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INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH VOLUME 6, ISSUE 09, SEPTEMBER 2017 ISSN 2277-8616
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The Impact Of Reward System On Employee
Turnover Intention: A Study On Logistics Industry
Of Sri Lanka
M.V.S. Mendis
Abstract: Human capital is a paramount important part of todays’ business world. For any company to achieve its corporate strategies, it is important to
have motivated, committed workforce within the company. Therefore keep employees satisfy is a necessity for any organization. Otherwise they may
leave the company as there are lots of job opportunities remain in this modern business world. This study focus on how reward system of an
organization impact on employee turnover intention. This study empirically evaluated five independent variables (remuneration, cash incentives, work life
balance, supervisor support and employee recognition) and their relationship to the turnover intention of non-executives in the logistics industry of Sri
Lanka. The sample consists of 97 non-executive staff in the logistics industry of Sri Lanka. The data collection was done by using a self-administrated
structured questionnaire. The results indicated that remuneration, cash incentives, work life balance, supervisor support and employee recognition
variables were negatively and significantly correlated with turnover intention. And those relationships were strong. Results of regressing the reward
system on turnover intention showed that reward system is a powerful predictor of labour turnover in logistics industry of Sri Lanka. The research
findings give evidence that better financial and non-financial rewards have strong impact on employee turnover intention. Therefore to reduce
employee’s high intention to leave the company, the management needs to develop well balanced reward system in both financial and non-financial
aspects.
Index Term: Logistics Industry, Reward system, Sri Lanka, Turnover intention.
————————————————————
1 INTRODUCTION
In today’s changing environment and organizations, buffered
by globalization, social variation and intense competitive
environment, the sources of sustained competitive advantage
have lifted from finance concept to technology side and now to
human assets. To be able to achieve the organizations goals,
management need to understand how to motivate their
employees. In order to do it management need to understand
their attitude to work and life and understand different
personality types. Inability of accomplishment of above
mission, may lead to leaving employees from the work place
resulting huge financial and non-financial loses in the
organization. Employee turnover is the most challenging issue
of modern organizational environment. Most of the time
employee turnover; movement of employee from one firm to
another within particular time period, may result deterioration
of quality of the organization. In Sri Lankan context, this issue
is more critical in operation level employees of many
industries. Rajapaksha (2015) stated that employee turnover
significantly affects to the role of an organization in apparel
industries. Nowadays organizations are looking for better ways
to help their employees to be more productive and to be
happier in their work place with the aim of keeping high
retention rate. Employees want to be appreciated of their
efforts and they expect a fair return on that effort as well. Most
organizations implement many strategies which makes
employees happier. A systematic way of a scheme or a
program which gives incentives for those individuals or groups
who perform well in the firm called a Reward system. Reward
system can be categorized into two areas (Armstrong, 2007).
Those are financial rewards and non - financial rewards.
Financial rewards mean those which satisfy the employees by
providing rewards in terms of money. Besides the financial
rewards, there are certain non - financial rewards which can
satisfy the ego and self-actualization needs and wants of
employees. Lack of fair rewards and recognition system may
cause to create unsatisfactory workforce within the
organization, because today’s employees want to be treated
like a valuable resource not a disposable asset. Therefore, in
the current context retention of the qualified blood within
organizations has become one of the most common
challenges and thereby one of the major problems managers
of organizations face today is employee turnover. Intention to
turnover refers to an individual’s perceived probability of
staying or leaving an employing organization (Cotton and
Tuttle, 1986). The objective of this paper is to explore the
relationship between reward system and turnover intention of
non-executives in logistics industry of Sri Lanka. Logistics
industry in Sri Lanka thrives towards a great extent. In terms of
quality and competency, logistics service in Sri Lanka has
increased the logistics performance index from 2.10 - 2.70
since 2010 - 2014 (Index Mundi, 2014). 10% of contribution
coming towards Sri Lankan economy by logistics sector and
12%-14% of employment opportunities also covered through
logistics sector as well (Jayalal, 2015). Employee turnover
intention is an important concept that every manager wants to
eliminate within their organizations. However the available
studies do not provide empirical evidence with regard to the
relationship between reward system and turnover intention of
non-executive employees in logistics industry of Sri Lanka. So
this study will focus on whether there is a relationship between
reward system and non-executive employees’ turnover
intention in the logistics industry of Sri Lanka.
