Offer Pay that Keeps Up with the Market to Avoid Bad Turnover

While not the only factor, fair pay reduces turnover risk.

We employ seasoned compensation analysts who cannot stress enough the importance of market-based pay to reduce costly turnover. With today's transparent job market, and laws making it more so, employees know what competitive salaries look like and will jump ship if they feel undervalued.

Perception is reality.  That is just a reality. If an employee perceives that their pay is low compared to the market or compared to their co-workers, then they will be unsatisfied with their place in the company. This might be the first bee in their turnover bonnet, so to speak.  It can make them start thinking about finding greener grass somewhere else. 

This can easily happen when employees stay with your company for a long time.  These days, a long time can be just a few years.  As salaries in the greater marketplace go up, newer hires - people hired behind that employee will just naturally come in at higher compensation levels.  Unfortunately, raises for incumbents rarely keep pace with the market for outside hires.  This is a vicious cycle and it can cause turnover of good employees.  Even as their institutional knowledge and the capital you build into them grows, their salary and total compensation sinks at a regressive rate.

It is important to keep up with a competitive and real-time, self-correcting compensation policy.  This can be difficult for managers or even busy internal human resources personnel.  A good human resources consulting firm or a compensation specialist can help you craft a compensation philosophy that can keep pace with key market trends and stomp out turnover.    

Here are our research-backed tips on getting compensation right:

Benchmark frequently - Conducting regular market pay analysis, at least annually, ensures your salaries don't stagnate versus industry averages. Tools like salary surveys and pay model algorithms accurately gauge market rate.

Segment carefully -

Break down pay analysis by role, experience level, geography, responsibilities, and skill set. A software engineer's market rate in San Francisco differs greatly from an accountant's in Omaha.

Weigh total rewards -

Beyond base salary, assess incentives, equity, benefits, and perks in your mix versus competitors. The total value proposition matters.

Address inequities -

If pay gaps are found for similar roles, fix them quickly. Nothing drives out high performers faster than the perception of internal inequity.

Communicate pay strategy -

Compensation doesn't have to be secretive. Explain the rationale behind pay bands so they feel fair and objective.  The dividends here will blow your mind as they pay you back in spades with employee loyalty.  Be honest about how and why decisions get made.

Customize as needed - While market rate should anchor decisions, customizing for specialized skills and credentials retains your unicorns.

Compensation only becomes a retention problem when handled reactively or arbitrarily. That is most of the companies we see!  A proactive focus on fair market pay based on analytics keeps valued talent invested in growing with your organization.

Fair pay tactics include:

  • Regularly benchmarking pay against industry standards
  • Adjusting compensation to meet changing market rates
  • Rewarding performance and results through bonuses
  • Providing clear promotion paths with pay increases
  • Ensuring pay parity internally for similar roles
  • Offering incentives like signing bonuses or stock options
  • Conducting salary audits to ensure equity across demographics
  • Transparently communicating compensation philosophy

Employees want pay transparency and equality around how pay decisions get made. They also want earnings potential through growth. Competitive compensation demonstrates value and fairness.

In my nearly thirty years in human resources and consulting, I have seen both sides of the debate proven true.  Many times, employees care much more about culture, or benefits, or challenge and opportunity.  My experience though, is that the large majority of cases come down to how much an employee takes home in their paycheck.

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