A Review of Employee Motivation Theories and their Implications
for Employee Retention within Organizations
Sunil Ramlall, Ph.D., University of St. Thomas, Minneapolis, MN
ABSTRACT
The article provides a synthesis of employee motivation theories and offers an explanation of how
employee motivation affects employee retention and other behaviors within organizations. In addition to explaining
why it is important to retain critical employees, the author described the relevant motivation theories and explained
the implications of employee motivation theories on developing and implementing employee retention practices.
The final segment of the paper provides an illustration with explanation on how effective employee retention
practices can be explained through motivation theories and how these efforts serve as a strategy to increasing
organizational performance.
In today’s highly competitive labor market, there is extensive evidence that organizations regardless of
size, technological advances, market focus and other factors are facing retention challenges. Prior to the September
11 te
orist attacks, a report by the Bureau of National Affairs XXXXXXXXXXshowed that turnover rates were soaring to
their highest levels over the last decade at 1.3 % per month. There are indeed many employee retention practices
within organizations, but they are seldom developed from sound theories. Swanson XXXXXXXXXXemphasized that theory
is required to be both scholarly in itself and validated in practice, and can be the basis of significant advances.
Given the large investments in employee retention efforts within organizations, it is rational to identify,
analyze and critique the motivation theories underlying employee retention in organizations. Low unemployment
levels can force many organizations to re-examine employee retention strategies as part of their efforts to maintain
and increase their competitiveness but rarely develop these strategies from existing theories. The author therefore
described the importance of retaining critical employees and explained how employee retention practices can be
more effective by identifying, analyzing, and critiquing employee motivation theories and showing the relationship
etween employee motivation and employee retention. Furthermore, Hale XXXXXXXXXXstated that 86% of employers
were experiencing difficulty attracting new employees and 58% of organizations claim that they are experiencing
difficulty retaining their employees. Even when unemployment is high, organizations are particularly concerned
about retaining their best employees.
PURPOSE AND STRUCTURE
The article provides a synthesis of employee motivation theories and offers an explanation of how
employee motivation affects employee retention within organizations. In addition to explaining why it is important
to retain critical employees, the author described the relevant motivation theories and explained the implications of
employee motivation theories on developing and implementing employee retention practices. The final segment of
the paper provides an illustration with explanation on how effective employee retention practices can be explained
through motivation theories and how these strategies serve as a strategy to increasing organizational performance.
In today’s business environment, the future belongs to those managers who can best manage change. To manage
change, organizations must have employees committed to the demand of rapid change and as such committed
employees are the source of competitive advantage (Dessler, 1993). “Commitment is critical to organizational
performance, but it is not a panacea. In achieving important organizational ends, there are other ingredients that
need to be added to the mix. When blended in the right complements, motivation is the result” (O'Malley, 2000,
p.13).
Why is it Necessary to Retain Critical Employees?
Fitz-enz XXXXXXXXXXstated that the average company loses approximately $1 million with every 10 managerial
and professional employees who leave the organization. Combined with direct and indirect costs, the total cost of an
exempt employee turnover is a minimum of one year’s pay and benefits, or a maximum of two years’ pay and
enefits. There is significant economic impact with an organization losing any of its critical employees, especially
given the knowledge that is lost with the employee’s departure. This is the knowledge that is used to meet the needs
The Journal of American Academy of Business, Cam
idge * September 2004 XXXXXXXXXX52
and expectations of the customers. Knowledge management is the process of creating, capturing, and using
knowledge to enhance organizational performance (Bassi, 1997).
Furthermore, Toracco XXXXXXXXXXstated that although knowledge is now recognized as one of an organization’s
most valuable assets most organizations lack the supportive systems required to retain and leverage the value of
knowledge. Organizations cannot afford to take a passive stance toward knowledge management in the hopes that
people are acquiring and using knowledge, and that sources of knowledge are known and accessed throughout the
organization. Instead, organizations seeking to sustain competitive advantage have moved quickly to develop
systems to leverage the value of knowledge for this purpose (Robinson & Stern, 1997; Stewart, XXXXXXXXXXThus, it is
easy to see the dramatic effect of losing employees who have valuable knowledge.
The concept of human capital and knowledge management is that people possess skills, experience and
knowledge, and therefore have economic value to organizations. These skills, knowledge and experience represent
capital because they enhance productivity (Snell and Dean, XXXXXXXXXXHuman capital theory postulates that some labor
is more productive than other labor simply because more resources have been invested into the training of that labor,
in the same manner that a machine that has had more resources invested into it is apt to be more productive
(Mueller, XXXXXXXXXXOne of the basic tenets of human capital theory is that, like any business investment, an
“investment in skill-building would be more profitable and more likely to be undertaken the longer the period over
which returns from the investment can accrue” (Mueller, 1982, p XXXXXXXXXXAgain, employee retention is important in
ealizing a full return on investment. Human capital theory includes the length of service in the organization as a
proxy for job relevant knowledge or ability. A person’s job relevant knowledge or ability influences that person’s
wage, promotional opportunity and/or type of job (Becker, 1975; Hulin & Smith, 1967; Katz, XXXXXXXXXXThe
understanding of length of service in an organization relates back to Ulrich’s XXXXXXXXXXcomponent of commitment in
his definition of intellectual capital. His definition was simply “competence multiplied by commitment” (p. 125),
meaning intellectual capital equals the knowledge, skills, and attributes of each individual within an organization
multiplied by their willingness to work hard. It will become significantly more important in the years ahead to
ecognize the commitment of individuals to an organization, as well as the organization’s need to create an
environment in which one would be willing to stay (Ha
is, XXXXXXXXXXOrganizations will need to either create an
intellectual capital environment where the transmission of knowledge takes place throughout the structure, or
continue to lose important individual knowledge that has been developed through the length of service. This deep
knowledge is what many believe will help to meet the needs and expectations of the customers and to create and
sustain a competitive advantage within the global economy in which organizations are competing in today.
