Will They Stay or Will They Go?

Exploring a Customer-Oriented Approach To Employee

Retention
Author(s): Robert L. Cardy and Mark L. Lengnick-Hall
Source: Journal of Business and Psychology, Vol. 26, No. 2, Bridging the Gap Between the
Science and Practice of Psychology in Organizations: State of the Practice Reflections
(June 2011), pp. 213-217
Published by: Springer
Stable URL: https://www.jstor.org/stable/41474870
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J Bus Psychol (2011) 26:213-217
DOI 10.1007/S10869-01 1-9223-8

Will They Stay or Will They Go? Exploring a Customer-Oriented

Approach To Employee Retention

Robert L. Cardy • Mark L. Lengnick-Hall

Published online: 6 May 2011

© Springer Science+Business Media, LLC 2011

Abstract Keeping or losing the best workers can be employees as long as they are productive. But since the
critical to whether an organization can maintain a com- employment relationship is voluntary, employers are
petitive advantage and whether operations in the organi-always left wondering, "Will they stay or will they go?"
zation run smoothly and efficiently. Simply stated, if theConsiderable research attention has focused on "will they
best workers are not retained, an organization can be go," or turnover; far less attention has been paid to "will
negatively affected from the operational to the strategicthey stay," or retention. Viewing employees as internal
customers of management can provide insight and value
level. This article focuses on employee retention from the
for managers, resulting in a more proactive approach
perspective of a customer-based model. This approach
to employee retention rather than a reactive response to
considers employees as internal customers of management
turnover. In addition, the customer-based approach to
and the model provides organizations ways to influence
employee retention brings a number of research issues into
whether employees decide to stay or go. Additionally, the
focus. Both application and research implications are
model distinguishes retention practices based upon the
value of employees to the organization. Measurement andaddressed in this article.
application issues are identified along with directions for While the importance of employee retention to organi-
future research. zational effectiveness and efficiency is clear, there cur-
rently is no single framework that guides research and
Keywords Employee retention • Customer equity • practice. Furthermore, regardless of which theoretical
Employee equity • Voluntary turnover model is considered, there are situations in which voluntary
employee turnover may be unavoidable and beyond the
control of management (Dalton et al. 1982). We focus here
The retention of valuable employees has always beenon factors that management can control and may influence
workers to stay with the organization. A customer-based
important to organizations; it takes on even more signifi-
cance today in a marketplace where human capital remainsapproach to employee retention is focused on answering
one of the few resources that can provide a sustainable the question why do people voluntarily stay in a job? This
competitive advantage (Barney 1991; Hall 1993; Wright is in contrast to turnover research which focuses on
et al. 1994). Employers invest a lot in recruiting and answering the question why do people voluntarily leave a
job?
selecting employees and then invest even more in training (Harman et al. 2007).
and developing them over time. To recoup their invest- There is a long stream of research on employee turn-
ments alone, employers want to retain high qualityover, but researchers only recently have asserted that
turnover and retention are not simply two sides of the same
construct (Holtom and Inderrieden 2006; Holtom, et al.
R. L. Cardy (Ë3) • M. L. Lengnick-Hall 2008; Lee et al. 2004; Mitchell, et al. 2001). For example,
Department of Management, The University of Texas at San the factors that might lead an employee to leave a job may
Antonio, College of Business, One UTSA Circle, San Antonio,
be different from factors that lead an employee to stay and
TX 78249-0634, USA
e-mail: Robert.Cardy@utsa.edu be a committed organizational citizen. Job offers, family

