The influence of green quality of work life, green employee engagement, and green rewards on green employee retention in SME employees

Abstract

One of the biggest challenges for employers is retaining employees, who are crucial for enhancing company performance, especially in SMEs. This research aims to determine the influence of Green Quality of Work Life, Green Employee Engagement, and Green Rewards on Green Employee Retention. The study employs a quantitative approach, sampling 204 SME employees in Indonesia, determined using the Slovin formula with a 7% margin of error. Quota sampling techniques and questionnaires distributed via Google Forms were used for data collection. The analytical tool used is SEM PLS version 4, incorporating validity and reliability testing, Fornell-Larcker Criterion, Heterotrait-Monotrait Ratio, and hypothesis testing, with responses measured on a 5-point Likert scale. The results indicate that Green Quality of Work Life does not significantly affect Green Employee Retention. However, Green Employee Engagement and Green Rewards have a significant impact on Green Employee Retention. The theoretical contribution of this research lies in the application of financial motivation theory, particularly regarding the lowest mean of the first indicator. This theory could be valuable as a moderator in future research models. Practically, the study suggests that increasing salaries and providing knowledge and training as forms of additional expertise can enhance employee retention.

Keywords: green quality of work life; green employee engagement; green rewards; green employee retention
JEL Classification: L53; L84; M14; M21; M54; P21

1. Introduction

The performance of small and medium enterprises (SMEs) in Indonesia undeniably declined during the COVID-19 pandemic. Unfortunately, this decline has persisted post-pandemic. The prolonged period of inactivity during the pandemic led to a decrease in workers' skills levels due to reduced productivity. Consequently, when production resumed, the workforce's diminished skills caused increased work pressure, leading to terminations or voluntary departures. These job vacancies were subsequently filled by new employees, contributing to high turnover rates, which negatively impacted the short-term performance of Indonesian SMEs.

In an effort to improve performance, SMEs are increasingly adopting green management practices to attract environmentally conscious buyers. Green Human Resource Management (GHRM) integrates human resource management practices with environmental policies to involve employees in sustainability strategies, thereby achieving a sustainable competitive advantage (Chaudhary, 2020).

This research focuses on employees of SMEs, as defined by the Indonesian Ministry of Industry Regulation No. 64 of 2016 (Kementrian Perindustrian, 2023). The limited research on turnover intention within the SME sector in Indonesia highlights the need for this study, which aims to deepen understanding and provide solutions to address this issue.

Turnover often arises from employee dissatisfaction in the workplace (Chiat & Panatik, 2019), an unconducive environment (Kurniawaty et al., 2019), negative attitudes from superiors, work stress from excessive demands, and excessive workloads (Nurfitriani & Arwin, 2020). These factors can affect emotions, leading to poor communication, deteriorating mental health, lack of motivation, and job insecurity (Ramlawati et al., 2021). Consequently, companies suffer financial setbacks due to the loss of skilled employees, knowledge, and business relationships (Houssein et al., 2020; Stamolampros et al., 2019). Additionally, inadequate salaries and benefits can exacerbate turnover rates (Ashraf & Siddiqui, 2020). In the economic sector, Indonesian SMEs lag behind other countries, and high turnover further reduces their productivity.

Implementing green human resource management practices can enhance work-life balance and improve employee retention (Akpa et al., 2022; Aranganathan, 2018). Companies should therefore focus on job satisfaction, enjoyment, and happiness in the workplace, often referred to as Green Quality of Work Life (GQWL) (Siron, 2020). GQWL's success in promoting work-life balance depends on the level of Green Employee Engagement (GEE) (Bhende et al., 2020), which acts as a motivational mechanism influencing work outcomes (Aboramadan, 2022). GEE is crucial for fostering work-life balance, ultimately impacting organizational success and commitment (Sahni, 2019) and achieving long-term business goals (Machhi & Parmar, 2023).

