Employee retention is top of mind for many HR professionals as voluntary turnover remains unusually high. In the United States, the number of workers quitting their jobs has continued to rise, reaching a record high in September 2021.
While this trend requires a multi-faceted response, compensation is playing a significant role in this problem—and will need to be part of the solution.
Here are five compensation strategies that can help you combat high turnover and improve employee retention.
Better compensation and benefits is the top reason people are switching jobs, with 36 percent of workers saying they would consider leaving their jobs for this reason. And people in search of higher compensation may not have to go far to find it. Compensation is rising quickly across many industries and functions in response to talent shortages, inflation, and remote work.
This is a good time to update your salary bands to ensure they still align with your compensation strategy. Then adjust team member compensation to bring everyone in-band and ensure pay equity. Strategic pay adjustments can be expensive, but will still be more cost effective than replacing team members, which can cost an estimated 33 percent of the employee’s base pay.
But there’s a caveat: while compensation is a common reason employees leave, it’s rarely a reason they stay. Competitive compensation and regular raises are simply one part of a comprehensive employee retention plan.
Benefits are mentioned alongside compensation as a significant reason for turnover because they’re a crucial part of an appealing Total Rewards package. Offering desired and valuable benefits and perks can help you stay competitive in the talent market, even if your organization is not able to offer top of market compensation.
Take a thorough look at your Total Rewards package to identify opportunities for improvement, and ask your team members what they’d like to see. Many employers are increasing their investment in mental health benefits, mindfulness and meditation, on-demand fitness classes, stress management and resilience, and telemedicine.
Also consider benefits and perks that improve work-life balance, including remote work, flex hours, reduced work weeks, childcare, and senior care. Work-life balance is the top reason workers stay in their current roles, so focusing on this area can have a significant impact on employee retention.
Recognition is the second most common reason people would stay in their current roles. Yet only one in three workers in the U.S. strongly agree that they received recognition or praise for doing good work in the past seven days. And workers who don’t feel adequately recognized are twice as likely to say they'll quit in the next year.
Pair recognition with rewards during review cycles so your team members know they’re valued and appreciated for their contributions. While team members certainly appreciate the monetary award, they also appreciate public recognition, private recognition, and high performance evaluation scores.
Train managers to provide weekly recognition and praise, and to document that feedback in your performance management system. This can help enable more effective performance reviews and compensation cycles that aren’t affected by recency bias.
Pay transparency can help your team members trust that they’re being paid fairly, which can help with retention. In fact, 81 percent of workers say they’re more loyal to their employers when they’re paid fairly.
At a minimum, this means telling your team members why they earn what they do, and how they can earn more. Employers may also communicate their pay practices to help employees understand how their salaries are set. For example, they may share market data or salary ranges, or even openly publish every employee’s compensation. The specifics of what information is shared varies based on the organization’s values, culture, and team.
Train your managers around your organization’s compensation strategy and principles so they can also have meaningful conversations with their team members around compensation.
Career ladders are a useful tool to show team members how to progress to higher levels of pay, skill, responsibility, or authority at your organization. They should clearly define the job description, skills, work experience, and education needed to move up the ladder so there’s full transparency around what’s expected.
Then set goals and development plans with your team members to help them advance in their careers. This may include mentorship, stretch assignments, formal education, or online learning.
Offer promotions and corresponding compensation increases when reasonable, perhaps reviewing promotion eligibility during your regular review cycles. Three in four employees who receive promotions will stay with their company for at least three years, so this is a worthwhile retention strategy.
Great communication is essential for employee retention. Communicate your compensation strategy so your team members understand how decisions are made. Communicate about career ladders and development plans so your team members know what they can do to earn more. And communicate about raises and changes to your Total Rewards package so your team members can quantify them.
But you must also listen. Implement an open door policy so team members can request salary reviews, suggest new benefits, or share other ideas. Monitor employer review sites to identify trends and find opportunities for improvement. Send engagement and exit surveys, and conduct stay interviews, to ask specific questions related to turnover and retention.
Effective two-way communication will help you develop the most effective employee retention program for your unique team.