1. Employee Retention in
Small Businesses
Challenges and possible solutions
Mathew J Mampra
School of Business
Alliance University
19 May 2012

2. Agenda
Research Question and Methodology
Motivation
Definition
Literature Review
Challenges
Solutions
Future Research
Reference
Learning and Conclusion

3. • Research Question
Can we make people motivated to stay in
small businesses in this era of vast
opportunities? How to do that by paying less,
compare to larger enterprises?
Methodology
This presentation is based on systematic
literature review and the compilations of
findings and lessons learned from my own
experience as an owner-manager for a small
enterprise

4. Definition (of Small Businesses)
Every country has its own definitions for Small
Business
.
Country
India
Small Business
Plant & machinery INR 25-
500 Lakhs
10-200 Lakhs(Service Sector)
Europe Up to 50 employees
US Up to 500 employees
A small business is an enterprise with an employee
strength between 10-100 (This definition is considered for this study)
Peterson, Albaum, and Kozmetzky, 1996;
Stewart, Watson, Carland, and Carland,1999
Micro, Small and Medium Enterprises Development Act, 2006, India

5. Annual employee turnover of small
businesses Turnover %
0-2 % - 28%
3-5 % - 12%
6-8 % - 15%
9-10 % - 17%
>10 % - 28%
Nearly three fourth have less than 10% employee
turnover in spite of less monetary benefits
Bruce H Kemelgor ,William R Meek,”Employee retention in growth oriented
entrepreneurial firms: An exploratory study”Journal of Small Business
Strategy, Volume 19,Num.1,2008

6. Why employee retention is so important?
 “Few imperatives are more vital to the success of
small companies than retaining key
personnel” (Baron and Hannan, 2002; 21)
 The total cost of voluntary employee turnover (i.e., voluntary
quits) varies between 150% (Ramlall, 2003)
to 250% (Henricks, 2006) of the employee’s annual salary.
Organizational memory within a firm is
developed from the constant repetition of
activities within an organization and related
codifications (Nelson and Winter, 1982).

7. What an employee needs
Money
Salary
Incentive
Bonus
Job Satisfaction
Career
Satisfaction to be a contributor
Pride of being consulted
Sense of ownership
Respectability
Work life balance
Security
Job Security
Pension
Education for Children
Shelter
(Vigoda &Cohen 2003)
Bruce H Kemelgor ,William R Meek,”Employee retention in growth oriented entrepreneurial
firms: An exploratory study”Journal of Small Business Strategy, Volume 19,1,2008

8. Challenges of retention
 One challenge that small businesses face is that they do not
have the same ability to pay as large organizations (Milkovich &
Newman, 2008).
From the employee’s perspective
 Lack of clarity about expectations,
 Lack of clarity about earning potential,
 Lack of feedback about performance,
 Limited career growth options, and
failure to provide a framework within which the
employee perceives he can succeed
 Lack of brand image
Susan M Healthfield 2011
humanresources.com 2012
http://udini.proquest.com/read/doc:4f7c2f4ba96f3f61c75e8990/

9. Possible Solutions
 Creating a family atmosphere and bonding and making it part of the
organisational culture. Small business owners have an advantage over larger businesses by being able to know
their employees and treating them as individuals
 Family is considered as a nuclear system in which
family members develop invisible loyalties and
generational bonds due to genetic relatedness.
Family, thus, develops hierarchy of obligations (Hartman and Laird, 1983, p. 80)
 Employing relatives of loyal employees

10.  The success is not in recruiting the best, but to create congruence
between people and organisations so that they would stay and work in the
organisation
(Lynn 2003);(Vigoda &Cohen 2003)
 Enhancing the credibility of the organisation through brand building
(Abhishek& Manimala 2011)
 Providing opportunities for personal growth like giving them an
opportunity to do higher studies (Abhishek& Manimala 2011)
 Creating a sense of ownership among employees through participation in
decision making
 By creating entrepreneurial opportunities within the organisation
 Providing attractive fringe benefits to the employees
Outsider paradigm & Insider paradigm (Manimala 2010)
 Creating a sense of ownership among employees by giving profit share

11. Manager Support( Owner-manager)
 People leave managers and supervisors more often than they leave
companies or jobs. (Susan M Healthfield 2011)
 Manager support exists when employees perceive their immediate manager as
leading by example, giving them the support needed to do the job well, is
perceived to be personally effective, and is good at developing people.
(Mitchell et al. 2001)
 Manager-employee relationships & peer group bonding is very critical in
linking people to their job and organization. (Mitchell et al. 2001)
 Perceived supervisory support had independent effects on turnover intentions
than perceived organizational support. (Maertz et al. 2007)

12. Understand and Fulfil Psychological Contract
terms
Psychological contracts , in general, are the
set of promises held by an individual employee about the terms of
the exchange agreement between the employee and
"his/her organization (Rousseau 1989)
Perceived unfulfilled promises
can have a considerable impact on workplace attitudes,
commitment, and intentions to leave the organization.
Jill Kickul,“Promises Made, Promises Broken:
An Exploration of Employee Attraction
and Retention Practices in Small Business”
Journal of Small Business Management 2001 39(4), pp. 320-335
13