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 214 J Bus Psychol (20 1 1 ) 26:2 13-217

situations, and the long-term

pursuit of value of new
customers. Similarly, employee
opportunities,
other factors, can lifetime value
lead is a function of the strength (numberto
employees of quit thei
However, the culture of
valued contributions to thean organization,
organization) and the length d
opportunities, (tenure) of the relationship
the quality of supervision, an between employees and their
organizations. Thus, employees
other factors, can increase who have strong but short
employee commit
There are importantrelationships with an organization (i.e., who make more
differences between
increase retention versus efforts to reduce turnover. The highly valued contributions, but stay with an organization
for a shorter period of time) may have lower employee
two approaches are different ways of framing decisions
lifetime value than employees who have weaker but
(Tversky and Kahneman 1981) that can convey different
longer-term relationships (i.e., who make more modest
concerns and messages to employees. There can be a dif-
ference in how efforts focused on keeping people in the
contributions, but stay with the organization for a longer
period of time). Of course the impact of the loss of an
organization and efforts focused on reducing turnover are
perceived. Efforts to maximize retention are consistent
individual employee will be affected by how easily and
quickly that employee can be replaced with either an
with a concern for employees and a desire to make the
organizational environment as "sticky" as possible in order
equivalent or better performing individual.
to keep employees. Efforts to minimize turnover, on the The EE model suggests that organizations should view
other hand, can be seen as motivated to reduce or avoidtheir
a employees as customers and maximize the value that
cost. In other words, efforts to maximize a positive out-
long-term relationships with them can provide. In other
come can bring a different frame and be perceived more
words, in the human resource management (HRM) domain,
positively than efforts to minimize a negative outcome. "employee equity represents the total of the discounted
Overall, turnover and retention are distinguishable
lifetime value of employees" (Cardy et al. 2007, p. 143).
constructs. Likewise, efforts to influence these outcomes
For example, the EE model predicts that investment in a
can also be differentiated. While it is important to con- combination of socialization and training activities that
ceptually distinguish retention and turnover, it is also the
create strong identification with a firm's mission, values,
and ethical orientation (Verbos et al. 2007) will yield
case that, at an operational level, they are inversely related:
loyalty, satisfaction, and retention. These constructs and
poor retention means a higher turnover rate. Our principal
focus in this article is on retention - why people stay inothers
a contribute to employee lifetime value, which
job. employee equity is expected to enhance. Employee equity
We next review a customer-based approach to employee includes three dimensions: value equity, brand equity, and
retention. The model underlying this approach is the retention equity. Each of these dimensions will be dis-
employee equity model (Cardy et al. 2007). First the major cussed next.

components of the model are described and then practical

implications of this model for employee retention efforts
are addressed. The construct of employee value is also
introduced and its importance in employee retention is
discussed. Research directions, particularly in terms of the
development of measures, are identified.
The Employee Equity1 Model
The employee equity (EE) model (Cardy et al. 2007) is
based on the Rust et al. (2000) customer equity framework
in the marketing domain. Customer equity is the total
discounted lifetime value of a customer, defined as the
"total, across all future periods, of that customer's contri-
bution to profit in each of those periods" (Rust et al. 2000,
p. 40). Rather than focus solely on the profitability of
products or services, customer equity places attention on
1 Equity as used here refers to value or net worth. This is in contrast
to the organizational behavior construct of equity, which refers
to fairness.
Value Equity
Value equity assumes employees make internal calcula-
tions regarding the labor they contribute in exchange for
the benefits of working for an organization. Value equity is
consistent with social exchange theory (Shore et al. 2004;
Whitener et al. 1998) which posits that employees recip-
rocate the kind of treatment they receive from an organi-
zation as the employment relationship unfolds. Just as
customers continually evaluate their perceptions of what is
given up for what is received when they purchase a product
or service, the EE model asserts that a firm's employees do
the same. To expand the analogy, whereas a consumer may
choose to switch to a lower-priced item if comparable
value can be obtained for less money, an employee is likely
to look for different employment if a firm's pay structure is
obsolete, disregards internal or external equity principles,
or violates justice perceptions (Greenberg 1987).
The principle of value equity recognizes the importance
of creating value for employees by increasing the presence,
level, and ongoing commitment to things employees want,