2 LITERATURE REVIEW
2.1 Turnover Intention
Hom and Griffeth (1995) define turnover intention as the
relative strength of an individual’s intent toward voluntary
permanent withdrawal from an organization. Cotton and Tuttle
(1986) define turnover intention as an individual’s perceived
probability of staying or leaving an employing organization.
————————————————
M. V. S. Mendis, Assistant Lecturer, Department of Human
Resource Management, Faculty of Commerce and
Management Studies, University of Kelaniya,
virangisonali2@gmail.com
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Employee turnover is always costly for the organization.
Employee can quit for many reasons. Smith (2009) listed out
twelve major reasons for employees to leave from their
positions. Those were rude behavior, work-life imbalance,
inability to meet expectations, employee misalignment, feeling
undervalued, lack of coaching and feedback, lack of decision
making ability, inadequate skills, organization’s instability,
stagnation, lack of growth opportunities and lack of
appreciation.
2.1.1. Remuneration and employee turnover intention
A'yuninnisa & Saptoto (2015) suggested that pay level
dimension has a higher correlation with intention to leave than
other dimensions like affective commitment. This result
conveys that the pay level is more important with regard to
turnover intention in a way that employees want to quit from
the company and looking for another opportunity. Further
author has highlighted that pay level was moderately and
negative correlated with the turnover intention dimension
where the pay level satisfaction was the most significant other
than the pay raise satisfaction. This shows that employees
who are extremely happy with their pay level are the most
satisfied and less expected to search for another job
opportunity to quit from the current job role. In another words
this study indicated that turnover intention has direct and
indirect impact on pay level satisfaction where the turnover
intention can be reduced by increasing the level of pay
structure. This further notified that if some employee is not
happy with the pay level that they get for their hand is not
enough to cope up with the economic levels, that will be a
turning point to stay in the company or not. Naeem Akhtar,
Abdul Waheed Ahmad Awan, Muhammad Akmal Anwar,
Sohail Saeed, Sajid Ali & Muhammad Qurban (2016) also,
revealed that the turnover intention is significantly negative
associated with the salary which means that when salary
decreases as a result of that turnover intention goes high vice-
versa.
2.1.2. Cash incentives and employee turnover intention
Mohammad Atiq and Afshan Bhatti (2014) indicate that cash
incentives have a strong relationship against employee
turnover in different age groups. Even though the age groups
are differing it’s important to have a right incentive schemes to
cater employees where employees have an intention not to
quit the current job. Furthermore, Authors observed that a
good combination of incentive type is more important and it
lies on the different age groups. Other hand side it also needs
to be attainable with the respective objectives given for each
employee. This concludes that type of incentive scheme purely
depends on the age groups of employees and companies
should be able to match the correct incentive scheme
concerning their age groups and business environment.
Babangida Mohammed Musa, Ibrahim Ahmed and Abubakar
Bala (2014) stated that there is a linear relationship among
fringe benefits and turnover intention in the hotel industry.
Authors recommended having monitory and non-monitory
incentive schemes in place to reduce the high turnover since
high frequency of turnover has a huge impact on overall
company achievements. Monitory and non-monitory incentives
enhance the employee retention and employee commitment
as well.