To be effective, GEE efforts should be complemented by Green Rewards (GR), which serve as recognition and appreciation for employees' contributions to company goals. GR can modify employee behaviour (Amjad et al., 2021) and motivate them to align with the company's sustainability objectives (Baqir et al., 2020). This approach helps create a loyal, motivated, and effective workforce (Begum, 2023). Therefore, implementing Green Rewards can enhance efficiency, improve quality of work life, provide a sustainable competitive advantage (Houssein et al., 2020), and ultimately increase employee retention.

Addressing these challenges through GHRM research is crucial, as it offers significant contributions compared to previous research models. By promoting green environments and green organizations (Bangwal et al., 2017), GHRM can enhance employee retention (Ko, 2021) and help achieve SME goals (Al-Hajri, 2020).

2. Literature review

Human Resource Management (HRM) began to take shape in Europe in the 18th century, influenced by pioneers such as Robert Owen (1771-1858) and Charles Babbage (1791-1871) during the Industrial Revolution. With the current developments and the effects of global warming, Green Human Resource Management (GHRM) has emerged as a viable solution (Schuler & Jackson, 1987). GHRM aims to minimize environmental damage and create a sustainable employee environment (Arulrajah et al., 2016), thereby enhancing Green Quality of Work Life (GQWL) (Lau & May, 1998) and fostering Green Employee Engagement (GEE) (Bu et al., 2022). These practices contribute to the commitment and positive attitudes of employees towards their company (Evina et al., 2024).

3. Hypothesis development

3.1 The influence of green quality of work life on green employee retention

Low operational efficiency caused by a lack of environmentally friendly human resources can reduce effective management practices and employee initiative (Mosadeghrad, 2013). Therefore, the Green Quality of Work Life (GQWL) concept is essential for fostering employee satisfaction across various job aspects, including job satisfaction, working conditions, fair compensation, career development opportunities, task discretion, participation in decision-making, and work-life balance (Adhikari & Gautam, 2010). A high GQWL enables companies to benefit from enhanced employee efficiency, productivity, and sustainable profitability, while also increasing motivation and reducing workforce turnover (Saputra et al., 2024).

GQWL not only contributes to a company's ability to recruit talented employees but also promotes a more flexible, loyal, and engaged workforce (Nurhayati et al., 2022; Selvaraj, 2014). Consequently, GQWL positively influences employee retention by providing a better quality of life, leading to higher levels of employee retention (Puspitasari et al., 2024). The relationship between GQWL and employee retention is significant, as GQWL impacts overall retention (Saepuddin & Saputra, 2023).

An effective employee retention program can create and maintain an environment that encourages employees to remain with the organization. GQWL significantly impacts employee productivity and is proven to create positive physical and psychological effects, resulting in better employee satisfaction (Mamedu, 2017; Patil & Arpitha, 2023).

H1: Green Quality of Work Life has a positive and significant effect on Green Employee Retention.

3.2 The influence of green employee engagement on green employee retention

Green Employee Engagement (GEE) refers to the level of involvement and commitment of employees who are actively engaged, enthusiastic, and interested in their work (Shuck & Wollard, 2010). Employees in environmentally friendly companies are twice as likely to remain with the company (Patrice, 2011). Companies can design best practices based on findings to retain their best employees (Balakrishnan et al., 2013), indicating that while engagement alone may not suffice, it plays a crucial role in retaining top talent (Lindholm, 2013).

GEE has become an essential tool for facing competition and increasing growth opportunities, serving as an indicator of company goodwill (Agarwal, 2017). Engaged employees are less likely to change jobs frequently, consistently produce results, and serve as ambassadors for the company (Chandani et al., 2016). Therefore, companies must understand the importance of employee involvement to ensure satisfaction (Ashraf & Siddiqui, 2020). Engaged employees often express positive emotions such as happiness, joy, and enthusiasm, which indicate better health, self-generated work, and personal resources, ultimately enhancing their competence (Ngozi & Edwinah, 2022). This increased competence influences employee engagement, task identity, and enhances retention (Ibrahim et al., 2023).

