High Turnovers

High Employee Turnover Weakening Institutions, Productivity, and Growth

High employee turnover in established sectors is causing instability, impacting outcomes, and increasing recruitment and capacity-building expenses. Human Resources departments are struggling to cope with these challenges and the significant talent drain from the country.

Employee benefits, career growth opportunities, and exposure are readily available and transparent in well-regulated sectors such as banking and finance, insurance, telecommunications, and healthcare. However, these once-coveted jobs are no longer attracting top talent.

Various factors have contributed to this shift. Attractive opportunities abroad are pulling skilled workers away, while political instability, economic crises, limited opportunities, and a lack of incentives and motivation are pushing them out of Nepal. Furthermore, widespread corruption, nepotism, and kleptocracy have severely undermined institutional integrity, further discouraging talented individuals.

Shrinking opportunities
The financial sector experienced rapid expansion between 2005/6 and 2015, contributing significantly to employment generation. The introduction of mergers and acquisitions (M&A) in banks, financial institutions, and the insurance sector led to a reduction in employment opportunities.

Many employees, even at mid-career and peak performance levels, resigned with golden handshakes under voluntary retirement schemes introduced by management following these M&A activities.

“M&A has limited career and leadership development opportunities in the financial sector, as well as increased competition,” stated Nara Bahadur Thapa, former Executive Director of Nepal Rastra Bank. “Financial consolidation not only reduced employment opportunities but also restricted access to credit at the grassroots level.”

Furthermore, the adoption of technology and digitalisation has further reduced employment opportunities in the financial sector and other sectors. Manual tasks are being automated and digitised on a massive scale in recent years. When there were more players in the market, competition was fierce, ultimately benefiting both employees and service seekers.

“When there are limited players, they lack the pressure to innovate, improve service quality, or retain talent,” stated Thapa, adding, “While these players may have defined market shares, the threat of losing market share and the emergence of new players incentivise them to introduce new schemes for both consumers and their employees.”

“Employee turnover was high when there were more players in the financial sector,” according to Thapa, “However, consolidation has stifled growth opportunities for employees.”

Compromise in skill development and benefits of employees
Fierce market competition previously compelled companies to offer attractive benefits to retain employees. Many entry-level professionals were eager to join companies, bringing with them specific skills and knowledge. However, reduced competition in recent years has resulted in stagnant salaries, perks and career growth opportunities. While high performance and target achievement are still expected, creating significant stress for employees. Even mid-career professionals are resigning due to the increasing pressure.

The emergence of AI and other sophisticated technologies should be embraced by companies to enhance employee technological proficiency and adaptability, ultimately boosting productivity and growth. However, employees are concerned about the potential impact of these technologies on their jobs. This uncertainty is driving many to seek alternative avenues for skill enhancement and better opportunities.

High pressure and indifference towards female employees
Female participation in the job market, particularly in the formal sector, is increasing. However, women remain underrepresented in higher-level positions. Many female employees are compelled to leave their jobs mid-career.

“If we observe, the ratio of women in entry-level to mid-career positions is higher than that of men, yet they appear to be inadequately prepared for leadership roles and may face excessive pressure, leading them to resign,” remarked Pramila Acharya Rijal, founder President of the South Asian Women Development Forum (SAWDF).

Considering the biological differences between men and women, the application of uniform workplace standards has generated considerable debate. Previously, Sunita Dangol, Deputy Mayor of Kathmandu Metropolitan City (KMC), proposed menstrual leave for women experiencing difficulties. However, this proposal was not implemented as policy.

Management and human resources departments often fail to provide flexible working hours to female employees during pregnancy and menstrual cramps. This can result in poor performance reviews, leading to frustration and ultimately, job resignations.

Low pay and high cost of living
Employee salaries in Nepal, particularly when benchmarked against the financial sector, are relatively low. “As employees progress in their careers, their family’s financial responsibilities increase significantly. Often, their salaries become insufficient to cover the rising costs of living, education and healthcare for their children and family members,” stated Shiva Nath Pandey, Chief Executive Officer of Sanima Reliance Life Insurance. “This financial strain drives many employees to seek alternative opportunities, with emigration to foreign countries often appearing as the most attractive and viable option,” he added.

Nepal’s high cost of living, driven by inflation in essential goods and services, exacerbates this issue. School fees and healthcare expenses have risen substantially over time. Many individuals struggle to maintain a moderate standard of living and find it virtually impossible to purchase a home in urban areas with their lifetime earnings.