2.1.3. Work life balance and employee turnover intention
According to the many researchers, there is no universally
accepted definition for work life balance. However, Clutterbuck
(2003) defined work life balance is a state where individual try
to manage potential demand on his or her time and energy in
a way that fulfilled needs for his or her well-being. Klopping
(2011) defined that work life balance is a measure of control
where, when and how individual work. What is best balance
between work and life is different for everyone as they have
different priorities and different lives. Rashid, Rab, Khalil,
Zahid & Moeed (2013) conducted a survey to find out the
relationship of work life balance and stress with turnover rate
for employees. They found that, work life balance has a strong
positive correlation with rate of turnover. Ghayyur & Jamal
(2012) also concluded that, work life balance and employee
turnover intention has significant and positive correlation,
despite of all demographic characters such as gender,
material status and designation. Work- family conflicts create
problems for workforce which influences on their intention to
leave. Further researcher postulate that, mostly employees
who are suffering from heavy working hours have to struggle
to manage the needs of their family life and he suggested that,
flexible working schedules may positively impact on
employees in their intention to stay job, satisfaction and
commitment. The matter of maintaining the balance between
person’s personal and professional life is mostly talkative topic
in modern globe. Noor (2011) revealed that, there is a negative
correlation between work life balance satisfaction and intention
to leave. And this relationship is mediated by job satisfaction
and organizational commitment.
2.1.4. Supervisor support and employee turnover
intention
Maertz, Griffeth, Campbell & Allen (2007) found in their study
that the effect of perceived organizational support and
perceived supervisor support on employee turnover, there is
strong negative relationship between organizational and
supervisor support and employee turnover intention. They
concluded that, both organizational and supervisor supports
are quite valuable implication in turnover management.
Therefore supervisor should be responsible to maintain
supportive work environment to build constructive relationships
with employees. Such an action will eventually help to
increase retaining employees within the organization. Son
(2014) discussed that, as supervisors act as agent of the
organization, employee who receive better support from his
superior and favorable treatments from the organization, they
reciprocate by retaining in the organization and it has
psychological contact, employee tend to perceive employer by
fulfilling its obligations.
2.1.5. Employee recognition and employee turnover
intention
According to beliefs of many employers, turnover rate rises,
when employees are not satisfied. They mostly apply simple
measures of recognition to slow down the rate of turnover.
Gary Dessler (2011) explains that recognition positively effect
on employee performance. Recognition mostly refers to the
formal program like employee of the year. Employers in many
country use recognition program such as long service award
or loyalty award for employees who complete many years.
Such an action enhances the retention of employees in
industries where turnover rate is high. Mosley (2016) stated
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that, modern organizations are tend to implement recognition
program as part of their strategies to be recognized as “best
place to work” in their industry. It further elucidates that, a
company can experience better results in both business and
culture by implementing sound recognition program by
aligning with values and having a great culture is the key to
reduce staff turnover and maintaining top talents.
2.2 Reward System
A reward system consists with financial rewards, other benefits
as well as non-financial rewards such as recognition,
responsibility career prospects etc. The total reward system
consists with mix of financial rewards, employee benefits and
non- financial rewards (Armstrong, 2002). According to the
above definition the below figure shown how the total reward
system can be illustrated.
Fig. 2.1 The Components of Total Reward System
2.3 Conceptual Framework
The objective of this study is to examine the relationship
between reward system and turnover intention of the non-
executive employees in the logistics industry of Sri Lanka. An
analysis and review of the relevant literature have used to
develop the following conceptual framework (Fig. 2.2). The five
(5) independent variables such as remuneration, cash
incentives, work life balance, supervisor support and
employee recognition can be identified as dimensions of
reward system that have negative relationships with turnover
intention. Turnover intention of the employees is the
dependent variable.
Independent Variables Dependent Variable
Fig. 2.2: The Conceptual Framework
3 RESEARCH METHODOLOGY
3.1 Hypotheses
Based on the above conceptual model the following
hypotheses (H) has been formulated for this study.