H2: Green Employee Engagement has a positive and significant effect on Green Employee Retention.

3.3 The effect of green rewards on green employee retention

Green Rewards (GR) for performance are undeniably a powerful tool for motivating employees (Saputra & Renata, 2023). Proper GR management involves strategies, policies, and processes that recognize and appreciate employee contributions toward achieving company goals (Armstrong, 2010). This approach treats employees fairly, equally, and consistently based on their value to the company's business (Fatehi et al., 2015). Implementing strategies that meet diverse employee needs encourages them to stay with the company for longer periods (Sandhya, 2011) and helps address employee stress and problems (Hussain & Saleem, 2014).

To retain employees, companies primarily use their resources to provide attractive extrinsic rewards (Alhmoud & Rjoub, 2020). GR acknowledges the value of employees' time, energy, and skills, which means that a company's reward system can significantly influence employee performance and productivity, as well as their desire to remain with the organization (Khan, 2021). This GR approach plays a crucial role in realizing company commitments (Ng & Kadi, 2023) and can enhance employee retention.

H3: Green Rewards have a positive and significant effect on Green Employee Retention.

4. Research method

This study model was developed using several sources: the Green Quality of Work Life (GQWL) variable from Kim et al. (2021), the Green Employee Engagement (GEE) variable from Riyanto et al. (2021), the Green Rewards (GR) variable from Siegrist et al. (2004), and the Green Employee Retention (GER) variable from Elsafty and Oraby (2022). Combining research from both Indonesian (Riyanto) and international studies (Kim, Siegrist, and Elsafty) is significant as it aligns research evidence with the real problems faced by SMEs in Indonesia.

4.1 Population and sample

The population for this research consists of SME sector data from the Central Statistics Agency in 2023, totalling 296,075 individuals. Using the Slovin formula with a 7% margin of error, a sample size of 204 respondents was determined. Quota sampling was employed, and data was collected via a questionnaire distributed through Google Forms. Responses were measured on a 5-point Likert scale.

4.2 Analysis tools

The analysis was conducted using Structural Equation Modelling (SEM) with SmartPLS version 4 software. The first step involved testing validity and reliability, requiring Cronbach's Alpha and Composite Reliability values to be greater than 0.70, Average Variance Extracted (AVE) values to be greater than 0.50, and Heterotrait-Monotrait Ratio (HTMT) values to be less than 0.90 (Hair et al., 2021).

