SummaryIn2017 Philadelphia Gas Works (PGW), the United States’ largest municipally ownednatural gas utility, unveiled a new strategic plan that included an entirelynew mission statement, vision, and a set of defined corporate goals. This exciting milestone represented anacknowledgement by PGW leadership for the need to realign the company behind acohesive enterprise strategy that recognized and addressed the rapidity of changesoccurring within the natural gas industry and the regulatory landscape. Inorder to best position the organization to move in the right direction PGW establishedfive specific corporate goals aimed at supporting the company’s future-orientedtransformation. This paper will discuss a potential area for improvement withinPGW’s compensation subsystem and explore whether this problem, if appropriatelyaddressed through one or more alternative solutions, would offer sizeable gainstowards the eventual achievement of two of the defined goals i.) continuouslyimprove the customer experience and ii.) continue to attract, develop and retain (emphasis added) a diverse,skilled workforce.
Beinga CSR inside of a call center environment is no easy work. In general CSRstypically work within a highly structured, closely surveilled environment thatoffers little to no discretion in the daily performance of one’s routine tasks.In the case of PGW CSRs these challenges are amplified by the fact that a CSRis regularly tasked with handling significantly elevated customer concerns (someof a life and death magnitude, e.
g. gas leaks), increasingly complex paymentarrangements, navigating constantly updated software technology, and performingall of this while operating within highly regulated limitations. All of thesefactors combine to create a stressful working environment that contribute tocall centers having an average turnover rate of 31% (Stuller, 1999). Against this average forCSR turnover, PGW fared no better. In 2017, PGW lost thirty-four (34) CSRs onaccount of combined involuntary and voluntary separation. With a budgetedheadcount for ninety-eight (98) CSRs throughout all of 2017, one can be fairlycertain in approximating PGW’s real CSR turnover ratio at above 35%. All ofthis, of course, comes at a cost to both the organization and the customer. Thequestions, however, is “how much” and perhaps less instinctively, “is thisturnover necessarily bad for the organization”? Inanswer to the first question posed, one such study referenced the estimatedturnover cost per employee in a call center at US$10,000 (Tuten and Neidermeyer2004).
Others have created detailed models for evaluating the average cost ofturnover for a single CSR employee. As Hillmer, Hilmer and McRoberts (2004)painstakingly pointed out, in addition to the more obvious tangible costs suchas screening, interviewing, wages, training, orientation, and technology, thereare an entire host intangible costs which can greatly increase the turnoverdollar figure. For example, after adjusting their model to include intangiblecosts associated with lost productivity, rework for increased errors made bynew agents, increased supervision for new agents, cost to pay experiencedagents to take over during the interim period after a vacancy, lostproductivity from stress on remaining call center agents after a depature, andthe cost of reduced performance of an agent prior to leaving, the per employeeturnover cost rose by an additional $16,478to a total cost of $21,551. Forthe purposes of conservatively estimating an accurate turnover cost per PGWCSR, based on tangible costs alone, Figure 1 illustrates roughly how evaluatingthe hiring costs associated with 15 newagents (assuming 50% section ratio), each of which are required to complete nine weeks of training, leads toan adjusted estimated turnover cost of $6,487.20 per CSR.
Again, this numberdoes not include any intangible costs but if taken at face value wouldrepresent a minimal loss of $220,564.80 when considering the 34 CSR separatedin 2017. This number would obviouslyincrease if the number of new agents in any particular cohort were less than 15or if the selection ration was, in fact, less than the estimated 50%. Inresponse to the latter of the two questions posed above, Allen et al. (2010)rightly argues that a common misconception is that all turnover is the same andthat it is all bad. Indeed, there have been many studies which discuss the needto delineate between voluntary and involuntary turnover. Moreover, an importantdistinction need also be placed on the difference between functional anddysfunctional turnover.