H1: There is a significant negative relationship between
remuneration and turnover intention of employees
H2: There is a significant negative relationship between cash
incentives and turnover intention of employees
H3: There is a significant negative relationship between work
life balance and turnover intention of employees
H4: There is a significant negative relationship between
supervisor support and turnover intention of employees
H5: There is a significant negative relationship between
employee recognition and turnover intention of employees
3.2 Collection of Data
The study relied on survey method as the researcher assumed
it to be the most appropriate method according to the nature of
the study. The sample of the study is 97 non executives
working in logistics industry. The stratified random sampling
method was used as the sampling technique. Further the data
collection was done by using a self-administrated structured
questionnaire. The questionnaire consists of three sections
and the section one of the questionnaire designed to obtain
demographic characteristics, including gender, age and the
length of work experience etc. In the second section there are
questions regarding reward system (financial and non-financial
rewards). Finally the third section consists of questions
regarding employee turnover intention. Some of the questions
were close ended, whiles others scored on a 5-point Likert
scale. Point 1 for strongly agree, 2 for agree, 3 for neutral, 4
for disagree and 5 for strongly disagree have been provided to
analyze data. To test the hypotheses, Pearson’s product
moment correlation analysis, and multivariate analysis were
used. The statistical computer package SPSS version 20.0
was utilized to analyze the data. The reliability of a measure
indicates the extent to which it is without bias (error free) and
hence ensures consistent measurement across time and
across the various items in the instrument (Sekaran, 2006).
This can be tested statistically by using Cronbach’s alpha. The
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reliability statistics indicated 0.970 for remuneration, 0.934 for
cash incentives and 0.956 for work life balance, 0.948 for
supervisor support, 0.939 for employee recognition and finally
0.975 for employee turnover intention (Cronbach’s alpha
values) which suggest that the items have relatively high
internal consistency.
4 RESULTS
4.1 Testing of Hypotheses
Table 4.1: Pearson Correlation for all selected independent
variables and turnover intention
Independent
variables
Dependent variable
(Turnover intention)
Sig.
Remuneration
-0.905**
0.000
Cash incentives
-0.657**
0.000
Work life balance
-0.911**
0.000
Supervisor Support
-0.886**
0.000
Employee
Recognition
-0.957**
0.000
**.Correlation is significant at the 0.01 level (1-tailed).
The analysis of the results indicate a negative correlation
between remuneration and turnover intention (r = -0.905) and
is significant at 0.01. This shows that when the remuneration is
not up to the required level according to the needs of the
employees their intention to leave the organization is affected.
There is a negative relationship between cash incentives and
turnover intention. The correlation coefficient (r = -0.657) is
significant at 0.01. The negative relationship between work life
balance and turnover intention (r = -0.911) is also significant at
0.01. The results of supervisor support reveal its significant
negative correlation with turnover intention (r = -0.886) at p =
0.01. Employee recognition gave a negative correlation with
turnover intention (r = -0.957) at 0.01 shows that employees’
turnover intention is highly correlates to the employee
recognition in the organization. Multivariate analysis evaluates
the simultaneous effects of all the independent variables on
dependent variable. The results of multivariate regression of
the five independent variables against the dependent variable
turnover intention are shown in the Table 4.2.
Table 4.2: Aggregate impact of the employee reward system
on turnover intention of employees
R
R2
Adjusted
R2
Std. error of
the estimate
F
Sig. F
0.980
0.960
0.958
0.30710
438.928
0.000
The adjusted square of the multiple R is 0.958 indicating that
the 95.8% of variance in turnover intention is explained by the
five independent variables jointly. There is statistical evidence
to claim that five independent variables have significantly
explained the 95.8% of the variance in turnover intention in the
selected domain.
