Employee turnover as a cost factor of organizations

The termination of the contract, both official and psychological, is known as employee turnover (Krausz, 2002; Macdonald, 1999) and is considered as an index of organizational effectiveness. It is closely related to firm performance (Chikwe, 2009; Cho et al., 2006). The consequences of employee turnover can have either positive or negative impacts on organizational performance (Price, 1977; Mobley, 1982; Siebert and Zubanov, 2009; Ingersoll and May, 2012). Building up and maintaining a pool of good-quality employees is costly, as there are various costs associated with the human resource, which can be either direct or indirect (recruitment, selection, training, and so on). For instance, Hinkin and Tracey (2000) found that the overall costs of turnover of one front office attendant (including separation costs, replacement costs and lost productivity) ranged from about $6000 to $12,000, in which the loss of productivity accounted for the largest percentage of the cost. The findings from empirical studies have emphatically shown that for any organization to thrive it must hold on to its top talent (Holtom et al., 2005). Thus, it is imperative for the organization to maintain a labour force of employees with robust institutional knowledge, with employee turnover being kept to a minimum.