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IMPACT OF LABOUR TURNOVER ON THE PERFORMANCE OF SELECTED DEPOSIT BANKS IN ENUGU METROPOLIS, NIGERIA

Business Administration & Management Project Topics

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

For an organization to perform effectively does not depend only on the available technical resources, but also on the quality and competence of its employees. Meaghan (2002) states that employees are extremely crucial to the organization since their value to the organization are essentially intangible and not easily replicated.

Every organization has to bear in mind that the difference in the levels of productivity of two or more organizations depends on the contribution of existing employees. For an organization to be successful, employee satisfaction should not be overlooked, because, it is the prerequisite for staff retention. According to Abassi and Hollman (2000), managers must recognize that employees are major contributors of organizational competitive advantage and as such for the competitive advantage to be maintained, labour turnover should be discouraged by management.

Labour turnover is the movement of employees in and out of an organisation.  It can also be seen as the rate at which an employer gains or loses employees.  Owen (2004) opines that labour turnover measures the movement of workers in and out of employment with a particular firm. The issue and interest in measuring such movement arouse when working for an employer (rather than self-employment in craft or agricultural production) became the norm. Labour turnover is measured typically in terms of the separation rate (quits, layoffs, and discharges per hundred employees on the payroll).

High labour turnover can be seen as a devastating phenomenon to any organisations both public and private, whether big or small. Labour turnover affects both firms and employees. Organisations suffer the loss of job specific skills, disruption in production and incur the costs of hiring and training new workers. Employees, on the other hand, experience unsteady salary, unemployment, as a result of moving from one job to another in search of higher pay jobs, new job-specific skills and different career prospects. Some authors were concerned over the high rates of labour turnover in the early part of the century and conducted many studies to understand the causes and consequences of labour turnover (Douglas 1918; Lescohler 1923 and Slichter 1921). Some of these studies focused on the irregularity in labour demand which resulted in seasonal and cyclical layoffs. Others interpreted the high rate of labour turnover as an indication of worker dissatisfaction and labour relations problems. It was seen that labour turnover was costly for the firm (in terms of increased in hiring and training expenditures) and for the workers (in terms of irregularity of income flows). Many studies sought and identified why workers quitted their jobs less frequently was as a result of altered employment relationships (Owen 1995b; Ozanne 1967; and Ross 1958). In the United States, these changes in employment practices began in a few firms around the turn of the 20th century, intensified during World War 1 and became more widespread in the 1920s. These employment practices were sometimes attempts to appraise workers and to prevent unionization. However, others have suggested that the changes in quit behaviour in the 1920s were the result of immigration declines (due to implemented quotas) and slack labour turnover markets (Goldin 2000; Jacoby 1985). Labour economists have also noted that providing various form of deferred compensation (pensions, wages which increases with seniority, etc.) can increase worker effort and reduce the costs of monitoring workers.

High labour turnover can be harmful to a company’s productivity if skilled workers are often leaving and the worker population contains a high percentage of novice (trainee) workers (Hutchinson and Berunvides, 1997). Experts are needed for recruitment, selection and training of new employees whenever there is reduction in the work force (key employees); lots of money that is involved pose a challenge to any organisation to handle high labour turnover. Apart from the negative parts of labour turnover, there are little benefits attached to it, such as the opportunity of being able to replace poorly performed workers with more educated, experienced and skilled workers and the idea of waste reduction (unnecessary expenses caused by improper utilisation resources).

Newstrom and Davis (1997) define turnover as the proportion of employee leaving a job during a given time period. It is the sum of job turnover, which relates to expansion and contraction of establishments or firms and the movement of workers into and out going of jobs in establishments or firms. Workers leave firms and firms hire other workers to replace them regardless of whether firm itself is growing or declining. Grobler; Warnicks; Carrel; Elbert & Harfierd (2006) define staff turnover as the movement of employees out of the organisation, that results from resignation, transfers out of the organisational units, discharges, retirement and death. These authors distinguished between avoidable and unavoidable turnover, without clearly indicating the different between these two types of turnover. However, they mentioned that staff turnover is linked to job satisfaction, with the inevitable result that organisations mostly concerned with the reasons why employees wants to leave an organisation. Staff turnover can be described as the frequent or amount of voluntary termination (Gordon, 1991).