Spring er

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 J Bus Psychol (201 1) 26:213-217 215

while reducing In support

what they of its conservation
must mission, the give
company pays up to a
Operationalization employees
of value to work forequity
up to 2 months for need
non-profit not al
tangible form. For environmental
example, organizations. Asflexible
a result of these efforts, work a
wellness programs, and
the company ergonomie
enjoys a favorable employment brand, high work
components of loyalty,
value and low turnover.
equity that supplement
an organization's pay practices and which
proposes enhance Retention Equity
retention - and with it the
of an employee to a firm. Other drivers of va
focus on convenience, such
Retention equity revolves as onsite
around relationships between an oil
salons, or employee and
pet-friendly a firm, and originates in actions firms and
offices.
employees take to establish, build, and maintain those
Brand Equity relationships. It describes the tendency of employees to feel
connected and intend to stay with an organization, and is an
Brand equity comprises a member's subjective and emo- additive construct, building on the combined contributions
tional beliefs regarding an organization. Borrowing again that value equity and brand equity make. While a firm may
from the marketing context where it originated, brand improve retention through employee investments in
equity denotes an intangible experience to consumers seniority, pension, and other financial tools, it also gener-
(Balmer and Gray 2003). Branding provides incremental ates retention equity from investments in employee
preferences for an organization's products or services development, enhanced career opportunities, socialization,
beyond the attributes of those products or services (Bron- and training (Black and Ashford 1995).
iarczyk and Alba 1994; Keller 1993; Park and Srinivasan Retention equity redirects an organization's employment
1994). Organizational branding may also provide incre- policies and practices to focus on building value for individ-
mental preferences for an organization's desirability as a uals rather than simply fulfilling task objectives, accom-
place to work beyond job and organizational attributes plishing bureaucratic goals, or "court proofing" its operating
(Allen et al. 2007). It involves developing an emotional tie procedures. Rather than a firm-centered concept that con-
to a product or service that results in positive feelings and ceives of employees as means to an end, the EE model
reduces the likelihood of switching to a competitor (Rust reconceptualizes employees as internal customers who con-
et al. 2000). In essence, the customer determines if the tribute long-term value extending beyond performance on
product or service in question provides "fit" because it daily tasks and short-range objectives. As such, it recognizes
"represents the best option" and "fits well with the cus- that the drivers of value, brand, and retention equity may vary
tomer's image of self and personality," (Rust et al. 2000, among the employees of any particular organization and must
p. 85). For example, when Rolex fosters a sensation be customized to meet individual requirements.
of power, athleticism, and excellence by pairing Roger
Federer's image with its men's watches, it achieves product Summary: Value, Brand, and Retention Equity
loyalty among customers as a result of the brand equity it
creates. The parallel in an organizational sense is a sub- Overall, the EE model conceptualizes employees as inter-
jective, internal, and emotional cognition regarding char- nal customers. Viewing employees as customers through
acteristics that an employee feels signify what his or her the lens of the EE model provides organizations with an
firm stands for: in other words, a firm's brand. early warning system that can be used to correct retention
There are a number of ways an organization may gen- problems before they result in turnover (see Table 1).
erate brand equity among employees. To enhance sub- For example, a survey of employees may identify low
jective and emotional judgments employees direct towards value equity as a problem in an organizational unit. Further
it, the firm may convey a high ethical standard to members, inspection might reveal that pay fairness is the primary
enhance positive identity orientation (Ashforth and Mael cause of low value equity. The organization might respond
1989) through special events, celebrations, and employee by examining its pay system and making changes to
recognition, or develop a record of corporate citizenship improve and communicate fairness.
that generates pride in association. Together, the drivers of Further, the drivers of value, brand, and retention equity
brand equity should influence valued outcomes including may vary among organizations and employees, implying
better retention and enhanced employee commitment. that retention efforts used should be customized in order to

Patagonia, for example, is so closely related to outdoor be most effective. The model also recognizes that the value
recreation, almost all employees possess a passion for of employees is a long-term construct and extends beyond
outdoor sports or activities (Townsend 2006); this immediate performance. We next turn to a consideration of
energy applies to environmental and social values as well. employee value.

