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Recruitment & Retention

Tuition Reimbursement: Finding the Right Fit

Michael E. Echols, Ph.D.

Tuition reimbursement is a double-edged sword in the turnover war. When used effectively, it can have a tremendously positive impact on the turnover (retention) while operating as an investment in the human capital resources of the organization. When used improperly, tuition reimbursement actually can do what most managers fear: increase turnover. The trick is to use a laser-guided technique to make sure the positive impact is gained, and the negative impact is avoided.

Historically, tuition reimbursement largely was used as a recruiting tool primarily directed at new hires recently out of high school or college. The standard for defining the value of the tuition-reimbursement policy was most often external, where companies would compare this benefit with those offered by their direct competitors. Little analysis of the impact on turnover relative to the benefit had been done.

A research study appropriately titled “You Paid for the Skills, Now Keep Them: Tuition Reimbursement and Voluntary Turnover” in the Academy of Management Journal presents hard evidence on how to focus on this resource.

The study includes a literature search of company tuition-reimbursement best practices. In a longitudinal study of 9,439 high-technology workers over four and a half years, the researchers statistically derived three very important conclusions.

The first shows that when related to subsequent promotions that recognize the new skills acquired, the voluntary turnover rates were 55 percent lower than for those employees who were promoted but did not take part in tuition reimbursement.

This clearly establishes the conclusion that when managed properly, investment in human capital in the form of tuition reimbursement can significantly decrease turnover while increasing the value of employees’ skills and knowledge.

The negative impact analyzed in the study dealt with turnover on those who received a graduate degree but had not been promoted. In this critical population of employees, those awarded a graduate degree were actually 127 percent more likely to quit than employees who took classes but had not completed degrees. In this case, the expenditures the company made to improve advanced skills and knowledge actually increased turnover.

This implies tuition-reimbursement benefits that are distributed to increase skills can reduce turnover, when correctly managed, after the degree is awarded. On the other hand, when mismanaged, the very same resource can increase turnover.

The bottom line of this research is that the laser-guided missile of tuition reimbursement is very important in the turnover war. The general implications of this and other academic research are extended to help define policies and procedures that further increase the return on investment on the company expenditures for tuition reimbursement.

In the United States, corporations spend about $20 billion a year on employee education in the form of tuition reimbursement.

These expenditures have the potential to develop the critical managerial skills required to further reduce turnover through improved supervisor skills while enhancing the overall skills and knowledge of the organization.

Given the importance of learning to increase employee engagement, the secondary business benefits of the policy provide a true twofer to the organization.

This research offers the critical insight that these positive business outcomes are not serendipitous — they take planning, policies, data and analysis to assure the investment results in corporate successes, including reduced turnover.