While involuntary turnover is generally viewed aspotentially being in the best interest of the employer because it is ofteninitiated for poor behavior or job performance, retention management is oftenbetter served to focus on voluntary turnover because arguably these are theindividuals the organization would have preferred to keep. On the other hand,where dysfunctional turnover such as the loss of high performers can becrippling to an organization, functional turnover, such as an underperformingemployees in an easy to replace position can actually be beneficial (Allen etal., 2010). Ultimately,one way to assist in determining the answer as to whether or not the turnover inan organization truly is “bad” lies in overall performance. As Shaw and Parker (2013)deduced from their meta-analysis of total turnover rates and organizationalperformance, “a one standard deviation increase in turnovers rates wasassociated with a -.15 standard deviation reduction in organizational performance.
” Put in otherwords, when their meta-analytic findings were applied to a “largecross-industry and nationally representative sample of U.S. organizations” itwas expected that an increase in turnover rates from 12% to 22% would representa decrease in work productivity by 40%. WhilePGW, a not-for-profit municipal entity, may not be representative of theorganizations found within the sample of Shaw and Parker’s (2013) analysis, theconclusion is clear that failing to control turnover may have substantialnegative impacts on performance. In PGW’s case, this notion may very well helpto explain the 50 point decrease, between October 2016 to October 2017, in the customerservice category ranking provided by JD Power and Associates. Monetary cost ofturnover aside, for an organization that recently heralded the continuousimprovement of the customer experience as a main corporate goal, this(declining customer service combined with increasing turnover of personnel thatmost directly affects the customer experience) represents an alarming problem. Havingexplored the issue of CSR turnover and determining that it appears to be aproblem of at least moderate significance for PGW, at least with regard to theperformance of servicing customers, it becomes time to take an evidenced basedapproach which seeks to most effectively address this symptom of the underlyingproblem(s). Doing so involves evaluating various turnover predictors in orderto discover the optimal solution(s) and determine where financial resourcesshould be allocated in order drive down churn.
Perhapsintuitively many front-line managers and HR practitioners alike would be quickto point to pay dissatisfaction as a proper precursor to high turnover rates. However,it’s worth cautioning that while compensation is certainly an important factor,both pay satisfaction and pay level are typically identified as “relativelyweaker predictors of individual turnover decisions” (Allen et al., 2010). Additionally,depending upon financial constraints, from a business standpoint, raising wagesacross a line or department of an organization may not be the most effectiveway of addressing the turnover problem. This being said however, when employeeself-interest is maximized by staying with their current employer, there aremany studies that empirically support the negative relationship between pay andvoluntary turnover (Jaarsveld and Yanadori 2011; Barber and Bretz 2000;Griffeth et al. 200; Shaw et al. 1998)).
Moreover, equity theory, as presentedby Jararveld and Yanadori, would hold that lower pay can often be associatedwith higher levels of absenteeism while economic theory would seemingly supportthis notion by suggesting that absenteeism may “be influenced by the costemployees incur when they are absent” (i.e. lower pay offers less incentive foran employee to show up for work). In thecase of a PGW CSR this cost is represented by the starting hourly wage of$14.79 or $118.32 per 8 hour work day absent.
Inanalyzing PGW’s problem against the first construct wherein pay is more closelycorrelated to the quit rate, I found that only 10 of the 34 terminated CSRs in2017 were categorized as voluntary (quit) exits. Initially, while this may seemto suggest that increasing pay would be of minimal efficacy in addressing thetotal turnover issue, the significance of the absenteeism rates within the customerservice department (call center) led me to dig a bit deeper and concludedifferently. In reviewing PGW’s average absenteeismdays per employee, a metric established for each Department, I found that theCustomer Service Department exceeded their monthly target standard in 9 out ofthe previous 12 months (December 2016 – November 2017). In other words,absenteeism was considered to be excessive within the call center for 75% ofthe year. Perhapsmore significantly, an even closer review of the 34 terminated employee recordsindicated that 29 of the former employees (85%) left before completing one yearof service (9 voluntary and 20involuntary), while an even deeper look at the numbers identified that 15 (51%)of these former employees separated (6 voluntary and 9 involuntary) beforecompleting just three months of service. Since newly hired CSRs are not eligibleto receive any benefits prior to this three month milestone, it is during thistime period that comparing PGW’s starting hourly wage of $14.79 can be mostaccurately compared against external market factors, in this case pay, for thesame position.
