Effect of Human Resource Policies on Employee Retention in Commercial Banks in Nairobi County, Kenya

Abstract

Employee retention remains a critical challenge for Kenya's commercial banks, as evidenced by a substantial 40% staff turnover rate reported by the Central Bank of Kenya (CBK, 2020) in Nairobi County. Despite a modest 4.8% improvement in retention in 2022, the sector continues to grapple with high turnover, with global rates climbing to 23.4% and Kenyan banks experiencing consistent turnover between 10% and 15% annually (Jenna, 2023; Muthui, 2023; Wambua, 2018). This study examined the effect of human resource policies on employee retention in commercial banks located in Nairobi County, Kenya. The uncertainty caused by human resource policies has created challenges for organizations, contributing to difficulties in retaining employees. This study explored the effect of human resource policies, specifically, the effects of reward policies, performance management policies, health and safety policies, and grievance policies on employee retention in commercial banks in Nairobi, Kenya. The study was guided by the High-performance work systems (HPWS) theory, the Person-Environment Fit Theory, the Organizational Support Theory, and Adams' Equity Theory in putting the research into context in the literature review. The study assumed a descriptive research design. The target population was Tier 1 banks located in Nairobi County, namely Equity Bank, KCB, ABSA, Cooperative Bank, and NCBA .Stratified sampling was utilized to create a sample size that accurately represented the overall population. A sample size of 595 employees was determined using Slovin’s formula to ensure a 99% confidence level in accurately representing the target population. Data collection involved a structured questionnaire that was issued to the managers from within the banks using a drop-and-pick approach. The research instrument's validity was assessed through both construct and face validity. A pilot study was conducted based on 10 percent of the sample size, involving the distribution of 59 questionnaires. The assessment of the reliability for the questionnaire was carried out using Cronbach's alpha coefficient to provide a quantitative measure of internal consistency or reliability. Data analysis was carried out using SPSS version 26 based on descriptive, correlation, and regression analysis. Statistical values such as mean, standard deviation, percentages and an observation of the sum total was contained in the analysis. Pearson's correlation coefficient was used for inferential statistics. Participants generally agreed on the positive influence of monetary rewards on retention. A well-structured monetary reward system, encompassing salary increments and bonuses, was perceived to foster loyalty and commitment. The study found that health and safety policies significantly influence employee retention in commercial banks in Nairobi, Kenya. Participants highlighted the active promotion and enforcement of compliance with health and safety regulations by the bank's management. Participants emphasized the significance of timely grievance handling as a preventive measure against issues escalating, positively influencing employee morale, and ultimately impacting retention. The study found significant positive correlations between Employee Retention and various policies: Reward Policies (r = 0.547), Performance Management Policies (r = 0.624), and Health and Safety Policies (r = 0.654), all at the 0.01 level. Grievance Policies also had a positive correlation with Employee Retention (r = 0.508), though it was weaker compared to the other variables. The study recommends that policymakers and regulators should collaborate with commercial banks to develop and enforce comprehensive human resource policies that prioritize employee retention. Regulators should also encourage the adoption of transparent and equitable performance management policies, emphasizing the alignment of individual goals with organizational objectives.