Summary eventual achievement of two of the defined

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2017 Philadelphia Gas Works (PGW), the United States’ largest municipally owned
natural gas utility, unveiled a new strategic plan that included an entirely
new mission statement, vision, and a set of defined corporate goals.  This exciting milestone represented an
acknowledgement by PGW leadership for the need to realign the company behind a
cohesive enterprise strategy that recognized and addressed the rapidity of changes
occurring within the natural gas industry and the regulatory landscape. In
order to best position the organization to move in the right direction PGW established
five specific corporate goals aimed at supporting the company’s future-oriented
transformation. This paper will discuss a potential area for improvement within
PGW’s compensation subsystem and explore whether this problem, if appropriately
addressed through one or more alternative solutions, would offer sizeable gains
towards the eventual achievement of two of the defined goals i.) continuously
improve the customer experience and ii.) continue to attract, develop and retain (emphasis added) a diverse,
skilled workforce.

a CSR inside of a call center environment is no easy work. In general CSRs
typically work within a highly structured, closely surveilled environment that
offers 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 CSR
is regularly tasked with handling significantly elevated customer concerns (some
of a life and death magnitude, e.g. gas leaks), increasingly complex payment
arrangements, navigating constantly updated software technology, and performing
all of this while operating within highly regulated limitations. All of these
factors combine to create a stressful working environment that contribute to
call centers having an average turnover rate of 31% (Stuller, 1999). Against this average for
CSR turnover, PGW fared no better. In 2017, PGW lost thirty-four (34) CSRs on
account of combined involuntary and voluntary separation. With a budgeted
headcount for ninety-eight (98) CSRs throughout all of 2017, one can be fairly
certain in approximating PGW’s real CSR turnover ratio at above 35%. All of
this, of course, comes at a cost to both the organization and the customer. The
questions, however, is “how much” and perhaps less instinctively, “is this
turnover necessarily bad for the organization”?

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answer to the first question posed, one such study referenced the estimated
turnover cost per employee in a call center at US$10,000 (Tuten and Neidermeyer
2004). Others have created detailed models for evaluating the average cost of
turnover for a single CSR employee. As Hillmer, Hilmer and McRoberts (2004)
painstakingly pointed out, in addition to the more obvious tangible costs such
as screening, interviewing, wages, training, orientation, and technology, there
are an entire host intangible costs which can greatly increase the turnover
dollar figure. For example, after adjusting their model to include intangible
costs associated with lost productivity, rework for increased errors made by
new agents, increased supervision for new agents, cost to pay experienced
agents to take over during the interim period after a vacancy, lost
productivity from stress on remaining call center agents after a depature, and
the cost of reduced performance of an agent prior to leaving, the per employee
turnover cost rose by an additional  $16,478
to a total cost of  $21,551.

the purposes of conservatively estimating an accurate turnover cost per PGW
CSR, based on tangible costs alone, Figure 1 illustrates roughly how evaluating
the hiring costs associated with  15 new
agents (assuming 50% section ratio), each of which are required  to complete nine weeks of training, leads to
an adjusted estimated turnover cost of $6,487.20 per CSR. Again, this number
does not include any intangible costs but if taken at face value would
represent a minimal loss of $220,564.80 when considering the 34 CSR separated
in 2017.  This number would obviously
increase if the number of new agents in any particular cohort were less than 15
or if the selection ration was, in fact, less than the estimated 50%. 

response 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 and
that it is all bad. Indeed, there have been many studies which discuss the need
to delineate between voluntary and involuntary turnover. Moreover, an important
distinction need also be placed on the difference between functional and
dysfunctional turnover. While involuntary turnover is generally viewed as
potentially being in the best interest of the employer because it is often
initiated for poor behavior or job performance, retention management is often
better served to focus on voluntary turnover because arguably these are the
individuals the organization would have preferred to keep. On the other hand,
where dysfunctional turnover such as the loss of high performers can be
crippling to an organization, functional turnover, such as an underperforming
employees in an easy to replace position can actually be beneficial (Allen et
al., 2010).

one way to assist in determining the answer as to whether or not the turnover in
an organization truly is “bad” lies in overall performance. As Shaw and Parker (2013)
deduced from their meta-analysis of total turnover rates and organizational
performance, “a one standard deviation increase in turnovers rates was
associated with a -.15 standard deviation reduction  in organizational performance.” Put in other
words, when their meta-analytic findings were applied to a “large
cross-industry and nationally representative sample of U.S. organizations” it
was expected that an increase in turnover rates from 12% to 22% would represent
a decrease in work productivity by 40%.

