals
in India.