If Retaining Top Talent Is a Struggle… Then Read This!

Summary: Here I discuss how to monitor people’s perceptions of pay and its implications for employee retention and engagement.

“You don't get paid for the hour. You get paid for the value you bring to the hour” (Jim Rohn)

An individual’s primary reason for employment is ‘Getting Paid’! Pay is a key factor in the context of a person’s work experience. Unless appropriately managed by the employer, pay can become the main cause of job dissatisfaction. However, once employees are satisfied with their pay, this factor will no longer motivate them to further yield greater performance on their side. Remember, pay is the main driver of employee retention but not necessarily engagement. Most studies reveal that the factors leading to employee engagement are separate and distinct from those that lead to job dissatisfaction (Read more: Employee Motivation).

Why Do People Leave?

There are many factors that influence employee retention, but in the end, everything comes to remuneration, especially when there is a clear connection with merit. Employees don’t complain so much about the salary itself but the fairness of it when it comes to linking it to performance. Whenever I talk to employees, they are not upset about the actual base salary, but more about newer members of staff having a higher salary or low performing colleagues earning the same salary (Read more: Fair Pay).

Recent research finds that 45% of employees who quit mention salary as their main reason for doing so. Consider the most common reasons for quitting a job:

1. Poor Base Pay / Fair Salary
2. Lack of Career Advancement & Learning Opportunities
3. Lack of Trust / Confidence in Senior Leadership
4. Poor Perceived Job Security
5. Length of Commute
6. Poor Relationship with Supervisor / Line-Manager
7. High Levels of Work-Related Stress

When salary perceptions are not in the right place, employees will simply leave despite your best efforts to advance a satisfactory work experience:

• Providing opportunities for achievement.
• Recognising people’s contributions.
• Creating work that is rewarding and that matches people’s skills and abilities.
• Empowering and giving as much responsibility to each team member as possible.
• Presenting opportunities to advance in the company through internal promotions.
• Offering training and learning opportunities which are linked to career development.

While HR professionals can devote many hours to fine-tuning the company’s work environment, clarifying job descriptions, pay bands and career ladders, none of that matters if employees believe they are being paid less than what they deserve. Even if you provide the finest and most engaging, fun and flexible work environment ever, people will eventually want to be paid what they feel are worth. It is simple, if you are an employer that consistently offer wages below the market rate, you will experience higher than average employee turnover. When that happens, employees will simply leave, triggering potentially costly and lengthy replacement errands.

When Perceptions Become Reality!

Employees demand more transparency! There is a real need to tell people how you are paying them, because it is not just about pay, it is also about perception of pay. The connection between the perception and reality of compensation, and how both relate to engagement, is what leads to potential employee retention issues. Employees should understand how their pay is made up. If you pay bonuses, your employees should know what they must do to earn a bonus, and how the bonus is calculated. Communication is key!

According to Harvard Business Review, the top predictor of employee engagement and intention to stay in an organisation is the employer’s ability to communicate clearly about compensation.

Open and honest conversations about pay was found to be more important than typical drivers of employee engagement, such as career advancement opportunities, employer appreciation or empowerment.

Employers must always put themselves in their employees’ shoes. It is only when we see pay in the emotional context of an employee’s perspective that we can frame the right compensation conversation in a way that will induce a favourable outcome.

How employees feel about their pay deal plays a crucial role in how committed they are with their employer. In the view of employees, pay is not just a number, it is a tangible indicator that reflects the real value an employer places on an individual employee.

How to Measure Perceptions of Pay?

When it comes to having a more engaged workforce, you should not assume that your employees’ perceptions about their pay necessarily match reality. Employees’ perceptions on compensation are complex. These are driven by many variables: their perceived contribution to the organisation, their experience in the industry/market, their field of discipline, experience with and knowledge of competitors, product knowledge, time and experience in the company, education, training, and of course, perceived current supply and demand of their skills.