13. .
Most employees come to expect salaries and
benefits and are therefore not motivated by
them (Henricks, 2006; Smither, 2003)

14. Performance
s
eturn
ing R
inish
of Dim
Law
Incentive

15. Framework for employee retention
in Small Businesses

16. My Small Business
 Recruiting Ordinary
 Develop them to be self motivated extra ordinary task masters
 Support for their children’s education
 Making sure that their family is happy
 A Culture of respecting each other.
 Inducing strong values
 Strongly discouraging groupism and encouraging teamwork
 Being transparent.
 Make the growth visible to all employees & share with them
 Give them the reasons to tell others why they stick on.
 Turnover based incentive for key employees
What if they leave ?
 Succession/replacement plans
 “Eveready all-rounders”
 Providing entrepreneurial encouragement.

17. Gaps &
Research Opportunities
1. Is it always wise to retain employees for a very
.
long period of time, in terms of efficiency?
2. How profit sharing schemes for employees would
work in small organizations for employee
retention?

18. Research & References
Author Year Journal Title Methodolog Gaps and directions for future
y Followed research
Bruce H. 2008 Journal of Small Employee Retention Survey, Studied only about firms less than 12
Kemelgor Business Strategy in growth oriented interviews years old.
&William R. entrepreneurial &Hypothesis
Meek firms- An
exploratory study
Abhishek 2011 Journal of Security Talent acquisition Case Study The data is collected by interviewing the
Bhati & and Sustainability and retention in stake holders and the possibility of
Mathew Issues social enterprises certain amount of bias exists.
Manimala
Gertrude I 2009 International Relationship in Studied only the Sri Lankan aspect
Hewapathiran Council for Small business is like
a Business (ICSB). family
World Conference
Proceedings
Rajesh Singh 2007 South Asian Comparative study ANOVA, Limitations of perceptions
and Deshmukh Journal of on strategies t-tests
Management
of Indian small,
medium and large
scale organisations
Rajesh Singh and Deshmukh
to be continued………

19. Other References
Jill Kickul ,“Promises Made, Promises Broken: An Exploration of Employee Attraction and Retention
Practices in Small Business”, Journal of Small Business Management 2001 39:4, pp. 320-33
Stumpf, S.A., Doh, J.P. and Tymon, W. (2010), “The strength of HR practices in India and their
effects on employee career success, performance, and potential”, Human Resource
Management, Vol. 49 No. 3, pp. 351-73.
Jack L. Howard.(2008),” The use of non-monetary motivators in small business” , The Entrepreneurial
Executive, Volume 13, 2008
Wayne, S., Shore, L. and Liden, R. (1997), “Perceived organizational support and leader-member
exchange: a social exchange perspective”, Academy of Management Journal, Vol. 40 No. 1,
pp. 82-111.
Tymon, W.G., Stumpf, S.A. and Doh, J.P. (2010), “Exploring talent management in India:
theneglectedroleof intrinsicrewards”, JournalofWorldBusiness,Vol.45No.2,pp.109-21.
Vandenberghe, C. and Bentein, K. (2009), “A closer look at the relationship between affective
commitment to supervisors and organizations and turnover”, Journal of Occupational and
Organizational Psychology, Vol. 82 No. 2, pp. 331-48.
Barney, J, & Wright, P. (1998). 'On becoming a strategic partner: The role of human resources in
gaining competitive advantage', Human Resource Management, 37: 1, 31-46.
Bhatnagar, J. (2007). 'Talent management strategy of employee engagement in Indian ITES
employees: key to retention', Employee Relations, 29: 6, 640-663.
to be continued………

20. Huselid, M. (1995). 'The impact of human resource management practices on turnover,
productivity, and corporate financial performance', Academy of management journal, 38:
3, 635-672.
O'Reilly III, C, Chatman, J, & Caldwell, D. (1991). 'People and organizational culture: A profile
comparison approach to assessing person-organization fit', Academy of management
journal, 34: 3, 487-516.
Osborn-Jones, T. (2001). 'Managing talent Exploring the new psychological contract'.
small business and entrepreneurs. The Entrepreneurial Executive, 4, 41 – 64.
Howard, J.L. (1998). How small business and entrepreneurs can retain quality employees. The
Entrepreneurial Executive, 3, 22 – 52.
Taylor, M, & Collins, C. (2000). 'Organizational recruitment: Enhancing the intersection of
research and practice', Industrial and organizational psychology: Linking theory with
practice, 304–330.
Watson, M, & Abzug, R. (2005). 'Finding the ones you want, keeping the ones you find:
Recruitment and retention in non-profit organizations', RH Associates, The Jossey-Bass
Handbook of Nonprofit Leadership and Management, 623-659.
Harris, J.H., & Arendt, L.A. (1998). Stress reduction and the small business: Increasing employee
and customer satisfaction. SAM Advanced Management Journal, 63(1), 13 – 29.

21. Significant Learning Points and
Conclusion
Recruit ordinary and develop and empower them to
be extraordinary
Give your employees enough reasons to tell others
why they stick on
Love your employees genuinely and care for the ones
they care. The employees will care for you and take
care of your small business.
Thanks