PGW, a not-for-profit municipal entity, may not be representative of the
organizations found within the sample of Shaw and Parker’s (2013) analysis, the
conclusion is clear that failing to control turnover may have substantial
negative impacts on performance. In PGW’s case, this notion may very well help
to explain the 50 point decrease, between October 2016 to October 2017, in the customer
service category ranking provided by JD Power and Associates. Monetary cost of
turnover aside, for an organization that recently heralded the continuous
improvement of the customer experience as a main corporate goal, this
(declining customer service combined with increasing turnover of personnel that
most directly affects the customer experience) represents an alarming problem.

explored the issue of CSR turnover and determining that it appears to be a
problem of at least moderate significance for PGW, at least with regard to the
performance of servicing customers, it becomes time to take an evidenced based
approach which seeks to most effectively address this symptom of the underlying
problem(s). Doing so involves evaluating various turnover predictors in order
to discover the optimal solution(s) and determine where financial resources
should be allocated in order drive down churn.

intuitively many front-line managers and HR practitioners alike would be quick
to 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 “relatively
weaker predictors of individual turnover decisions” (Allen et al., 2010). Additionally,
depending upon financial constraints, from a business standpoint, raising wages
across a line or department of an organization may not be the most effective
way of addressing the turnover problem. This being said however, when employee
self-interest is maximized by staying with their current employer, there are
many studies that empirically support the negative relationship between pay and
voluntary turnover (Jaarsveld and Yanadori 2011; Barber and Bretz 2000;
Griffeth et al. 200; Shaw et al. 1998)). Moreover, equity theory, as presented
by Jararveld and Yanadori, would hold that lower pay can often be associated
with higher levels of absenteeism while economic theory would seemingly support
this notion by suggesting that absenteeism may “be influenced by the cost
employees incur when they are absent” (i.e. lower pay offers less incentive for
an employee to show up for work).  In the
case 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.

analyzing PGW’s problem against the first construct wherein pay is more closely
correlated to the quit rate, I found that only 10 of the 34 terminated CSRs in
2017 were categorized as voluntary (quit) exits. Initially, while this may seem
to suggest that increasing pay would be of minimal efficacy in addressing the
total turnover issue, the significance of the absenteeism rates within the customer
service department (call center) led me to dig a bit deeper and conclude
differently.  In reviewing PGW’s average absenteeism
days per employee, a metric established for each Department, I found that the
Customer Service Department exceeded their monthly target standard in 9 out of
the previous 12 months (December 2016 – November 2017). In other words,
absenteeism was considered to be excessive within the call center for 75% of
the year.

more significantly, an even closer review of the 34 terminated employee records
indicated that 29 of the former employees (85%) left before completing one year
of service        (9 voluntary and 20
involuntary), while an even deeper look at the numbers identified that 15 (51%)
of these former employees separated (6 voluntary and 9 involuntary) before
completing just three months of service. Since newly hired CSRs are not eligible
to receive any benefits prior to this three month milestone, it is during this
time period that comparing PGW’s starting hourly wage of $14.79 can be most
accurately compared against external market factors, in this case pay, for the
same position. According to the 2016 Occupational Employment Statistics
provided by the Bureau of Labor Statistics, the median hourly wage for a customer
service 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 financial
interests and “where the exchange is less favorable to the employee than to the
employer, the employee is most likely to leave the firm as alternative
employment options are available” (Tsui, Pearce, Porter & Tripoli, 1997:

only 5 of the 34 (15%) terminated CSRs had more than one year of service at time
of separation. This should signal to any casual observer that the problem of
pay dissatisfaction is not nearly as attributable to explaining turnover of tenured
agents, who’ve received benefit coverage and their annual progression raise, as
potentially is to explaining the overwhelmingly high turnover of those newly
hired agents receiving just the starting wage or starting wage plus benefits
but before receiving their annual increase in pay.  

that I’ve offered one plausible suggestion as to how to decrease unwanted
turnover by increasing the starting hourly wage for CSRs, then the next logical
question becomes, by how much? While some studies found that financial
incentives were not positively correlated to the quality of work being
performed but rather, and only slightly, to the quantity of work performed
(Jenkins, Shaw, et al., 1998), thankfully there has been some research
conducted 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 participants
in Mirta’s et. al (2016) studies “reported that merit raises would need to be
at least 10 percent to be pleasing and 12 percent (above their current wage) to
result in higher effort intentions” their study concluded by finding that
behavioral intentions and affective reactions were evident at between 5 and 8.4
percent. While merit increases are certainly different from increasing the starting
pay structure for a given position, I found this literature to be helpful in establishing
some 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 this
percentage increase to base pay has realized positive reactions to behavioral
intentions and affective reactions in field tests. Additionally, and more
importantly with regard to competing with external pay factors, a starting CSR
wage of $16.04 more closely aligns PGW’s pay scale with that of the external CSR
market. This increase in the hourly rate ($1.24) would translate to an
additional fixed cost of $2,579.20 per newly hired CSR agent per year (assuming
no other progressions during that period and not including overtime).

