The employment market is tough and constant recruiting costly. Retaining valuable skilled workers is essential for business success, writes David Gilroy.
Still falls the rain on a cold dark January morning. A typical forbidding British winter’s day. There is every reason to stay home and hunker down. What motivates anyone to crawl out of bed, walk into the storm and battle the transport? How to motivate people to attend work on time without fail continues to be a fundamental challenge for all businesses. Employee absence and retention is in sharp focus right now. Despite unemployment rising and the cost-of-living soaring, people are opting out of paid work and firms are struggling to retain good people. The carriage clock model of a job for life looks antiquated. Many, especially younger people are turning away from employment.
The costs to a business of high labour churn are high. I spent some time managing call centres where labour turnover was always our number one issue. At that time one in a hundred workers was employed by call centres. The working environment was often characterised as pressurised, intensive and performance driven to the point of being dehumanising. In their early development call centres suffered from work volumes outstripping projections and further hampered by clunky technology. Often resulting in customer dissatisfaction vectored back onto the frontline employees. I studied the problem in depth, undertaking a wide-ranging business literature review underpinned by quantitative and qualitative workforce research. On this journey I discovered something profound yet obvious which I am about to share this with you.
First some key learnings. While external labour market conditions and organisational structures play important roles, the decision of employees to remain with or leave an organisation is heavily influenced by a complex interaction of intrinsic and extrinsic factors. Understanding these dimensions is essential for managers aiming to design effective retention strategies. Intrinsic factors refer to the internal, psychological drivers that influence an employee’s satisfaction and engagement with their work. These include elements such as job satisfaction, personal growth, autonomy, sense of purpose, and alignment with organisational values. Extrinsic factors, by contrast, are external and tangible rewards or conditions provided by the organisation, including salary, benefits, job security, working conditions, and organisational policies. Both sets of factors interact dynamically and neglecting either can lead to increased labour turnover. One of the most influential frameworks for understanding intrinsic and extrinsic motivation is Herzberg’s seminal Two-Factor Theory (Herzberg, Mausner, & Snyderman, 1959). Herzberg distinguishes between “motivators” (intrinsic factors such as achievement, recognition, and the nature of the work itself) and “hygiene factors” (extrinsic elements such as pay, supervision, and working conditions). According to this theory, the absence of hygiene factors can lead to dissatisfaction, but their presence alone does not guarantee motivation or retention. Instead, true engagement and long-term commitment arise from intrinsic motivators. This distinction highlights why organisations that focus solely on compensation without addressing meaningful work often struggle with retention. Reducing employment to the transactional becomes a race to the bottom.
Job satisfaction is one of the most significant intrinsic determinants of employee retention. The Job Characteristics Model developed by Hackman and Oldham (1976) further explains how intrinsic motivation is enhanced through five core job dimensions: skill variety, task identity, task significance, autonomy, and feedback. Jobs that are enriched along these dimensions tend to foster higher motivation, satisfaction, and retention. Culture is important. Employees who feel emotionally connected to their organisation are less likely to leave, even when presented with alternative opportunities. Opportunities for personal and professional development also play a major role in enabling a quality workforce. Organisations that provide training, mentorship, and career progression pathways support these needs and thereby enhance retention.
Leadership and management style significantly influence intrinsic factors. Transformational leadership, characterised by inspiration, intellectual stimulation, and individualised consideration, has been shown to increase employee engagement and commitment (Bass & Riggio, 2006). Managers who empower employees, recognise their contributions, and provide meaningful feedback contribute to a positive psychological environment that encourages retention. In contrast, authoritarian or unsupportive leadership can undermine intrinsic motivation and drive employees to leave.
Extrinsic factors cannot be ignored. Compensation is often the most visible extrinsic factor. Competitive salaries and benefits are essential for attracting and retaining talent, particularly in competitive labour markets. However, research suggests that while pay can reduce dissatisfaction, it has diminishing returns in terms of motivation beyond a certain threshold (Herzberg et al., 1959). This reinforces the idea that compensation must be complemented by intrinsic rewards. Benefits and rewards packages also play a significant role in retention. Health insurance, pension schemes, bonuses, and flexible working arrangements contribute to employees’ overall satisfaction and security. In recent years, non-traditional benefits such as remote working, wellness programmes, and work-life balance initiatives have gained prominence. These factors address employees’ broader needs and can significantly reduce turnover, particularly among younger and more diverse workforces. Job security is another important extrinsic factor. Employees who perceive their employment as stable are more likely to remain with an organisation. Working conditions, including the physical environment and organisational policies, also influence retention. Safe, comfortable, and well-resourced workplaces contribute to employee satisfaction. Additionally, fair policies regarding workload, scheduling, and performance management are essential for maintaining morale. Poor working conditions can quickly lead to dissatisfaction, even if other factors are favourable. Generational differences further complicate the relationship between intrinsic and extrinsic factors. Research suggests that younger employees, such as Millennials and Gen Zs, often place greater emphasis on purpose, flexibility, and development opportunities, while older employees may prioritise job security and benefits.
Managing employee retention and controlling labour turnover requires a nuanced understanding of both intrinsic and extrinsic factors. My own research revealed that the most powerful intrinsic factor, hitherto not discussed in business literature is employees’ loyalty to each other. The thought of letting colleagues down is one of the drivers that makes people turn up for work every day. This can override many dissatisfiers such as overbearing management and difficult working conditions. Therefore, any business that encourages peer bonding through (say) social, sports or charity events will win out.
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