According to the 2016 Occupational Employment Statisticsprovided by the Bureau of Labor Statistics, the median hourly wage for a customerservice representative in the Philadelphia-Camden-Wilmington area was $17.24. Again,applying the results of economic research to look back at voluntary turnover,it is a common notion that employees will often seek to maximize their own financialinterests and “where the exchange is less favorable to the employee than to theemployer, the employee is most likely to leave the firm as alternativeemployment options are available” (Tsui, Pearce, Porter & Tripoli, 1997:1096). Remarkably,only 5 of the 34 (15%) terminated CSRs had more than one year of service at timeof separation.
This should signal to any casual observer that the problem ofpay dissatisfaction is not nearly as attributable to explaining turnover of tenuredagents, who’ve received benefit coverage and their annual progression raise, aspotentially is to explaining the overwhelmingly high turnover of those newlyhired agents receiving just the starting wage or starting wage plus benefitsbut before receiving their annual increase in pay. Providedthat I’ve offered one plausible suggestion as to how to decrease unwantedturnover by increasing the starting hourly wage for CSRs, then the next logicalquestion becomes, by how much? While some studies found that financialincentives were not positively correlated to the quality of work beingperformed but rather, and only slightly, to the quantity of work performed(Jenkins, Shaw, et al., 1998), thankfully there has been some researchconducted with respect to identifying the smallest meaningful pay increases(SMPIs) affecting magnitude, behavioral intention and affective reactions(Mirta, Tenhiala, & Shaw 2016). Despite the fact that on average participantsin Mirta’s et. al (2016) studies “reported that merit raises would need to beat least 10 percent to be pleasing and 12 percent (above their current wage) toresult in higher effort intentions” their study concluded by finding thatbehavioral intentions and affective reactions were evident at between 5 and 8.4percent.
While merit increases are certainly different from increasing the startingpay structure for a given position, I found this literature to be helpful in establishingsome theoretical principals by which decision making could be guided.Ultimately, I would suggest that the starting CSR salary be increased by 8.4 percent(from $14.79 to $16.03). This recommendation is made on the basis that thispercentage increase to base pay has realized positive reactions to behavioralintentions and affective reactions in field tests. Additionally, and moreimportantly with regard to competing with external pay factors, a starting CSRwage of $16.04 more closely aligns PGW’s pay scale with that of the external CSRmarket.
This increase in the hourly rate ($1.24) would translate to anadditional fixed cost of $2,579.20 per newly hired CSR agent per year (assumingno other progressions during that period and not including overtime). Recognizingthat PGW may be somewhat limited in its capacity to effectively change the paystructure of the union covered CSR position at this point in time, I proposethat there may be other drivers of turnover, outside of compensation, that couldperhaps yield more cost effective solutions in addressing the turnover issue.
Goingback to the idea of the need to recognize the distinction between voluntary andinvoluntary turnover, Shaw et al. (1998) posits that a termination isrepresentative of a poor hiring decisions brought about by poor hiringprocesses. Given that just over 70 percent of the CSRs terminated in 2017 werecategorized as involuntary, it would make logical sense to review turnover predictorsassociated with the onboarding process.
There is ample literature suggestingthat applicant perceptions of the selection procedure is positively correlatedwith viewing the organization favorably as well as being more likely to recommendthe employer to others. More importantly, research has found that “facevalidity and perceived predictive validity were strong predictors of many applicantperceptions including procedural justice, distributive justice and attitudestowards tests” (Hausknecht et al, 2004). This theory goes on to explain thatapplicants favored interviews and work samples above cognitive ability testsand personality/honesty assessments.
