3. Successful Retention Strategies - Linking HRM Theories to Real-World Practices in the Financial Sector
.jpeg)
Employee retention is not anymore a secondary HR concern. It
is a core strategic priority in the banking sector. Banks and financial
institutions in a competitive knowledge environment are dependent on experts
for innovation, client trust, and regulatory requirement fulfillment. With
every favorable compensation, most businesses have high employee turnover
rates, particularly within young professionals.
This article examines how the HRM theories can be
appropriately applied in the financial industry to create sustainable,
long-term retention strategies.
1. Maslow’s Hierarchy of Needs (1943)
Maslow's theory categorizes human needs into five levels:
- Physiological (wage, rest)
- Safety (employment security, health benefits)
- Belonging (colleague relationships, team culture)
- Esteem (status, recognition)
- Self-actualization (growth, purpose, autonomy)
In the finance sector, companies are more likely to meet
lower levels (wage, benefits) but fail to meet workers' higher psychological
needs leading to disengagement.
Example in Practice:
Example in Practice:
- Within HSBC, the use of international mobility, learning academies, and leadership paths meets higher needs such as esteem and self-actualization (HSBC, 2023).
- Employees who have a sense of purpose and development are more likely to be committed, even during challenging times.
Implication: There is a need for financial institutions to
move away from compensation-based retention toward needs-based motivation practices.
2. Herzberg’s Two-Factor Theory (1966)
Herzberg distinguishes between,
- Hygiene factors: pay, supervision, policy. They prevent dissatisfaction but do not make workers more motivated.
- Motivators: achievement, responsibility, advancement. These produce long-term satisfaction and loyalty.
In banking and financial services, hygiene factors are
consistently provided, but some companies leave behind motivators. The outcome
is functional staff disconnected from what they are doing and willing to move
and do something meaningful when given the opportunity elsewhere.
Example in Practice:
- Standard Chartered Bank has introduced job rotation programs, centers of innovation, and recognition award programs that focus on increasing job enrichment and motivation. (Standard Chartered, 2022)
- These reward systems are of special interest to Millennial and Gen Z because they prioritize self-growth and exposure.
Implication: Banks must design work and careers so that jobs
will yield intrinsic, not just financial, rewards.
3. Social Exchange Theory (Blau, 1964)
Social exchange theory suggests that loyalty is an effect of
reciprocity. Employees are loyal when they feel that the company cares for
them, trusts them, and likes them more than their job.
Example in Practice:
- DBS Bank in Singapore implemented a comprehensive mental health and well-being programme during the pandemic, signaling staff that well-being mattered and was not just about productivity. (news, R.,2020)
- These behaviors generate psychological contracts of trust, which creates higher emotional commitment and less turnover.
Implication: Retention is not reward-based, but a
social-emotional contract of perceived care and fairness.
4. Psychological Contract Theory (Rousseau,
1989)
Psychological contract is the implied or unspoken
understanding between employer and employee. If employees feel that an employer
committed to promotion, flexibility, or integration and is not honoring it,
then this fosters mistrust and turnover.
Example in Practice:
- Real-time feedback and open promotion standards were introduced by Barclays to enable aligned expectations and contract fulfillment. (Barney, J.B., 1991)
- Young professionals are now being checked in on regularly every month and coached to manage better with career expectations.
Implication: Repeated communication and regular re-alignment
of expectations are crucial to protect long-term trust.
5. Resource-Based View (Barney, 1991)
Resource-Based View (RBV) views talent as a strategic asset
which is valuable, rare, inimitable, and not substitutable (VRIN model).
Retaining high performers maintains continuity, creativity, and
competitiveness.
Example in Practice:
- JP Morgan Chase uses talent analytics to identify high potential employees early and give them personalized learning paths, retention rewards, and mentoring. (Jpmorganchase.com.,2019)
- Strategic retention such as this prevents "brain drain" and safeguards organizational knowledge.
Implication: Banking firms must regard people as long-term
assets, not replaceable jobs.
6. McClelland’s Theory of Needs (1961)
McClelland proposed that individuals are motivated by:
- Need for Achievement (objectives, challenge)
- Need for Affiliation (social relationships)
- Need for Power (influence and responsibility)
Inside financial institutions, achievement motivates the
majority of employees, especially analysts, portfolio managers, and auditors.
They want challenging work, measurable achievement, and career advancement.
Example in Practice:
- Citibank capitalizes on this by assigning top-performing employees to strategic innovation projects, paying them with visibility and rapid promotion. (Finsworld.com., 2025).
Implication: An understanding of an individual's
motivational drivers enables the implementation of tailored retention
strategies.
Integrating Theory with Practice: Strategic
Takeaways
The operationalization of HRM theory into practice allows
financial institutions to build employee-centered environments that go beyond
transactional relationships.
|
HRM Theory |
Retention Strategy |
|
Maslow |
Address higher-level needs like belonging, esteem, growth |
|
Herzberg |
Focus on motivation: autonomy, achievement, purpose |
|
Blau |
Build trust through support, care, and fairness |
|
Rousseau |
Clarify and manage expectations to avoid contract breach |
|
Barney |
Invest in high-potential employees as strategic assets |
|
McClelland |
Align projects with employee motivations and values |
When practice is informed by theory, retention is
sustainable, strategic, and employee expectations are met.