A SYNTHESIS OF EMPLOYEE MOTIVATION THEORIES
The term motivation derived from the Latin word movere, meaning to move (Kretiner, XXXXXXXXXXMotivation
epresents “those psychological process that cause the arousal, direction, and persistence of voluntary actions that
are goal oriented (Mitchell, 1982, p.81). Motivation as defined by Ro
ins XXXXXXXXXXis the “willingness to exert high
levels of effort toward organizational goals, conditioned by the effort’s ability to satisfy some individual need.” A
need in this context is an internal state that makes certain outcomes appear attractive. An unsatisfied need creates
tension that stimulates drives within the individual. These drives then generate a search behavior to find particular
goals that, if attained, will satisfy the need and lead to the reduction of tension (Ro
ins, XXXXXXXXXXThe inference is
that motivated employees are in a state of tension and to relieve this tension, they exert effort. The greater the
tension, the higher the effort level as illustrated in Figure 1. Motivational theorists differ on where the energy is
derived and on the particular needs that a person is attempting to fulfill, but most would agree that motivation
equires a desire to act, an ability to act, and having an objective. - Insert Figure 1 about here - There are numerous
theories of motivation. The author identified the most relevant theories and explained the respective theories of
motivation and how motivation may impact employee commitment in an organization. Five methods of explaining
ehavior – needs, reinforcement, cognition, job characteristics, and feelings/emotions – underlie the evolution of
modern theories of human motivation (Kretiner, XXXXXXXXXXIn this motivational theory effort, the following motivation
theories were selected (1) need theories, (2) equity theory, (3) expectancy theory, and (4) job design model given
their emphasis and reported significance on employee retention.
Need Theories of Motivation
Need theories attempt to pinpoint internal factors that energize behavior. Needs as defined previously are
physiological or psychological deficiencies that arouse behavior. These needs can be strong or weak and are
influenced by environmental factors. Thus, human needs vary over time and place.
The Journal of American Academy of Business, Cam
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Maslow’s Need Hierarchy Theory
Maslow’s defining work was the development of the hierarchy of needs. According to Stephens (2000),
Maslow believed that human beings aspire to become self-actualizing and viewed human potential as a vastly
underestimated and unexplained te
itory as illustrated in Figure 2. Insert Figure 2 about here
Maslow believed that there are at least five sets of goals which can be refe
ed to as basic needs and are
physiological, safety, love, esteem, and self-actualization. Maslow XXXXXXXXXXstated that people, including employees at
organizations, are motivated by the desire to achieve or maintain the various conditions upon which these basic
satisfactions rest and by certain more intellectual desires. Humans are a perpetually wanting group. Ordinarily the
satisfaction of these wants is not altogether mutually exclusive, but only tends to be. The average member of society
is most often partially satisfied and partially unsatisfied in all of one’s wants (Maslow, XXXXXXXXXXThe implications of
this theory provided useful insights for managers and other organization leaders. One of the advise was for
managers to find ways of motivating employees by devising programs or practices aimed at satisfying emerging or
unmet needs. Another implication was for organizations to implement support programs and focus groups to help
employees deal with stress, especially during more challenging times and taking the time to understand the needs of
the respective employees (Kreitner, XXXXXXXXXXWhen the need hierarchy concept is applied to work organizations, the
implications for managerial actions become obvious. “Managers have the responsibility to create a proper climate in
which employees can develop to their fullest potential. Failure to provide such a climate would theoretically
increase employee frustration and could result in poorer performance, lower job satisfaction, and increased
withdrawal from the organization” (Steers & Porter, 1983, p XXXXXXXXXXChampagne & McAfee in their book Motivating
Strategies for Performance and Productivity: A Guide to Human Resource Development listed some potential ways
of satisfying employee needs:
Need Examples_________________________________
1. Physiological Cafeterias
Vending machines
Drinking fountains
2. Security
Economic Wages and salaries
Fringe benefits
Retirement benefits
Medical benefits
XXXXXXXXXXPsychological Provide job descriptions
Give praise/awards
Avoid a
upt changes
Solve employee’s problems
XXXXXXXXXXPhysical Working conditions
Heating and ventilation
Rest periods
3. Affiliation Encourage social interaction
Create team spirit
Facilitate outside social activities
Use periodic praise
Allow participation
4. Esteem Design challenging jobs
Use praise and awards
Delegate responsibilities
Give training
Encourage participation
5. Self-actualization Give training
Provide challenges
Encourage creativity
Some of these ideas may be easy and inexpensive to implement while others can be quite difficult and
costly. In addition, the level and type of need of employees may vary