Inrelationship to PGW’s CSR onboarding processes, while I am not suggesting thatPGW discontinue its use of cognitive testing on the basis of this study, I wouldrecommend reevaluating the efficacy of the administered personality inventoryassessment. While this test has seemingly been an unreliable predictor ofsuccess for recently hired CSR agents, a more valid and accepted process involvingweighted application blanks (WAB) may be both more relevant for organizationalpurposes and acceptable to the applicant. Since applicants already expect tocomplete an application form when seeking employment it is unlikely that therewould be any negative reaction if PGW were to institute WAB consistent with validpredictors of job success. In fact, while developing a WAB may take some time, meta-analyticalstudies have shown that WAB’s may be among one of the strongest predictorsavailable in forecasting turnover (Allen et al., 2008).
Moreover, the use ofWAB efficacy in providing cost savings have been well documented in researchand utility analysis performed (Lee and Booth, 1974; Kaak et al., 1974).Asthe cost of developing a WAB for the CSR position could likewise be viewed ascost prohibitive, I turn my focus toward identifying one possible alternativesolution that would entail the need for minimal financial resources. In observation of the turnover predictors,Allen et al., 2008, posited on the basis of a meta-analytical review of theturnover relationships that items related to the withdrawal processes tend tobe the strongest predictors of turnover.
More specifically they suggested an organizationthat is able to monitor and improve feelings of employee organizationalcommitment and job satisfaction is more likely to be successful at driving downturnover. In order to best mitigate employee behaviors associated with thewithdrawal process, employers would be best served to incorporate processesthat would aim at decreasing employee turnover intentions, job searchintentions, job search behaviors, and thinking about quitting (Allen et al.,2008). Oneway for PGW to address these specific turnover drivers would include the implementationand use of short “pulse” employee surveys.
As the benefit of creating such asurvey platform would serve in the interest of better understanding employeeattitudes across the entire organization, it should not go without understandingthat particular attention should be paid to responses provided by newly hiredCSR agents. Whereas the previous two solutions specifically targeted actionsthat if undertaken would only affect new CSR agents/applicants, the cost andbenefits associated with this process can be recognized and shared functionallyacross the organization. Whilesurvey results may be helpful in allowing PGW to understand when/why a new CSR agentmay be discontent, this solution in and of itself may not prove effectivewithout further intervention to drive down turnover and job search intentions. Conversely,understanding why people stay, through the use of interpreting survey response data,may, in fact, be as important as understanding why they leave. Literature wouldseem to support the notion that one approach to mitigating the unwantedemployee behaviors associated with the employee withdrawal process is to focuson increasing job embeddedness. In fact,research results in this area suggest that “job embeddedness and job searchbehavior play critical roles in explaining why people quit their jobs” (Felps,Metchell et al.
2009).Withinthe context of increasing job embeddedness for CSRs, especially newly hiredagents, I believe that there are a variety of steps that could be undertakenduring the onboarding and/or nine week training period that would betterestablish the types of connections needed to forge deeper interpersonalrelationships that serve to increase job embeddedness. First, in order toestablish better links, new CSR agents should be provided with mentors and theorganization should take greater initiative in designing work assignment duringthe training period that are geared around small team projects that ideallywould support community involvement. Havingnew CSR agents spend one day of their training at a district office meetingwith customers and discussing energy awareness or payment plans may be one wayto build strong positive links at minimal costs. The establishment of suchlinks would hopefully prove to be a positive correlating factor in reducingboth involuntary and voluntary turnover.ConclusionWhilecall centers and their CSR counterparts are widely recognized for their highturnover, this shouldn’t be viewed as an excuse not to attempt to understandand control the associated reasons for turnover. In this paper it was necessaryto explore this phenomenon from multiple perspectives before arriving atevidence based solutions which sought to address the underlying symptom.
Ultimately, high turnover rates, coupled with high absenteeism and shorttenures led me to believe that PGW’s low starting CSR wage, in comparison tothe external market, is the greatest contributor to the turnover and applicant talentpool. The turnover among newly hired CSRs seems to exacerbate the absenteeism andlikely drives up other intangible costs associated with this problem. ShouldPGW choose to tackle this challenge, it would go a long way in helping theorganization progress towards accomplishing two of its corporate goals:improved customer experience and attracting, developing and retaining a diverseworkforce.