3 Tips For Setting Compensation And Retaining Employees

What pitfalls should an employer avoid when determining compensation for different employees?

(article originally from CareerBuilder US)

How are raises decided in your company? Does the compensation structure reflect employees’ talent? If you are not rewarding talent, people may quit, and in the current economy, replacing them will be hard. More specifically, in the tricky case of a merger and acquisition, you want to restructure pay so that employees are kept happy and motivated, despite the many changes they are facing.

So, what pitfalls should an employer avoid when determining compensation for different employees? Recent research by my colleagues Arin Dube, Laura Giuliano and Jonathan Leonard sheds light on what to do – and not to do – when it comes to setting compensation.

1. A HIGHER COMPENSATION INCREASES EMPLOYEE RETENTION

You may expect that a higher pay increases employee retention, and indeed, this is what the researchers found. So then, it would seem that increasing pay would help with retaining crucial employees. Yet, be mindful of how raises may affect the morale of other employees.

2. BEWARE OF THE UNFAIR RAISE

If raises are not based on any objective criterion and seem arbitrary, employees who do not get a raise are much more likely to quit. A seemingly unjustified 5 percent raise to an employee will double the quit rate of a no-raise employee in the same position.

3. WHEN IT COMES TO EMPLOYEE RETENTION, PAY RATES AT YOUR OWN COMPANY ARE MOST IMPORTANT

Will employees quit if you pay them less than the competition? It turns out that this is less important than paying them a fair wage compared to other employees in your company.

In a nutshell, to boost retention, it is important to make sure that your compensation structure is fair.