Employee turnover or dropout is one of the major problems facing by the current organizations. Many organizations measure the success and failures of their HRM based on the rate of employee dropouts. In other words, better HRM policies motivate the employees to continue in the organization whereas poor HRM policies force them to leave out. In the past, employees were more interested in getting decent salaries whereas at present they are not only interested in good salaries but also in getting a proper work environment. HRM is responsible for providing better work environments for the employees. In short, better HRM policies always motivate employees to improve their performances and to stick with the organization for longer periods. “It is a widely accepted premise that retention and productivity of workers is a function of how well the individual is motivated” (Lord, 2002, p.3). This literature review analyses various theories related to the importance of HRM in improving employee efficiencies and reducing employee turnover rates. Recent research has highlighted a so-called “prime building block” of HRM – the principle of “AMO”. There must be sufficient employees with the necessary ABILITY to do the job. there must be adequate MOTIVATION for them to apply their abilities. and there must be the OPPORTUNITY for them to engage in “discretionary behaviour” – to make choices about how their job is done (Buchan, 2004, p.3). All human actions, irrespective of good or bad, are based on some kind of motivations. For example, a killer may have some motives or reasons for killing. The same way a student may study well to get a job or recognition in the society. In short, motivation is necessary for all human actions. The cases of the employees are also not an exception. Employees need some kind of motivation to perform better. In other words, in the absence of motivation employees may work as passive elements whereas motivation forces them to work in an active manner. HRM is responsible for injecting motivation in the minds of the employees. In certain cases, rewards can motivate employees whereas in other cases, punishments could be a better option.