Conversely, employee salaries remain low compared to the cost of living, necessitating a revision to retain talent. However, with the economy grappling with the aftermath of the COVID-19 pandemic, such a revision appears unlikely in the near future.

Moreover, the salaries of nurses and paramedical staff remain extremely low. Despite repeated government directives calling for standardised basic salaries, service providers have consistently resisted these calls, and the government has shown a reluctance to intervene. This low compensation is driving not only fresh graduates but also mid-level and senior professionals to seek better opportunities abroad.

COVID-19 pandemic, economic crisis and response to natural hazards
The COVID-19 pandemic has had a profound impact on the economy and the psychology of the people. Companies significantly downsized their operations, leading to widespread job losses and widespread anxiety among those fearing job insecurity. Domestic consumption plummeted drastically in this consumption-driven economy, exacerbating the economic slowdown.

Many recent graduates now prioritise gaining experience for higher studies or chosen careers abroad. This rising trend of outmigration has significantly altered people’s mindsets. Given the political instability and slow pace of development in Nepal, many parents aspire to send their children abroad for higher education to prevent them from facing the same struggles they endured.

According to the Department of Immigration, approximately 71,000 Nepalis have obtained approval for permanent residency. “Nepalis are emigrating to more than 109 countries,” the Department of Immigration reports.

Entrepreneurs and those running businesses faced unprecedented challenges following the COVID-19 pandemic, further exacerbated by the global rise in commodity prices. Many startups and new ventures were forced to close, prompting many entrepreneurs to seek alternative opportunities abroad.

Even highly-skilled professionals, such as specialist doctors, professors and scholars, are leaving the country to emigrate permanently to developed nations. Reportedly, a lack of meritocracy, nepotism, political instability, frequent natural disasters, and an inadequate government response are contributing to this growing pessimism.

Nepal faces a severe shortage of specialists in various fields, including neurology and cardiology. Many doctors participate in the United States Medical Licensing Examination (USMLE), seeking opportunities to practice medicine in the United States.

In recent years, the frequency and intensity of natural disasters, exacerbated by climate change, have increased significantly. Public health crises, including the spread of various epidemics, are becoming more frequent. However, the government’s response, priorities and institutional capacity are inadequate to safeguard the population. This inadequacy makes it difficult for citizens to cope, prompting many to seek safer havens, primarily in developed countries.

Nepal remains a training centre
As skilled professionals and talented individuals emigrate, the investments made by the state, companies and institutions in their professional development fail to benefit the country. This has effectively transformed Nepal into a training ground for producing talent that ultimately serves foreign nations.

The cost of high employee turnover is substantial. Investments made by companies and institutions in skill and capacity development are effectively wasted. Experts emphasise that the government’s lack of policies and interventions to attract and retain talent (brain gain) perpetuates this trend.

“With strong global connections facilitated by technological advancements and the significant outflow of people to foreign countries, individuals in Nepal can easily navigate and access opportunities abroad. Comparing their living standards in Nepal to those available abroad tempts them to pursue those opportunities and maximise their potential,” stated Prof. Kushum Shakya, a seasoned economist.

Moreover, a recent study of the Nepali Diaspora’s Demography in the United States of America by the Institute for Integrated Development Studies (IIDS) revealed that the Nepali diaspora population in the US has reached an estimated 208,000 individuals, according to the 2020 US Census. The study, titled ‘Nepali Migrant Dreams in the American Landscape: An Exploration of the Nepali Diaspora in the United States’, found that 68.3% of this diaspora arrived in the US after 2010.

The report identified career advancement (42%), better quality of life (38%), and economic factors such as better employment opportunities abroad (19%) and limited job prospects in Nepal (25%) as significant drivers of the increase in the Nepali diaspora population. Notably, Nepal’s unpredictable political climate (26%) was identified as a key factor propelling migration to the world’s largest economy.

Stringent laws, poor investment climate
Stringent laws are a significant deterrent for even high-ranking officials, including senior management. Bankers face the threat of collateral damage or overvalued collateral, which may not fully cover the loan amount in case of default.

Loan officers and top-level management can be held liable and potentially imprisoned if loans become non-performing. The Central Investigation Bureau of Nepal Police and vigilance agencies like the Commission for the Investigation of Abuse of Authority investigate these cases with the assumption of malafide intent to embezzle bank resources, regardless of the bank’s actual intentions.

“Arresting individuals first and listening to them later is a wrong practice,” stated Manoj Gyawali, Deputy Chief Executive Officer of Nabil Bank. “Arresting and detaining individuals like criminals without proper evidence is unacceptable in a democratic state that guarantees citizens’ fundamental rights.” Gyawali emphasised that this approach hinders the investment climate.