5. Results

Table 1.Mean and loading factors* Lowest Mean ** Highest Mean *** <0.70 Invalid

Variable	Questionnaire items	Mean	Iteration of Outer Loading 1	Iteration of Outer Loading 2
Green Quality of Work Life (GQWL)	GQWL1: I feel physically safe at work.	3.848	0.748	0.753
	GQWL2: My job provides good health benefits.	3.564	0.657***	-
	GQWL3: I feel my job allows me to realize my full potential.	3.730	0.838	0.849
	GQWL4: I feel aware of my potential as an expert in my field of work.	3.843	0.800	0.811
	GQWL5: I feel like I am always learning new things to make my job better.	3.917**	0.781	0.784
	GQWL6: This job allows me to improve my professional skills.	3.897	0.807	0.816
	GQWL7: I am satisfied with the payment I receive for my work.	3.716*	0.758	0.739
	GQWL8: My work benefits my family.	3.804	0.747	0.725
	GQWL9: I feel that my job at my company is safe for life.	3.672	0.617***	-
	GQWL10: I feel appreciated when working at my company.	3.716*	0.729	0.738
	GQWL11: People who work at the company respect me as an expert in my field.	3.755	0.768	0.763
	GQWL12: My job requires me to express a certain level of creativity.	3.799	0.670***	-
	GQWL13: My work helps me develop a better appreciation for creativity, art, and aesthetics.	3.838	0.249***	-
Green Employee Engagement (GEE)	GEE1: I have a high level of energy in business.	3.765	0.689***	-
	GEE2: I have a strong determination and try my best to get the job done.	3.819	0.727	0.709
	GEE3: I don’t give up easily in completing work.	3.877	0.760	0.746
	GEE4: I persist in my work until it is finished.	3.838**	0.791	0.789
	GEE5: I am proud of my work, so it is difficult for me to leave this company.	3.613*	0.733	0.755
	GEE6: I am always enthusiastic at work.	3.696	0.773	0.791
	GEE7: Time flies quickly when I am working.	3.652	0.800	0.820
	GEE8: I really concentrate on doing my work.	3.755	0.760	0.765
	GEE9: I enjoy doing work assignments.	3.730	0.791	0.796
Green Rewards (GR)	GR1: I receive respect from my superiors.	3.672	0.792	0.792
	GR2: I am respected and appreciated by my colleagues.	3.711**	0.820	0.820
	GR3: I receive full support in difficult circumstances.	3.451*	0.837	0.837
	GR4: I am treated fairly where I work.	3.603	0.861	0.861
	GR5: For my efforts and achievements at work, I have earned respect and appreciation at my workplace.	3.593	0.818	0.818
Green Employee Retention (GER)	GER1: I want to work at this company for a long time.	3.436*	0.816	0.816
	GER2: I feel very satisfied doing this work.	3.652	0.854	0.854
	GER3: I feel I can develop my full potential at work.	3.657	0.891	0.891
	GER4: I feel that corporate development enhances my skills and expertise.	3.770**	0.835	0.834

Table 1 shows that in the first iteration, some questionnaire indicators were invalid, specifically GQWL2, GQWL9, GQWL12, GQWL13, and GEE1. Therefore, a second iteration was conducted, and the results from this iteration were used in subsequent calculations.

The reliability of this variable is acceptable because the values of Cronbach's Alpha and Composite Reliability are greater than or equal to 0.70, indicating reliability. The convergent validity, measured by the Average Variance Extracted (AVE), is also confirmed as it exceeds 0.50 (Hair et al., 2021).

Table 2.Cronbach's alpha, composite reliability, and average variance extracted (AVE)

Variable	Cronbach’s Alpha	Composite Reliability (rho_a)	Composite Reliability (rho_c)	AVE	Result
Green Quality of Work Life (GQWL)	0.920	0.949	0.932	0.603	Valid and Reliable
Green Employee Engagement (GEE)	0.903	0.905	0.922	0.596	Valid and Reliable
Green Rewards (GR)	0.884	0.891	0.915	0.682	Valid and Reliable
Green Employee Retention (GER)	0.871	0.878	0.912	0.721	Valid and Reliable

The correlation value of the related construct is higher than that of other constructs, indicating that the model has good discriminant validity. In this study, the lowest Fornell-Larcker Criterion score was for GEE (0.772), which is higher than the correlation between GEE and GQWL (0.086), confirming discriminant validity.

Table 3.Fornell-Larcker criterion

Variable	Green Quality of Work Life (GQWL)	Green Employee Engagement (GEE)	Green Rewards (GR)	Green Employee Retention (GER)
Green Quality of Work Life (GQWL)	0.776
Green Employee Engagement (GEE)	0.086	0.772
Green Rewards (GR)	0.071	0.727	0.826
Green Employee Retention (GER)	0.148	0.674	0.630	0.849

The required Heterotrait-Monotrait Ratio (HTMT) should be less than 0.90 to meet the criteria for discriminant validity (Hair et al., 2019). The test results show that the HTMT value is indeed less than 0.90, confirming that discriminant validity is met.

Table 4.Heterotrait-Monotrait ratio (HTMT)

Variable	Green Quality of Work Life (GQWL)	Green Employee Engagement (GEE)	Green Rewards (GR)	Green Employee Retention (GER)
Green Quality of Work Life (GQWL)
Green Employee Engagement (GEE)	0.099
Green Rewards (GR)	0.117	0.816
Green Employee Retention (GER)	0.154	0.749	0.707

Based on the hypothesis testing above, the findings are as follows:

• The first hypothesis (H1) was rejected, indicating that there was no significant influence of GQWL on GER, with a path coefficient of 0.088 and a p-value of 0.234 (p > 0.05).

