Retaining Employees in Small Business

Abstract

Retaining employees is a dilemma for small businesses. Large corporations have resources specifically aimed at keeping their employees while smaller ones do not. Using online resources, we examined the issue of employee retention in small business. We found that the problem stems from different areas, lack of resources, few employees, minimal direction from management. While these issues are a problem, they are not insurmountable. Small businesses need to be innovative and creative in finding ways to keep their employees.

Retaining Employees

Why would a small business see higher turnover than a larger company? In general, small companies have less official company documentation and standardization with regard to job descriptions and responsibilities. Because there is a smaller employee roster, there is less opportunity for specialization. Small business employees often have to be versatile. It is for this reason that small businesses often refrain from being specific in outlining an employee's duties: The employers themselves may not know ultimately what the expectations are of their own employees. Writes Kickul, "Instead of having explicit job assignments, job descriptions, and training programs that are traditionally seen within large organizations (Aldrich and Auster 1986; Aldrich and Langton 1997), small firms and their founders may rely on informal techniques to communicate their organizational benefits and rewards to guide and assist employees in understanding their psychological contract with the small business. (Kickul, Jill)"

Employees often want specific descriptions of their roles and responsibility. This means having written job roles and responsibilities, and having this available to the employee. When an employee has a specific understanding of what is expected of them, they will tend to have an increased sense of job security. As mentioned in the above quote, this scenario is traditionally found in larger companies. An individual going to work for Home Depot or Wal-Mart is going to be given an employee handbook, specific outline and description of job requirements, etc. In the absence of this explicit communication, i.e. in the small business environment, there exists the possibility of miscommunication, misunderstanding, and resentment using these "informal" techniques, be they verbal, hinted at, indirectly suggested, or otherwise. When expectations are not explicitly written out for reference, the employee has difficulty determining whether or not they are receiving fair compensation for their efforts.

"From an equity theory perspective, individuals try to find an equitable balance between what they receive from the organization and their own contributions. When employees perceive that their employer has failed to fulfill promised inducements, they may withhold their own designated contributions (Robinson and Morrison 1995). (Kickul, Jill)"

Once the employee reduces the effort they put into their job, either one side or the other will sever the relationship shortly thereafter. Kickul again, "Since the employees felt they could no longer depend on the small firm for its promised inducements, they also tended to have lower feelings of identification with and attachment to their employer". Chances are that feelings of attachment are what keep the employee working at a small business. For example, intimate work relationships, sympathy to the "underdog" mom-and-pop company, personal friendship with an owner, etc. When this feeling of attachment erodes, there is nothing stopping the employee from leaving. It is clear that small businesses would benefit from taking steps to increase employee retention, to stop the migration to larger companies. However, like all endeavors undertaken in a business, there is a cost associated with this action. But what is the cost, and is it worth it to the business to incur this cost?

Many of the suggestions have minimum cost associated with them. For example, the simple use of reference material is suggested, "Additionally, small firms should focus more energy on openly communicating to employees what they can reasonably expect in terms of organizational inducements and practices. Implementing many of the principles of open-book management (Case 1996; McCoy 1996) is not only critical to helping an employee understand his or her role in the firm, but can also be used to empower and motivate employees toward the common goal and strategy of the small firm (Davis 1997). (Kickul, Jill)"

The cost of this action is negligible. Basically, it is the total of the cost of the reference material, plus the employee time to read, digest, and implement the learning's. If this action resulted in higher employee retention, it is certainly worthwhile. In another example, writes Worden, "One of our key staff people was due to give birth to her first child at the precise time when a major issue was at the forefront of our industry. We needed a training program, and she was the person most knowledgeable to produce it. Prior to her maternity leave, we signed a contract with a consultant and worked out an agreement for our employee to manage the consultant's work from home. She also agreed to work on other initiatives from home; she ended up raising enough revenue in corporate sponsorships to cover the cost of the entire training program. Upon her return, we allowed her the flexibility to work from home two days a week. As a result of her work, the association added $500,000 in unbudgeted revenue to its coffers and won four awards. That was an employee worth retaining. (Worden, Vicki) "

This is an outstanding example of a small business allowing significant flexibility, but gaining revenue and benefit for the organization in the long run. It is in instances like this where the small business can make creative adjustments to the normal flow of business. In this way, the small business is actually superior to the larger company which normally cannot make such shifts in direction without a great deal of bureaucratic wrangling and red tape. Many small businesses may shy away from the actions in the example above for several reasons. First, how can the company protect it's assets by ensuring a full day's work out of the employee? Secondly, what direct costs would the company incur in setting up the employee to work from home? The outcome in the example answers those two questions. Since the company focused on results, and not just clock-punching, the productivity issue was irrelevant. It was more important for the employee to deliver than it was to ensure an 8 hour day. Similarly, the costs of setting up