Banker Ashok Sherchan, CEO of Prabhu Bank, concurred, stating that collateral-based lending is a major obstacle to improving the investment climate and fostering entrepreneurship. “Approving authorities should assume full responsibility when approving loans for projects with sound ideas and potential returns,” said Sherchan. “This roadblock must be addressed to cultivate a more entrepreneurial spirit within the country.”

Frequent transfers in public sector
Frequent transfers of civil servants in the public sector and high employee turnover in the private sector pose significant challenges to public service delivery, productivity, growth, talent retention and institutional strengthening.

The principle of ‘right man in the right place’ for public service placements is rarely adhered to. Transfers of senior bureaucrats are commonplace, often coinciding with government changes or occurring as a consequence of resisting directives from political leadership.

Moreover, a concerning trend has emerged within security agencies, where lower-level personnel are resigning due to low salaries and the high cost of living. Public service, once considered a secure and lucrative career path, no longer holds the same appeal, as individuals pursue more ambitious dreams and seek greater opportunities elsewhere.

Consequences
Low wages and compensation in agriculture and the informal sector have driven many Nepalis to seek employment opportunities abroad. An estimated 4.5 million individuals have migrated in search of better prospects.

While formal sector jobs were once considered stable, secure and lucrative, this perception has shifted as political leadership and policymakers have failed to generate hope, accelerate development, and create meaningful opportunities within the country. Nepal remains the second-poorest country in South Asia, second only to Afghanistan.

Despite being endowed with abundant untapped resources, the country has suffered from poor governance and mismanagement, leading to widespread uncertainty that has significantly impacted businesses, organisations and the overall economy. Limited career growth and development, a high cost of living, inadequate public services (health, education), a significant gap in infrastructure and public facilities, and limited access to skills training and capacity development opportunities are all contributing factors to demotivation and rising public dissatisfaction.

Many employees feel they have limited opportunities for career progression within their current organisations and limited prospects in other organisations as well. With few opportunities for skills training, promotions or leadership roles, employees may leave in search of better prospects elsewhere, even in foreign countries.

Simply put, Nepal’s job market is highly unstable due to economic stagnation. The Nepali economy faces multiple challenges, including political instability, GDP losses due to frequent natural disasters, low productivity, and sluggish export growth, all of which significantly impact job security.

Company layoff policies implemented following mergers and acquisitions in the financial and insurance sectors, coupled with widespread business downsizing in the aftermath of the COVID-19 pandemic, have significantly increased job turnover and driven workers into a state of heightened anxiety.

Furthermore, seasonal employment in the construction industry has declined significantly due to the government’s failure to accelerate development expenditure. The low absorption capacity of capital expenditure has resulted in increased unemployment and outmigration. Consequently, there is a shortage of labour in the construction and other seasonal agricultural sectors.

Moreover, policymakers have indirectly encouraged the pursuit of foreign employment opportunities due to the country’s overreliance on remittances. Nepali workers sending money back from abroad play a crucial role in the economy, and their families often depend on this income.

Alongside the increasing outflow of Nepalis seeking foreign employment, remittance inflows have increased significantly, reaching an equivalent of 26% of the country’s Gross Domestic Product (GDP).

High employee turnover not only increases companies’ costs in recruiting new staff and investing in their development but also significantly impacts company performance. Moreover, companies lose valuable expertise as high turnover can result in the loss of experienced and skilled employees, reducing productivity and leading to operational inefficiencies.

High turnover also has psychological impacts on other employees within the company, creating significant challenges for top management and human resource managers to maintain high employee morale.

Potential solutions
To address this ongoing crisis, political leadership and policymakers must engage in serious introspection. Government initiatives should prioritise reform, the restoration of meritocracy, and investments in infrastructure and resilience development. Concurrently, reforms in governance, the investment climate, public facilities, and public service delivery are essential.

Moreover, companies must improve compensation packages, offer enhanced career development opportunities, adhere to labour laws, and prioritise better work-life balance for their employees. Ensuring competitive salaries, bonuses and other incentives for workers can significantly reduce turnover. Moreover, providing access to skills and capacity development opportunities, along with clear career progression paths, can inspire employees to remain with their current employers.

Implementing policies that promote work-life balance, such as flexible working hours and wellness programmes, can further enhance employee retention. Addressing high staff turnover and outmigration requires a multifaceted approach encompassing changes within both the private and public sectors, improved labour laws, and the creation of more robust economic opportunities within the country.

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