The historical analyses of labour turnover have relied upon two types of data. The first type consists of firm-level data on turnover within a particular workforce or governmental collections (through firms) of data on the level of turnover within particular industries or geographic locations. If these turnover data are broken down into their components (quit, discharges and layoffs), a quit rate model can be employed to analyse the worker-initiated component of turnover as it relates to job search behaviour (Parsons, 1973). The second type of turnover data is derived using employment records or governmental as the source for information specific to individual workers. Analyses of this type of data typically employs a “hazard” model that estimates the probability of a worker’s leaving a job as a function of individual worker characteristics (Carter and Savoca, 1992; Maloney, 1998; Whatley and Sedo, 1998).

In the United State, for the period of December, 2000 to November, 2008, the average total non-seasonally adjusted monthly turnover rate was 3.3%. However, rates vary widely when compared over different periods of time or different job sectors. For instance, during the period of 2001 to 2006, the annual turnover rate for all the industrial sectors averaged 39.6% before seasonal adjustments, during the same period the leisure and hospitality sector experienced an average annual rate of 74.6% (Bureau of Labour Statistics, 2008). This corroborates the findings of Joseph (1972) which states that labour turnover cost American industries $11 billion a year. This figure includes items like recruitment, hiring, training of replacements.

There has always been labour turnover in the Nigerian banking industry but it became more pronounced after the introduction of bank consolidation by the Central Bank of Nigeria (CBN) that took place from July 2004 to December 2005 (Okafor, 2009). Under this policy, deposit banks were mandated to raise their equity capital to N25 billion through windows like mergers and acquisition, sourcing funds from the capital market or private placement in order to strengthen them. This process resulted to reduction of deposit banks from 89 to 25 in the year 2007 and later to 20 in 2011 with the attendant massive job loss. Some deposit banks that could not meet up with the requirements of the Central Bank of Nigeria were closed down. The survived ones laid off their staff and this escalated the number of job seekers in the country. Furthermore, in developing countries, labour turnover increases the rate of unemployment due to lack of job, many job seekers roaming around in search of job in the face of little or no job and in the same vein, countries that have high unemployment rates are likely not to have high labour turnover. Workers may find it difficult to leave their present jobs because they know there are many job seekers waiting for the slightest opportunity to be employed.

The Nigerian banking industry has witnessed new and different physical change in the recent years as a result of the restructuring programme channeled towards resolving the existing problems of the industry by the Central Bank of Nigeria (CBN). The Central Bank of Nigeria has seen the weakness in banking system characterized by insolvency, persistent illiquidity, poor assets quality, unprofitable operations, weak corporate governance, over dependency on public sector deposits, weak capital base, late or non-publication of annual accounts and among others.  These might make it impossible for deposit banks to meet all employees requirements (such as high pay, job security, opportunity for advancement an achievements, job satisfaction, incentives and among others) which can trigger the movement of employees from one organisation to another. Due to the above weaknesses, the former governor of the Central Bank of Nigeria, Soludo (2004) at the special meeting with the Bankers Committee initiated bank consolidation and pointed out why mergers and acquisitions should be taken seriously as an instrument for enhancing banking efficiency, size and development.

The banking industry specifically has experienced lots of labour turnover in the recent years, especially, after the 2005 bank reform exercise introduced by the Central Bank of Nigeria (CBN). This move was prompted by the weak and fragile capital base of most Nigerian banks which predisposed them to collapse at the slightest loan default. Consequently, CBN increased the minimum share capital of banks to N25billion to strengthen them. This resulted in reduction of deposit banks from 89 to 24 under Soludo in 2007 and later to 20 under Sanusi in 2011 with the attendant massive job loss and loss of customers’ loyalty.

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