• The second hypothesis (H2) was accepted, indicating a significant influence of GEE on GER, with a path coefficient of 0.450 and a p-value of 0.000 (p < 0.05). However, the impact of GEE on increasing GER is moderate at the structural level (f² = 0.192). Therefore, there is a need for a GEE enhancement program, which is considered very important for GER, potentially increasing it by up to 0.603.

• The third hypothesis (H3) was accepted, indicating a significant influence of GR on GER, with a path coefficient of 0.297 and a p-value of 0.001 (p < 0.05). However, the impact of GR on increasing GER is low at the structural level (f² = 0.084). Thus, there is a need for a GR improvement program, which is considered important for GER, potentially increasing it by up to 0.484.

Table 5.Hypothesis test

Hypothesis	Path Coefficient	p-value	95% Confidence Interval Path Coefficient		f-squared
			Lower Bound	Upper Bound
Green Quality of Work Life (GQWL) -> Green Employee Retention (GER)	0.088	0.234	-0.140	0.215	0.015
Green Employee Engagement (GEE) -> Green Employee Retention (GER)	0.450	0.000	0.268	0.603	0.192
Green Rewards (GR) -> Green Employee Retention (GER)	0.297	0.001	0.142	0.484	0.084

Figure 1.Path coefficient p values

The R-squared statistic describes the variation in an endogenous variable that can be explained by other exogenous or endogenous variables in the model. Based on the results above, it can be said that the magnitude of the influence of GQWL, GEE, and GR on GER is 0.503. The remaining variation is attributed to other factors.

Table 6.Path coefficient p values

	Indicator	Result	Information
Green Employee Retention (GER)	R-squared	0.503	Low influence (0.25)
	R-squared adjusted	0.496	Moderate influence (0.50)
			High influence (0.70)

Table 7 shows that the SRMR result of 0.066 is acceptable because it is less than the criterion value of 0.08 (Hair et al., 2021). The confidence intervals for d_ULS and d_G are not obtained using a “normal” bootstrap approach, so there is no correlation between the d_ULS (squared Euclidean distance) and d_G (geodetic distance) values. Additionally, chi-squared is sensitive to sample size and should not be used as the sole measure of overall model fit. Even though the difference between the sample covariance matrix and the model covariance matrix is minimal to moderate, as the sample size increases, the chi-squared value also increases, potentially leading to the rejection of the model. Lastly, NFI values range from 0 to 1, with values greater than 0.9 typically representing an acceptable fit (Bentler & Bonett, 1980).

Table 7.Fit model

Indicator	Result	Cutoff for Fit Model
SRMR	0.066	<=0.08
d_ULS	1.542	>=0.95
d_G	0.686	P >=0.05
Chi-squared	792.115	Close to zero
NFI	0.786	>=0.90

The Q-squared value is greater than 0.25 and less than 0.50, indicating that Q-squared has a moderate influence.

Table 8.Q-squared

	Result	Information
Q-squared	0.474	Low influence (0)
		Moderate influence (0.25)
		High influence (0.50)

The GoF index value is obtained from the square root of the product of the average communality index and the average R-squared value. The GoF index indicates a high level of goodness-of-fit.

Table 9.Goodness of fit index (GoF Index)

	Result	Information
GoF index	0.558	Low influence (0)
		Moderate influence (0.25)
		High influence (0.50)

Based on the processing results of four observations on the RMSE and MAE values of four measurement items, the PLS model shows lower RMSE and MAE values compared to the LM model (linear regression). This indicates that the proposed PLS model has higher predictive power.