Reference List
Barney, J.B. (1991) ‘Firm resources and sustained competitive advantage’, Journal of Management, 17(1), pp. 99–120.
DM Editorial (2024). Standard Chartered Sri Lanka receives multiple accolades from GPTW. [online] Dailymirror.lk. Available at: https://www.dailymirror.lk/business-news/Standard-Chartered-Sri-Lanka-receives-multiple-accolades-from-GPTW/273-295415?utm_source=chatgpt.com [Accessed 13 Apr. 2025].
Finsworld.com. (2025). Citigroup Unveils Significant Merit-Based Promotions: Largest Class of Managing Directors in Six Years. [online] Available at: https://finsworld.com/industries/citigroup-unveils-significant-merit-based-promotions-largest-class-of-managing-directors-in-six-years?utm_source=chatgpt.com [Accessed 13 Apr. 2025].
news, R. (2020). DBS rolls out holistic wellbeing programme for its 12,000 strong Singapore workforce. [online] Human Resources Online. Available at: https://www.humanresourcesonline.net/dbs-rolls-out-holistic-wellbeing-programme-for-its-12000-strong-singapore-workforce?utm_source=chatgpt.com [Accessed 13 Apr. 2025].
Standard Chartered (2022) Global People Strategy Report. [online] Available at: https://www.sc.com/en/sustainability [Accessed 13 Apr. 2025].
Great application of Maslow and Herzberg to the finance sector. Meeting basic needs isn’t enough anymore; purpose, recognition, and growth are key to retaining Millennial and Gen Z talent.
ReplyDeleteWell said. What we’re seeing now is a shift from transactional employment models to transformational ones where employees are not just paid fairly, but are also empowered, recognized, and developed. Financial institutions that focus only on hygiene factors risk creating a disengaged workforce that is constantly looking for more meaningful opportunities. Programs like job rotations, leadership academies, and innovation hubs do more than upskill employees. They show that the organization invests in their personal and professional journey. This is especially powerful for younger generations who crave purpose, visibility, and a sense of impact in their roles.
DeleteThis article highlights the importance of applying HRM theories like Maslow’s Hierarchy of Needs and Herzberg’s Two-Factor Theory to improve employee retention in the financial sector.
ReplyDeleteAbsolutely! Integrating HRM theories like Maslow’s and Herzberg’s provides a holistic approach to employee retention. By addressing both foundational needs and motivators, financial institutions can create a more engaged, satisfied workforce that is less likely to leave. It is all about striking the right balance between basic needs and offering opportunities for growth and recognition.
Delete
ReplyDelete"Very informative and well explained. It really shows how important it is to understand employee needs beyond just salary, especially in today’s competitive financial sector.
The theories are well explained, and they output employee retention methods for organizations. However, organizations must customize and apply these theories to their own industries as much as possible.
ReplyDeleteCommented by Lahiru Randima
Thank you for your valuable input. You have raised an important concern. While these theories provide a solid foundation for understanding employee retention, it is crucial that organizations tailor them to their specific industry and unique organizational culture. It is all about creating a nuanced approach that resonates with the specific needs and challenges of employees within that industry. I appreciate you bringing up this important consideration.
DeleteThis is an insightful and academically grounded discussion of how HRM theories can practically be transmitted into retention strategies in the financial services industry. I appreciated the way you weaved in discussions of foundational frameworks like Maslow's hierarchy of needs (1943) and Herzberg's Two-Factor Theory (1966) with examples from global financial institutions. These theoretical lenses are so useful in understanding compensation alone cannot sufficiently keep employees engaged in the long run.
ReplyDeleteThank you so much for your thoughtful and encouraging comment. I am glad you found the integration of HRM theories with real world examples meaningful. You are absolutely right. Frameworks like Maslow's Hierarchy of Needs (1943) and Herzberg's Two-Factor Theory (1966) help illuminate the deeper drivers behind employee engagement and retention, especially in complex, high pressure environments like financial services. The HR leaders' dilemma and opportunity within the financial services sector is how to take the theoretical principles of these and bring them to practice as relevant.
DeleteThis is grate. Retention is so often treated as a numbers game such as bonuses, promotions, packages but Social Exchange Theory reminds us it’s much more human than that. Employees stay where they feel genuinely valued. DBS’s mental health approach during the pandemic is a standout example of what it means to lead with empathy.
ReplyDeleteThank you for this insightful comment. Retention is about more than cash; it has an intrinsic linkage to the feelings of employees' identification with the company. Social Exchange Theory (Blau, 1964) reminds us that commitment and loyalty are most likely to emerge from mutual respect, trust, and emotional affinity rather than from mere transactional rewards.
Delete