5 DISCUSSION
As hypothesized it was found that there are significant
negative relationships between remuneration, cash incentives,
work life balance, supervisor support and employee
recognition and turnover intention of employees. The overall
relationships of different elements of reward system showed
that employee recognition has the strongest negative
relationship with turnover intention. When reviewing the
existing literature it was also found that according to
Henryhand (2009) employee recognition has significant impact
on turnover intention. Analysis of the collected data revealed
that reward system has a significant impact on the employees’
turnover intention. The sample indicated that majority of the
non-executive employees are male (87.6%). And the age of
55.7% of non-executive employees are in the range of 18 -25
years and 60.8% of the non-executive employees have less
than 12 months’ experience. 53.6% of the non-executive
employees are General Certificate in Education (Ordinary
Level) qualified.
6 CONCLUSION
The research findings give evidence that better financial and
non-financial rewards lead to decrease employee turnover
intention. The problem of the research was that to what extent
the current reward system affects to the non-executive level
employees’ turnover intention in logistics industry of Sri Lanka.
Based on the existing literature, a conceptual framework is
developed so as to test the relationship between financial and
non-financial rewards (remuneration, cash incentives, work life
balance, supervisor support and employee recognition) and
turnover intention. As per the research findings, it can be
concluded that there is a strong negative relationship between
financial and non-financial rewards and non-executive level
employees’ turnover intention in logistics industry of Sri Lanka
and this relationship is significant. We can conclude the
research findings as the reward system of organizations in
logistics industry of Sri Lanka need to be improved in both
financially and non-financially because there is a strong
negative relationship between reward system and turnover
intention of employees. That means if the reward system is
effective and attractive to employees their turnover intention
will be reduced gradually.
7 RECOMMENDATION
According to the research findings remuneration is a significant
variable that reduces the turnover intention of non-executive
employees. The equity theory of Adams (1965) emphasizes that
pay satisfaction is caused by feeling regarding the equity of one’s
pay. Not only increasing pay is enough to reduce turnover
intention of employees, but also employees’ perception of
whether they are being paid fairly for their work do matter.
Therefore the company should follow equity pay system where
each and every employee gets paid fairly for their contribution to
the company. Therefore current reward system should consider
about this. Attractive cash incentive is another significant value
that reduces the turnover intention of non-executive level
employees in logistics industry. Company should take necessary
steps to upgrade employee incentive programmes such as
providing bonuses depending on performance (goal attainment)
and the goals must be realistic and closely matched to the
business and people involved. Introducing new profit sharing
scheme where a pre-determined percentage of profit is shared
among all employees. Other than that good work life balance is
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also another significant variable that reduces the turnover
intention of non-executive level employees. Company should
attempt to provide flexible working hours, telephone access which
ensuring all employees are able to receive urgent telephone calls
or messages from family members at work and have access to a
telephone to remain contactable with their family during working
hours also contributes to reduce turnover intention. Arranging
transport for the daily travel from office to home is also effective
method to have good work life balance. According to the findings
of the research, it was discovered that supervisor support also
contribute to reduce the turnover intention of non-executive level
employees. Therefore, company should build a social culture that
focuses on friendly relationships among co-workers and
supervisors adopt a “people-first” attitude, implementing
programs which help to improve the employees’ attitudes towards
team work, good team atmosphere, etc. Finally, employee
recognition is also a significant variable that reduces the turnover
intention of non-executive level employees. Since the majority of
employees want their superiors to see them as effective
contributors, because it reinforces their positive image of
themselves and their self-worth, effective employee recognition
system is a must. Employee recognition needs to be a common
practice in the organization. To be effective, employee recognition
must be sincere and heartfelt. Therefore, top management of the
company should create a working environment where employee
recognition is a normal day-to-day process. As a result, the non-
executive level employees’ turnover intention can be reduced.
8 FUTURE RESEARCH IMPLICATIONS
In Sri Lankan context, there are very few researches on the
concept of reward system. Therefore, future researches can
be conducted to investigate the relationship between reward
system and employee retention, recruitment, employer
attractiveness and employee engagement. In addition to the
structured questionnaire which has been distributed in this
study, conducting face to face interviews with a reasonable
number of respondents could be given some valuable
information. Further it is also recommended to perform similar
study in different organization or industry in Sri Lanka.
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