Table 10.PLS predict

Measurement Items	PLS		LM
	RMSE	MAE	RMSE	MAE
Green Employee Retention (GER1)	0.771	0.612	0.789	0.639
Green Employee Retention (GER2)	0.622	0.476	0.589	0.441
Green Employee Retention (GER3)	0.568	0.437	0.594	0.458
Green Employee Retention (GER4)	0.592	0.458	0.633	0.480

6. Discussion

6.1 Green quality of work life has no effect on green employee retention

The first finding of this research is that respondents are not satisfied with the salaries they receive and that employee rewards are not optimal. This is confirmed by the lowest means for GQWL7: “I am satisfied with the payment I receive for my work” and GQWL10: “I feel appreciated when working at my company”. This indicates that the GQWL variable has not significantly impacted employee development or progress.

The impact of these issues is substantial, leading to employee discomfort and dissatisfaction, which results in intentions to leave the workplace (Abdien, 2019). Efforts to retain and empower employees can produce better work standards (Afkhami et al., 2020) by providing appropriate incentives and a healthy work environment (Karthick & Ramachandran, 2018). Therefore, it is crucial to create a Green Quality of Work Life based on employee perceptions (Harikrishnan & Kumari, 2019). This should begin with periodically increasing welfare as motivation, providing appropriate incentives, and conducting employee assessments to achieve the best performance aligned with organizational goals (Leitão et al., 2019), thereby reducing the intention to leave the company.

6.2 Green employee engagement has a positive and significant effect on green employee retention

The second finding of this research is the passion and persistence in completing work, highlighted by the highest mean for GEE4: “I persist in my work until it is finished”. This indicator proves that the employee's relationship with their work is very strong, and that they have a high level of responsibility.

When employees feel involved and motivated by attractive green environmental practices from their employer, their performance improves (Easa & Bazzi, 2020). This motivation is directly linked to work and increases their commitment and performance (Tsareva & Boldyhanova, 2020). Creating employee commitment aims to increase the company's success (Susanto, 2022) through various innovations and strategic plans. Additionally, engagement and productivity increase as employees understand the value of the company's goals (Bhakuni & Saxena, 2023) and work in a positive, collaborative environment. This fosters a sense of responsibility at work and helps employees balance their professional and personal lives (Wood et al., 2020).

6.3 Green rewards have a positive and significant effect on green employee retention

Mutual respect among employees is the highest form of reward, which is the third finding of this research. This is reflected in the highest mean for GR2: “I am respected and appreciated by my colleagues”. This finding highlights the importance of mutual respect and fair treatment among employees, which encourages active contributions to business sustainability and job satisfaction (Mosquera et al., 2020).

While Green Rewards are not the only important influencing factor, they can significantly increase employee retention (Khalid & Nawab, 2018) and indirectly enhance employee commitment (Puni et al., 2021) through fair reward practices and mutual respect for task contributions (Kollmann et al., 2020). Additionally, performance-based rewards positively influence job satisfaction (Froese et al., 2019), as receiving rewards is highly valued for the meaningfulness of work (Akgunduz et al., 2020). Green Rewards also foster positive creativity among employees with high performance goal orientation (Malik et al., 2019). Focusing on collaborative training, effective performance evaluations, and aligned reward policies can sustain better results (Mihardjo et al., 2020).

6.4 Theoretical and practical contributions

An interesting finding of this research is that the salaries and rewards received by employees are not satisfactory. This indicates that Green Quality of Work Life should be linked to financial motivation theory. This contribution is significant as it suggests that Green Quality of Work Life should not only focus on improving the quality of work for a better life but also ensure adequate salaries and rewards as benchmarks for Quality of Work Life.

To enhance Green Quality of Work Life, this research provides practical contributions, such as increasing knowledge, conducting workshops, and offering training as forms of additional expertise to improve salaries and rewards. The expectation is that these efforts will enhance the Green Quality of Work Life.

6.5 Future research

Future research models can be developed by incorporating financial motivation as a new variable or indicator to bridge the gap between reality and theory. This theory would be effective as a moderator in further research models, as the insignificant results of this study suggest the need for stronger variables or indicators to address the problem more effectively.

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