Employee Retention…and the #1 Reason People Leave

The good news is that most organizations communicate an optimist outlook about their expansion.  The bad news is those same businesses are concerned they won’t be able to retain and attract the employees they need to achieve that growth.  And guess what?  Inadequate compensation ranks as a primary reason employees are leaving for other opportunities. 

 Employee retention can be improved by taking a total rewards approach to your value proposition.

 All this is according to Payscale’s 2015 Compensation Best Practices Report. As an exclamation point, Payscale entitled its report: “Attack of the Out-of-Date Comp Plan.”  That study’s executive summary included some of the following conclusions:

Retention remains a top worry for the third year in a row, as employers feel challenged to keep top performers in an increasingly competitive talent market. Meanwhile, many employees quit their jobs and joined other companies in the pursuit of higher compensation. Finally, employers are struggling to fill positions—particularly for highly trained employees—as they cite a lack of qualified applicants. 

Even with these challenges, compensation management remains more of a black art than a science at most organizations. The CBPR found nearly a third of companies don’t regularly perform market and compensation analysis to understand the changing dynamics of their respective talent markets, many are dissatisfied with their data, and most do not train managers to have tough conversations with employees about compensation. The underlying tenet: companies need to become much more mindful about getting pay right if they expect to attract and retain the employees who are crucial to their business.

VisionLink’s 2015 anecdotal experience in working with private companies throughout the United States echoes those findings. All evidence suggests these trends will continue through next year as well.

 As it relates to Payscale’s claim that pay is the number one reason people leave their companies for other opportunities,  Entrepreneur Magazine made this observation:

With the economy and overall job market improving, employees are better positioned to demand higher wages and walk if they don't feel they are being fairly recognized or compensated. "It's not universally true across industries and geographies, but as the economy is expanding, employees do have a little more negotiating power," Low said [Tim Low, PayScale's senior vice president of marketing].

 As important as pay is, however, job satisfaction can be raised in other ways. For example, workers in health-care and education fields often report high levels of satisfaction even in lower-paying positions. "If people are leaving because of pay, dig deeper," said Mykkah Herner, director of professional services at PayScale... "Job meaning and an employee's sphere of influence within their organization are important, too."

 Misconception: Talking to employees about pay will incite a riot.

On the contrary, more pay transparency can help improve employer-employee relationships. And it may be better for companies to initiate the conversation rather than let workers simply hash things out on their own. "If you aren't talking with your employees about pay, chances are that they're talking to each other and creating their own story of what [the company's] compensation policy is," said [Aubrey Bach, senior manager of editorial marketing at PayScale]. "That's not a good thing."

But when companies have been more open about compensation policies, employees have responded well. In a PayScale survey of 71,000 employees, 82 percent reported that they were satisfied with their jobs, even if they were paid lower than average, if their employers clearly communicated why they offer smaller paychecks. “Basically, communication equals more loyal employees," said Bach.

 Therefore… What?

 So where does all this data leave us? If you lead a business, what conclusions should you draw about employee retention and pay's impact on your ability to attract and keep the talent you need?  As I look at 2016 in the context of Payscale’s report, here’s what I suggest:

  1. Have a clear (and written) pay philosophy. Define what value creation means in your business and with whom and how you will share it. Force yourself to articulate what the balance will be in your organization between guaranteed and variable compensation.  Determine how much of your value-sharing will occur for short-term versus sustained performance.  And so on.
  2. Communicate your pay philosophy to your employees. This is the message the Entrepreneur Magazine article is communicating. If employees understand the philosophy that undergirds their financial partnership with your company, they can either accept or reject it. If they reject the philosophy, they are not likely a good fit for your organization anyway.  If they accept it, the clarity about the “why” behind their compensation minimizes discussions about how much they are paid.  
  3. Focus more on how than how much you pay your people. Too many organizations use sites like Payscale, Salary.com or other data sources to determine what the right amount of compensation is for a certain position. Market pay studies are valuable, but they shouldn’t govern your overall approach to pay.  You should think about the combination of pay elements you offer—salary, benefits, bonus, long-term incentive plan, executive benefits, etc.—as asset classes in a compensation investment “portfolio.”  Your focus should be on which asset classes should be part of your mix and how much weight each should have based on the goals and outcomes your organization is trying to achieve.
  4. Adopt a Total Rewards approach. This means you shouldn’t place more weight on compensation than it is intended to carry in the value proposition you offer employees. Financial rewards are just one of four parts of a Total Rewards approach to attracting and retaining great talent.  Employees also seek a compelling future, a positive work environment and opportunities for personal and professional development. If you pay people well, but do not effectively address those other areas of your proposition, you’re not going to attract or retain the employees you want…nor will they perform at the level you need.

VisionLink’s Private Company Pay Plan Checklist provides a good framework for engineering a pay strategy that will help you both retain and attract great talent.  It offers both a practical template to follow as well as rationale for why this issue is so important.

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Also, to learn what performance principles should inform your compensation approach, tune into our upcoming webinar broadcast: "Performance-Based Pay that Actually Performs."

Upcoming Webinar: “Performance-Based Pay that Actually Performs” December 8th  Register Now!

 

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