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 216 J Bus Psychol
Table 1 Using the
EE factor Diagnosis Organizational response
Low value equity Pay fairness is the primary cause Examine pay system
Low brand equity Identity as employer is not congruent with customer Examine c
brand them
Low retention Career opportunities are limited Examine career mobility patterns and criteria; make changes
equity
Employee Value
Rust et al. (2000) in their model of customer equity seg-
ment customers based upon their expected lifetime value to
a firm. Long-term customers who are more valuable to a
firm (i.e., buy more products/services more frequently and
over a long time period) receive different treatment from
customers who purchase fewer products/services less fre-
quently. For example, airlines label high value customers
as "platinum" and these customers receive special treat-
ment, such as being allowed to board flights first, access to
airport lounges, etc. In contrast, lower value customers who
fly coach class receive no special treatment or extra priv-
ileges; they may even have to scramble for overhead bin
space for their carry-on luggage. Rust et al. (2000) segment
customers into four categories of declining value: platinum,
gold, iron, and lead. Greater investments by a firm in
higher value customers are rewarded with loyalty, repeat
business, and higher per customer revenue.
Analogously, organizations recognize that not all
employees are equally valuable. Some employees consis-
tently maintain a high level of job performance, grow and
develop on the job, and as a human resource, provide
greater flexibility and productivity for their organizations.
These "platinum" employees are similar to the "platinum"
customers identified in the Rust et al. (2000) customer
equity model. Likewise, employees whose job performance
is inconsistent and who do not acquire new knowledge and
skills as readily, are similar to what Rust et al. (2000)
identify as "lead" customers. Customers are treated dif-
ferently based upon their value to the firm; likewise, we
assert that employees too are treated differently based upon
their value to the firm. More valued employees receive
greater organizational investments and rewards; addition-
ally, organizations work harder to retain them. Less valued
employees receive less organizational investments and
rewards; organizations exert lesser efforts to retain them.
However, labeling customers or employees as "platinum,"
"lead," etc. does not imply a static relationship. Just as
airline customers can change their purchasing behavior and
buy more expensive seats more frequently (i.e., move from
a "lead" to a "platinum"), so too can employees change
their knowledge, skills, and behaviors, and become more
â Springer
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(201 1) 26:213-217
employee equity model to diag
valuable to their employers. The important point in either
case is that investments in customers or investments in
employees should be tailored over time in order to generate
the greatest returns.
Segmenting employees into different categories based
upon expected lifetime value enables a firm to determine if
there are some common and some different factors that can
be leveraged for greatest impact. For example, "platinum"
employees may place greater importance on one of the
three employee equity factors: value, brand, or retention.
This would suggest identifying specific HR programs and
practices that enhance perceptions of that factor as a way to
boost retention for these employees. In contrast, "lead"
employees may place greater importance on a different
factor suggesting identifying a different set of HR pro-
grams and practices to improve retention. Segmenting
employees and tailoring HR programs and practices has
received considerable support in the strategic human
resource management literature (e.g., Lepak and Snell
1999, 2002). The employee equity model we propose
contributes to the concept of segmenting employees
and tailoring HR practices by giving employers a more
fine-tuned diagnostic instrument as well as a dynamic
framework for understanding employee reactions. Firms
pursuing a strategic approach to employee equity should
recognize that value derived from its components will
change over time as employees' relationships with orga-
nizations as well as their own life situations evolve.
Directions for Future Research
As with any new model or theory, construct validation
should precede substantive research (Schwab 1980).
Operational measures and instrument development for the
employee equity model have begun, and preliminary
results are promising (Cardy and Lengnick-Hall 2008).
However, research to date has used college student samples
or small organizations, neither of which is desirable for
generalizing to broader situations. Consequently, refining
instruments and examining whether the proposed factor
structure is supported is a logical next step in gaining
insight into the value of our proposed approach.
 J Bus Psychol (201 1) 26:213-217 217

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