that PGW may be somewhat limited in its capacity to effectively change the pay
structure of the union covered CSR position at this point in time, I propose
that there may be other drivers of turnover, outside of compensation, that could
perhaps yield more cost effective solutions in addressing the turnover issue. Going
back to the idea of the need to recognize the distinction between voluntary and
involuntary turnover, Shaw et al. (1998) posits that a termination is
representative of a poor hiring decisions brought about by poor hiring
processes. Given that just over 70 percent of the CSRs terminated in 2017 were
categorized as involuntary, it would make logical sense to review turnover predictors
associated with the onboarding process. There is ample literature suggesting
that applicant perceptions of the selection procedure is positively correlated
with viewing the organization favorably as well as being more likely to recommend
the employer to others. More importantly, research has found that “face
validity and perceived predictive validity were strong predictors of many applicant
perceptions including procedural justice, distributive justice and attitudes
towards tests” (Hausknecht et al, 2004). This theory goes on to explain that
applicants favored interviews and work samples above cognitive ability tests
and personality/honesty assessments.

relationship to PGW’s CSR onboarding processes, while I am not suggesting that
PGW discontinue its use of cognitive testing on the basis of this study, I would
recommend reevaluating the efficacy of the administered personality inventory
assessment. While this test has seemingly been an unreliable predictor of
success for recently hired CSR agents, a more valid and accepted process involving
weighted application blanks (WAB) may be both more relevant for organizational
purposes and acceptable to the applicant. Since applicants already expect to
complete an application form when seeking employment it is unlikely that there
would be any negative reaction if PGW were to institute WAB consistent with valid
predictors of job success. In fact, while developing a WAB may take some time, meta-analytical
studies have shown that WAB’s may be among one of the strongest predictors
available in forecasting turnover (Allen et al., 2008). Moreover, the use of
WAB efficacy in providing cost savings have been well documented in research
and utility analysis performed (Lee and Booth, 1974; Kaak et al., 1974).

the cost of developing a WAB for the CSR position could likewise be viewed as
cost prohibitive, I turn my focus toward identifying one possible alternative
solution 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 the
turnover relationships that items related to the withdrawal processes tend to
be the strongest predictors of turnover. More specifically they suggested an organization
that is able to monitor and improve feelings of employee organizational
commitment and job satisfaction is more likely to be successful at driving down
turnover. In order to best mitigate employee behaviors associated with the
withdrawal process, employers would be best served to incorporate processes
that would aim at decreasing employee turnover intentions, job search
intentions, job search behaviors, and thinking about quitting (Allen et al.,

way for PGW to address these specific turnover drivers would include the implementation
and use of short “pulse” employee surveys. As the benefit of creating such a
survey platform would serve in the interest of better understanding employee
attitudes across the entire organization, it should not go without understanding
that particular attention should be paid to responses provided by newly hired
CSR agents. Whereas the previous two solutions specifically targeted actions
that if undertaken would only affect new CSR agents/applicants, the cost and
benefits associated with this process can be recognized and shared functionally
across the organization.

survey results may be helpful in allowing PGW to understand when/why a new CSR agent
may be discontent, this solution in and of itself may not prove effective
without 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 would
seem to support the notion that one approach to mitigating the unwanted
employee behaviors associated with the employee withdrawal process is to focus
on increasing job embeddedness.  In fact,
research results in this area suggest that “job embeddedness and job search
behavior play critical roles in explaining why people quit their jobs” (Felps,
Metchell et al. 2009).

the context of increasing job embeddedness for CSRs, especially newly hired
agents, I believe that there are a variety of steps that could be undertaken
during the onboarding and/or nine week training period that would better
establish the types of connections needed to forge deeper interpersonal
relationships that serve to increase job embeddedness. First, in order to
establish better links, new CSR agents should be provided with mentors and the
organization should take greater initiative in designing work assignment during
the training period that are geared around small team projects that ideally
would support community involvement.  Having
new CSR agents spend one day of their training at a district office meeting
with customers and discussing energy awareness or payment plans may be one way
to build strong positive links at minimal costs. The establishment of such
links would hopefully prove to be a positive correlating factor in reducing
both involuntary and voluntary turnover.


call centers and their CSR counterparts are widely recognized for their high
turnover, this shouldn’t be viewed as an excuse not to attempt to understand
and control the associated reasons for turnover. In this paper it was necessary
to explore this phenomenon from multiple perspectives before arriving at
evidence based solutions which sought to address the underlying symptom.
Ultimately, high turnover rates, coupled with high absenteeism and short
tenures led me to believe that PGW’s low starting CSR wage, in comparison to
the external market, is the greatest contributor to the turnover and applicant talent
pool. The turnover among newly hired CSRs seems to exacerbate the absenteeism and
likely drives up other intangible costs associated with this problem. Should
PGW choose to tackle this challenge, it would go a long way in helping the
organization progress towards accomplishing two of its corporate goals:
improved customer experience and attracting, developing and retaining a diverse

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