Research by Great Place to Work reveals that 55% of employees in the UK are not satisfied with their current remuneration package. Virtually 50% of employees feel they are not being paid fairly. Nearly 60% are not content with the current benefits that they receive. Approximately 70% of them consider they don’t receive a fair share of the profits made by their employer. Finally, over 50% of employees do not think their remuneration is fairly associated with their performance at work (Note: In general, employees tend to score pay related survey statements in a less favourable way - it is here when benchmarking becomes relevant).

Employees are often wrong about how much they are being paid compared to the going market rate. Perceptions about pay don’t always reflect reality, even if employees are being paid fairly, i.e. being paid the same or more than similar companies or colleagues in the same role. Unfortunately, these sort of unfounded unfavourable perceptions about pay play a significant role in an employee’s desire to leave the company.

In this respect, employers need to partner with employees to develop and implement overarching fair pay principles. Employers should be constantly listening to their employees, responding to their concerns and helping them see how their pay fits into the overall compensation structure. Without good workforce insights, employers can wrongly make up what they believe to be true.

For this purpose, I suggest a short ‘Pay Perception Index’ that will help inform your employee compensation and communication strategies. Consider the following survey statements:

• People here are paid fairly for the work they do.
• We have special and unique benefits here.
• I feel I receive a fair share of the profits made by this organisation.
• In this company high quality performance is usually rewarded.
• I feel this company does a good job matching pay to performance.

The above index can be applied using a five-point Likert response scale where respondents specify their level of agreement for each statement, e.g. (1) Strongly disagree; (2) Disagree; (3) Neither agree nor disagree; (4) Agree; (5) Strongly agree.

This index is especially revealing when all feedback is segmented by organisational hierarchy and different demographic diversity dimensions such as: business unit / department, job level / role, type of contract, tenure, age, gender, ethnicity, physical ability, caring responsibilities, etc. This segmentation analysis will allow for more focused HR interventions (Read more: Employee Feedback and the Culture of ‘Continuous Improvement’).

Some Final Thoughts…

In order to achieve effective talent retention, you need to think beyond base salary and variable pay benefits! The most important consideration here is to develop a rewards program that is well communicated and applied fairly and consistently across the entire organisation!

Organisations need to openly communicate to employees that they are being paid fairly compared to their talent market and other companies in the sector, otherwise they may leave. Employers should focus on what they can do to counter employees’ perceptions of being underpaid. You may not be able to ensure that all your employees feel fairly compensated for their perceived personal value, but you can make sure that your pay structure remains competitive and transparently communicated within the organisation.

Annual salary adjustments of 3 to 4 percent pay increase are not to be a method of rewarding people for their performance. Those specific individuals and teams that have directly contributed to accomplishing key organisational priorities need to be clearly recognised and rewarded. You must reward performance with a quarterly bonus directly tied to the organisation’s and specific business unit’s success.

Transparent conversations about money can mitigate the perception of unfair pay. If you pay below the market average but communicate clearly about the reasons for this situation, it will lessen your people’s intention to leave. Same way, overpaying employees to encourage them to stay, without having this conversation, about how their pay was determined and how it compares to the market, will not ensure they are more satisfied. Don’t keep company compensation practices shrouded in secrecy… engaging and retaining people is all about open Communication and Trust!

• Read more: Ethical Pay in a Fair Society
• Read more: If Employee Motivation is Low… Then Read This!
• Read more: Creating a culture of ‘Respect and Trust’

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Disclaimer: The author is making this ‘Opinion Blog’ available in his personal effort to advance the understanding of best practices in workplace related matters. The author assumes no responsibility or liability for any errors or omissions in the content of this ‘Opinion Blog’ or for the results obtained from the use of the information provided. The information is provided on an ‘as is’ basis with no guarantees of completeness, accuracy, usefulness or timeliness and without any warranties of any kind whatsoever, express or implied. The views expressed are solely those of the author in his private capacity and do not in any way represent the views of any entity whatsoever with which the author has been, is now, or is to be affiliated in the future.